Why have the prices of gold and silver risen so much recently?
Gold and silver were always described as a safe and stable investment. It is caused by its historical status, esthetical appearance and no other cheap subsidies. Their high reputation has started when people begun using gold coins and jewellery and its popularity has never stopped. Traditionally, investors turn to these precious metals at times of uncertainty and rising prices. Recently, weaker dollar, inflation and conflicts in the Middle East and North Africa caused their prices to rise high. As gold is priced in dollars, any fall in this currency means it becomes cheaper for investors using other currencies to buy it. The prospect of low interest rates in the US is driving investors seeking higher returns towards gold. Another factor of the rise of gold is its use in jewelry, particularly in India. According the World Gold Council, Asian consumers accounted for a full 51% of total jewellery and investment demand in 2010. Silver, on the other hand, is often used in industry, particularly in electronics. Higher demand of these limited goods causes their prices to raise.
Why has silver risen more than gold?
The main reason of silver prices increasing more than gold is its wide use in industry. After the financial crisis and during the global recovery demand for silver in industry rose by 21% last year.
Why may higher rates of world inflation make investors turn to precious metals for investment?
Gold is considered as an ‘inflation hedge’, because if inflation goes up the gold prices usually also increase. On the other hand, as soon as interest rates rise, the cost of betting on gold will rise and speculators will probably pull their money out of the market and gold prices will fall.
How are future decisions by the Fed likely to affect the price of gold?
As the Fed keeps inflation down, the price of gold will continue to rise. As soon as the economy recovers, the price of gold will start to go down as investors will start to move from the safe-haven to more risky investments such as stocks.
That's what I think.
MANU
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