Expected Inflation for Precious Metal Commodities

The U.S. News article discusses the importance of commodities in a market. Commodities are typically raw materials that are sold and that have no substitute, which makes its demand somewhat inelastic. Particularly mentioned in this article is the precious metal commodities. Interest rates are low for gold and silver due to the expectations of higher prices in the future. These expectations are an example of a demand curve shifter, due to the expected higher future price, the demand is high for these precious metals. Also, factoring into the demand of these precious metals is the lower opportunity cost that comes with low interest. When the opportunity cost for a commodity is low, the likelihood of it being purchased is higher and the consumer’s willingness to pay is higher, which leaves room for a greater consumer surplus. Gold is considered to¬† be a valuable investment due to the looming inflation that is on the horizon for similar precious metals. However, raw commodities such as these have more value for traders rather than for investors.

http://money.usnews.com/investing/articles/2016-08-19/how-to-hedge-against-inflation-with-commodities

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