What Is Causing The Rise In Gold And Silver Prices?
There are numerous elements in play which are contributing to demand for gold and silver growing and thus forcing the price higher. In this article we will look at some of these and how they are affecting the price of the most popular of precious metals - gold and silver.
The weak dollar and global economy
The dollar is generally viewed as the World's reserve currency. However, the dollar is under huge downwards pressure as lower interest rates persist and the US government's monumental economic support package, which was instigated following the "Great Recession", pumps more money into the system; driving down the dollar's worth in the process.
A higher gold value is indicative that all is not well with the global economy. The investors who would typically have invested in the greenback during troubled times are instead searching for other areas to commit their funds whilst potentially gaining higher returns.
Hedge funds investing aggressively in precious metals
A great amount of the investing into gold and silver is arriving from institutions, including the major hedge funds, who need to diversify their holdings. In the current climate, where banks are extending really low rates of interest, gold and silver becomes far more attractive as an investment opportunity for the hedge funds and other large investment groups. This article, from the Guardian, gives an insight into two opposing viewpoints on potential future pricing of gold from Billionaire traders George Soros and John Paulson.
Some countries including India have a long standing culture where the purchasing of gold for investment purposes is, to a greater extent, more popular. As prices continue to rise the inclination is to buy quickly and therefore the price rises higher still.
Silver in industry
Electric power is essential for global industry and much of its distribution hinges upon silver contacts in circuits and switches. This silver is mixed with other refractory metals to provide the necessary functionality. As supply is taken up by investors then industry needs to pay more and will often hedge against future rises by buying "futures contracts".