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Reasons for the increase in the gold price or silver price since 2001

Rising demand for precious metals

Investment and - boosted by expanding demand from the emerging markets and new applications - industrial demand increased significantly at the turn of the millennium.

High capacity utilization at precious metal mines

Rising demand resulted in high capacity utilization, especially as precious metal mines reduced some of their capacities as a result of low precious metal prices in the 1980s and 1990s.

Increased mining costs

Despite improved extraction technologies, extraction costs increased due to rising investment costs and energy prices as well as declining mineralization grades of precious metal deposits.

Central Bank Gold Agreement

This limited gold sales and lending by central banks in 1999. This restricted the supply of gold, increased gold lending rates and reduced its advance sales.

Destabilization of the world financial and monetary system

At the turn of the millennium, debt and monetary expansion exacerbated the loss of confidence in paper currencies and brought the currency function of precious metals back into focus.

Pegging the yuan to the U.S. dollar

China has ensured its competitiveness by keeping the exchange rate of the yuan stable against the US-$ through dollar purchases since 2001. This increases the de facto dollar supply and depresses long-term U.S. interest rates.

Low interest rates

Interest rates have been at persistently low levels since the turn of the millennium. Low interest rates reduce the profitability of alternative investments, which lowers the opportunity cost of precious metals investments.

Reasons for further increases in precious metal prices

Predicting price developments on the precious metals markets is naturally fraught with uncertainty. However, there is much to suggest that precious metal prices will continue to rise significantly in the coming years. Various factors suggesting this have already been discussed, three of which are highlighted here:

Finite nature of mineable underground resources

The finite nature of mineable underground resources of gold and silver is still largely ignored by the markets. In the coming years, however, the increasing depletion of economically mineable precious metal deposits is likely to come increasingly into their focus. New discoveries are becoming rarer, and average mineralization grades are falling. Particularly with regard to silver, major new discoveries are questionable due to the proximity of the deposits to the surface.

Loss of confidence in the paper money system

Official inflation measurements do not adequately reflect actual inflation. The more market participants become aware of this, the more confidence in the paper money system is likely to wane. The most important world currencies have already depreciated significantly against gold and silver since the turn of the millennium. Together with increased investment demand and the discussion about a new precious metal-backed world reserve currency, this is an indication that precious metals are once again being seen as having a monetary function. The financial market crisis of 2008/2009 and the sovereign debt crisis of 2011/2012 have significantly accelerated this trend. Numerous emerging countries are in the process of shifting parts of their currency reserves into precious metals. in 2010 and 2011, global gold purchases by central banks exceeded their gold sales for the first time.

Capital reallocations

In the future, physical assets in particular will be in demand as a capital investment. Precious metals have the advantage over land or real estate holdings of being mobile, homogeneous, divisible and indestructible tangible assets whose prices are determined daily on the stock exchange and which can be traded at any time. Investment funds are therefore likely to increasingly enter the precious metals markets in the coming years and new ETFs will be launched.


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This article was written by Dr. Jochen Dehio - author of the book"Gold oder Silber - wem gehört die Zukunft?

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