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Updated 03:48 CEST 23/09/21

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Gold at $1,900 per ounce as inflation fears rise


2 Jun 2021, 12:36 p.m. Michael Pinson

Gold and silver have both seen steady gains for several weeks now, in a strong rally for precious metals. The gains come as investors turn to safe havens to protect their wealth in what appears to be an increasingly inflationary market.

Gold has been making gains each week now since the end of March, when it hit a low of €1,412.09 per ounce. It has risen by an impressive €146.34 to a peak of €1,567.24 per ounce in trading yesterday, and is up by more than 8% in the past three months.

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Silver meanwhile has also seen a positive trend in the same period, but has struggled to maintain the same level of momentum as gold. Silver has risen from a low of €20.32 per ounce at the end of March, to a peak of €23.64 a fortnight ago, and is up over 4% in the past three months.

Markets in the past few months have bounced between positivity over the rollout of vaccinations programs, and the ending of Covid-19 restrictions in the US, UK, and parts of the EU, with negativity over the potential for inflation in the months and years ahead.

Stock markets have continued their disconnect from the real-world economy, pushing them to further records, while companies enjoy the money-printing and stimulus of central banks and governments.

Inflation however is also rising, both in official figures, and the real-world. Prices for key commodities and materials like lumber, oil, iron, and copper have all risen significantly. Manufacturers are increasingly reporting supply shortages as demand rises and supply struggles to keep up further adding to pricing difficulties. Rising production costs will eventually be passed down to consumers leading to further inflation.

Central banks and some analysts argue that the inflationary pressure is simply a natural response to last years deflationary pressure during lockdown, and will be transitory; rising for a few months before settling back down. Others however argue that inflation is not transitory, but is a systemic problem of the trillions of money being printed to keep economies afloat in 2020, and will continue to rise to problematic levels.

Inflation results will be a key driver for the price moving forward, another will be the strength of the US Dollar. Low interest rates have weakened the Dollar for the past few months, with the US Dollar index hitting a 4.5-month low last week.

Crypto assets like Bitcoin have also suffered in recent weeks, pulling back from April’s record highs. Bitcoin lost over 50% of its value before recovering slightly, but is still down more than 35% in the past month. The mini crash in price for cryptos has prompted many investors to revaluate the safety of such an asset and have turned back to more traditional assets like physical metals as a result further increasing demand.

The combination of all these factors has helped push gold and silver up consistently despite the strength of the stock market and other factors that would normally put pressure on precious metals. Markets will likely remain in ‘wait and see’ mode in the short term as more data is released on inflation to determine whether it is transitory or not. The gains of the past three months however show there is still significant demand for gold and silver, and leave both poised for further gains if inflation does become problematic.

Silver remains some way off its 2011 peak, leaving plenty of room for further gains in the months ahead. Gold however is well on its way to the all-time high set in August 2020, and if the current rally does continue at its current pace, then a new all-time high for gold could be seen in 2021.

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