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Gold and Silver Prices a Reflection of Demand

Despite the newest economic indications emerging now, investment demand has been extremely low in gold and silver compared to recent historical trends, with gold and silver prices reflecting that demand. With the fiscal stimulus that has been pumped into the United States economy, you would hope the Federal Reserve was buying something, but the relatively tepid economic data that has been aggrandized into major market advances over the past 6 to 8 weeks is very little bang for the trillion bucks.

Any good economic news is good news to most investors who are trying to grapple with and make sense of the current market. As such, much of the safe-haven demand that has been a strong driver of the gold market for the past years has abated during this time. As well, there is a great deal of panic buying in the gold market at specific times in the global economy. When there is a major disruption or eruption in the financial network, such as the fallout in Greece, investors flee to the gold market in a relatively unpredictable fashion.

Both silver and gold benefit in these scenarios, with prices rapidly increasing. In the past 2 to 5 years, we have been seeing substantially more of that dynamic in the precious metals markets, and perhaps to an extent we have come to count on it too much as analysts and investors. The world is not in a constant state of frenzied crisis, even with the market as it currently is.

That does not change, however, the fundamentals that drove the gold and silver market to its recent highs. Gold hit an all-time nominal high of $1,923 in September of 2011 and silver at $49.51 an ounce one year ago in April of 2011. The recent April jobs report that added only 119,000 jobs to the payroll instead of the anticipated 170,000 is the latest indication that the recovery is not nearly as fundamentally strong or wide reaching as some investors would have hoped.

Logically, we would expect buyer demand and safe-have buying to resume its recent rate and volume as the actual US economic data comes to the light of day. This is unquantifiable at this point, however, as the only thing that appears logical in the market state of confusion. Gold and silver prices have no fundamental reason to be at their current relatively low level besides low investor demand.

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