Why have Gold and Silver Gone Up in Price?
An article by Jon Clarke
It’s been a stellar week for precious metals so far, with gold smashing through its previous record price in pounds sterling and silver briefly breaking through the £18 per troy ounce mark. Since Monday, silver has risen by approximately 16.3%, with gold increasing by a more modest 3.31%.
Investors Seek Refuge
The uncertainty surrounding the economy has led many investors to seek security in precious metals as government bonds (gilts) and loose monetary policies offer little protection against the threat of future inflation.
A recently approved bailout by the European Union of €750 billion (£677 billion), which will come in the form of grants and loans, has recently been agreed in order to rebuild the hardest hit economies in continental Europe. Rather worryingly, all of this bailout money is set to be borrowed, which offers little in the way of optimism as it is likely to push already indebted countries into further financial hardship.
Similarly, the Federal Reserve has promised $2.6 trillion in support across a range of asset classes such as corporate bonds and ETFs, as a way of shoring up the American financial sector. Doubling down on their efforts to prevent a massive asset deflation, the Fed has increased its balance sheet to over 35% from its 2015 peak. As a result, the Fed’s balance sheet is now an eye-watering seven trillion dollars.
While 2- and 5-year gilt rates offering negative returns, even 10- and 30-year bonds still offer little in the way of confidence with yields close to zero. When adjusted for inflation, these sovereign bonds offer a real-terms loss on their investment. Is it any wonder then that gold and silver are doing so well?
Gold Nears Record Price, Silver Breaks Out
Much of the confidence for investors lies in silver and gold, as can be seen in its recent performances. Gold in particular serves as an incredibly reliable asset, especially in downturns such as the one we are currently in. Gold is currently priced at £1,490.38 ($1,902.20) per troy ounce, which is within touching distance of the US dollar record set in September 2011. Silver is sitting at £17.89 ($22.84) per troy ounce, breaking out of its price range it had been sitting on since late May.
As investors seek to increase their holdings, and new investors enter the market, the prices of gold and silver could very well be pushed higher. Are the grand predictions and forecasts on the future movements on both precious metals about to come true? Watch this space.
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