Silver continues to sprint toward to its 1980 high of more than $50
an ounce while gold has expanded on its record, breaking the $1,500 an
The rapid rise in precious metals in the past year has led some
hobbyists to question how much higher prices can climb before they recede.
On April 20, gold closed at $1,503 an ounce after reaching a high
of $1,507.10 during the day’s trading in New York. Silver closed at
$45.25 an ounce after trading at $45.43 in New York. The prices
reflect that more investors seem to be banking on precious metals as a
safe haven investment in times of fluctuating national currencies.
For comparison, on April 20, 2001, gold was trading at $264 an
ounce while silver was at $4.43. Five years ago, on April 20, 2006,
gold was at $623.50 an ounce while silver had leaped to $12.19. Just
one year ago, on April 20, 2010, gold was at $1,144.75 an ounce and
silver had reached $17.89.
The rise in the price of gold has been steady, while silver’s jump
has been incredibly steep, rising more than 250 percent in value in
the past year. The ratio of gold to silver — the number of ounces of
silver needed to buy one ounce of gold — fell to 34, a level not seen
Concerns in U.S. and globally
Commodities continue to experience strong demand with many
commodities seeing multi-year highs, including crude oil, which is
currently trading above $110 a barrel. Some look at rising commodity
prices as a lead indicator of future inflation or a weakening of the
purchasing power of the dollar.
Concern about inflation continues be at the forefront of
investors’ minds, and the U.S. dollar index has recently seen one-year
lows. An unexpected April 19 announcement that Standard & Poors
rating agency would downgrade the U.S. government’s debt from stable
to negative made the U.S. dollar appear to be a less-safe place to
hold wealth. With the weakening dollar, the euro reached a 15-month
high against the dollar April 20.
Globally, several European countries including Greece, Ireland,
Portugal and Spain continue to have troubles managing their debt, and
there is continued worry that unrest in the Middle East and North
Africa will disrupt the global oil supply.
Will it move up or down?
While gold production has increased in the past year according to
GFMS, a precious metals research consultancy that produces supply and
demand data on the gold market, demand has far outpaced supply in the
past year. Additionally, the supply of scrap gold has dwindled as
eager sellers have already sold and those without any urgency to sell
and investors are holding on to their gold in anticipation of even
At the start of the year, GFMS predicted that gold could rise
above $1,600 by the end of 2011, and 24 analysts polled by the London
Bullion Market Association predicted a peak of $1,632 this year.
Yet, not everyone is so bullish. Morningstar, an independent
investment research firm that analyzes markets, noted in an April 20
report, “Tailwinds ultimately turn into headwinds.” The report
suggested that bullion-backed Exchange Traded Funds, growing retail
demand from emerging markets and central banks switching from being
net sellers to net buyers of gold are all not enough to maintain
sustained interest in gold at the $1,500 level.
The largest silver ETF, iShares Silver Trust, holds $16.27 billion
in silver as of April 20, and has enjoyed a 46.19 percent year-to-date
gain and a 152.41 percent gain for the past 12 months. The SPDR Gold
Trust is even larger, with $58.79 billion in gold, though its returns
of 5.61 percent for the year to date and 31.44 percent for the past 12
months are more modest.
On April 7, Morningstar issued a report with a long-term gold
price forecast of $1,100 an ounce. ■