The Rise Of Gold And Silver Prices

Why are Gold and Silver prices rising?

There are many factors contributing to increased demand for silver and gold rising and therefore pushing prices higher. This article looks at some of these factors and how they affect precious metal prices.

The value of the greenback is falling

The US dollar is often seen as the reserve currency of the world. The US dollar is, however, under major selling pressure as low interest rates are in play and the FED has deployed the massive economic support package which has devalued the dollar.

World Economy

It is widely accepted that high gold value is indicative of troubles with the global economy. Speculators who have historically invested in the dollar are instead looking for other areas to invest their funds and gain higher returns on the outlay.

Institutional investors and funds

A large proportion of the investing in gold and silver is coming from institutions including the massive funds that have to diversify their holding of different instruments. Gold and silver is a more worthwhile investment opportunity for the hedge funds and other large investment groups as interest rates are historically low.

Jewellery

Many countries including India have a culture which embraces the purchase of gold for investment purposes. As gold prices rise the perceived reaction is to buy as quickly as possible and therefore the price rises higher. Basic supply and demand.

Industrial silver usage

Global industry needs electricity and much of this is distributed through silver contacts in circuits and switches. Industrial silver is used with other refractory metals to provision the required functionality. When silver supply is taken bought up by investors then industry has to pay a premium and will then hedge against future rises by buying "futures contracts". This pushes price higher.

Is the strong gold and silver trend going to end?

Speculators have purchased precious metals to diversify in the face of inflationary pressures and geopolitical upheaval.

Gold has doubled in price since the year 2000. Gold and silver prices have moved to great new heights, driven by the aforementioned declining greenback scenario and major political unrest in the Middle Eastern area.

If the above factors continue to play out then a significant longer term fall in the prices of Gold and Silver does not seem to be the likely outcome. A change to current conditions could conversely cause the bubble to burst as is always the risk with any one sided market.

Nick can be found writing at his blog where he covers gold and silver analysis.