Why are the Prices of Gold and Silver Rising?
Since the beginning of the late 20th century, the demand for gold and silver as an investment asset has increased. It is because the interest rates earned on paper-based investments were fairly lower than the profits earned by investing in gold. In the current times, when there are financial and economic crises going on in different parts of the world, investing in gold and silver becomes a safe option for investors. Besides such uncertain factors, there are some other day-to-day factors that contribute towards increasing the prices of gold and silver every day.
Factors Affecting the Gold and Silver Prices
Check out these crucial things that lead to such an enormous rise in gold and silver prices.
Rate of Interest
The rates of interest on cash vary inversely in relation to the prices of gold and silver. When the interest rates are high, people tend to obtain cash by selling gold and getting high-interest rates on the cash. This leads to a decline in the prices of gold and silver. On the other hand, if the interest rates are low, as is the case with the current economy, the gold and silver prices are bound to rise.
Supply and Demand
The mining of gold and silver is not as much when compared with the mining of other metals. Also, being precious metals, gold and silver are always preserved with great care and are present in the world. Therefore, if the demand for gold and silver increases considerably when compared with the supply, the prices of gold and silver will increase.
Changes in the Value of the Currency
Whenever investors are afraid of fluctuations in the value of the currency, they switch to gold and silver as investment assets. So when there is even a slight likelihood of changes in the value of US Dollars or Indian Rupees, the prices of gold and silver will change.
Inflation rates are likely to take a considerable toll on the investment portfolios. So when there is even slight inflation, the value of paper erodes whereas gold and silver, on the other hand, give investors a hedge against inflation.
Central banks around the world hold some gold and silver reserves. When they stop trading and begin holding these precious metals, the prices of gold and silver go up because of less supply and increased flow of cash in the market.
Why are the Prices of Gold and Silver Rising?
In the last two years, there have been considerable changes in the economic and geopolitical scenarios of the world. On one hand, countries were dealing with a worldwide pandemic and a large number of people becoming unemployed. On the other hand, there were investors fearing the fluctuations in the currencies and looking for safe havens to put their money in. But why has there been an exponential increase in the price of gold and silver? Let’s take a look.
The Arrival of New Covid Strains
The introduction of new Covid variants is raising concerns of national governments regarding the possible economic slowdown. In the international precious metals market, the yellow metal was trading at a high rate of $1,793 per ounce. Even after almost two years of entering into the pandemic phase, there are still some uncertainties regarding trading.
Increased Import of Gold and Silver
Over the period of April to December, there is increased import of gold and silver because of the increasing demand in countries like India. As the countries are importing higher amounts of gold and silver in their countries, the prices of gold and silver are increasing because of higher import duties on the metals.
Increased Inflation Rates
The rise in the inflation rates from the United States and China are pushing investors towards investing in gold and silver to hedge against the fearful inflation rates. This is leading to increased interest rates which are further pushing governments to start holding their gold reserves. On January 17, 2022, the inflation rates were recorded above 2%. Such rates negatively affect the employment scene of the countries. This is being seen as a possible threat to the economies leading to increased prices of gold and silver.
Increased Value of Dollar
The price of the dollar has hit the highest record in the last 15 months. As a consequence, the prices of gold and silver are increasing, especially in developing countries like India where there is a striking contrast between the price of native currency and the US Dollar.
Surging Demand for Silver
In 2021, the Silver Institute reported that the demand for silver as an investment asset has never been higher. As the stock markets crashed during the pandemic, the investors began switching over to gold and silver for investing because it is a safe option. Since that time, the demand for silver and gold for investments has been growing, leading to the rising prices of gold and silver.
Rising Geopolitical Concerns
Considered as a safe investment asset, the prices of gold and silver are rising on account of various tensions going on around the world. For example, Russia is massing its troops along the Ukrainian border and reinforcing ships and fighter planes in Eastern Europe, indicating a possible war coming in the way. If this happens, the inflation rates may skyrocket. Keeping this in mind, the investors are putting their money in gold and silver, leading to increased demand and hence, higher prices.
All these are the driving factors for increasing prices of gold and silver. Also, they are still expected to rise as more people are becoming aware of the various ways in which they can buy gold and silver, one of them being digital gold and silver. This is likely to further increase the demand for gold and silver as investment assets and so the price rise.