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Gold and silver continue to retreat from record highs

Gold prices not likely to recover to 2011 levels anytime soon

Gold price has depreciated significantly from its all-time high of $1,920.80 per ounce it reached in September 2011 to around $1,180 per ounce currently. The main catalyst for the fall has been the US Fed’s tapering of its quantitative easing program, which is what drove prices to their record high in the first place. Gold price tends to rally when central banks expand their monetary base. But recently announced quantitative easing programs from the European Central Bank and the Bank of Japan have failed to have the same effect on prices as the Fed’s QE. Recent developments such as an Indian ban on gold imports and depreciation of the Turkish lira have reduced demand from two major consumers. A slowdown in China, the world’s biggest consumer has also hurt demand. But the main impact has come from expectations that the US Fed will soon raise interest rates, which has pushed up the dollar and made gold costlier for holders of other currencies. One factor that has provided some support to the price of gold is the ongoing uncertainty over the debt negotiations with Greece.


Silver in demand but any price increases to be limited

Like gold, the liquidity boost provided by the Fed’s quantitative easing program boosted the price of silver to a record high of $49.81 per ounce in April 2011. Silver tends to move in tandem with gold but silver prices have tumbled much more sharply to around $16 per ounce currently. The price of silver is set in the futures market and the price dynamics determining prices are too complex to interpret. But as the demand for silver is on the up due to its usage in electrical components and in various industrial components such as solar panels, the supply of physical silver is expected to shrink. Demand for silver coins is also on the up, in contrast to gold coins, which has been falling. Lower prices in recent years has also boosted the demand for jewelry and silverware but it has also had a negative impact on mining production. Supply is further constrained by the fall in copper prices, since silver is a by-product of zinc and copper mining. The increase in demand and supply limitations should lead to a recovery in silver prices in 2016. If the Fed embarks on a more limited rate-hike campaign, this could also help silver.

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