Five Forces Driving the Price of Gold and Silver

Gold and silver, the timeless symbols of wealth and prosperity, have experienced a modest dip in value recently, with gold falling to $1,950 from its $2,000 level. However, this decline should not overshadow the remarkable gains these precious metals have made over the past few months.

Experts had anticipated this dip and predicted a period of turbulence before the $2,000 level could be firmly established. In this article, we will explore five reasons why the bullish case for gold and silver remains as strong as ever, providing insights into why these precious metals continue to be attractive...


Recessionary Woes

It's no secret that hiking cycles tend to be recessionary in nature. Given that the last cycle of this magnitude dates back to the 1970s, it is reasonable to expect another recession as a result of the Federal Reserve's actions. Analysts at JP Morgan have highlighted the growing prominence of a long recession theme in recent months, making gold a desirable asset during uncertain economic times.


Banking Crisis Worsens

The banking crisis may have faded into the background, but it is far from resolved. With over $600 billion in unrealised mark-to- market losses still lingering on banks' balance sheets, the crisis remains a looming threat. What sets the current situation apart from 2008 is the speed and magnitude of bank collapses. The collapses experienced in 2023 have surpassed those of 2008 in both scale and rapidity, causing investors to seek the safety of precious metals.


The Federal Reserve

The Federal Reserve plays a crucial role in determining the trajectory of gold prices. From the current standpoint, any action the Fed takes is likely to boost gold prices in some way. Whether it be money-printing that fuels inflation and increases the value of gold, or money-tightening that restricts credit, crushes banks, and triggers safe- haven buying, the Fed's actions are expected to drive gold prices higher.


Rising Gold Demand

In recent years, central banks have been buying gold at levels not seen since 1950. This surge in demand has overshadowed the global 5% year-on-year increase in coin and bar demand. The correlation between central banks favouring gold over their own currencies has not gone unnoticed. This trend is expected to persist, highlighting the enduring appeal of gold as a reliable store of value.


Disappointing Supply Picture

The current supply-demand dynamics suggest higher gold prices are on the horizon. Despite an 18% annual increase in demand and a modest 2% annual increase in production, last year's gold demand of 4,741 tons fell just short of the overall supply of 4,755 tons. Moreover, the silver market has experienced consecutive deficits, with the Silver Institute predicting the possibility of the most significant deficit on record.


Final Thoughts...

The upward trajectory of gold and silver prices is supported by multiple factors, that collectively contribute to the bullish case for these precious metals. As such, buyers have reason to remain optimistic about the prospects of gold and silver, which are likely to continue their steady climb throughout the year.