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Oct 25, 2012 6:49 am

We all know that gold and silver prices fluctuate, but why? What are the deciding factors in how much an ounce is worth?

Gold and silver prices frequently rise and fall together. Prices can change daily.  War, political unrest and country deficits can all have an effect on the price of gold and silver.

What Role Does Silver Play in the Price of Gold?

Silver is notoriously volatile, even when compared to gold. There’s a lower market liquidity, which means the sale of silver affects the price of the silver itself. It often tracks the price of gold, but the ratio can vary. In 1792, the gold to silver ratio was fixed by law in the US at a 15:1 ratio.

But during the 20th century, the average gold to silver ratio was 47:1. The price of silver is driven largely by supply and demand and of course, speculation. The ratio is often analyzed by traders, investors and buyers, and the price fluctuates from there. The silver market is much smaller than the gold market, so a large trader or investor can influence the price of silver single-handedly.

Silver fell to an all time low of 24 cents in December of 1932 during the Depression, and reached its high in 1980 at $50.35 per troy ounce.

What Specifically Drives the Price of Gold?

Gold is a different story. It has a larger market, so large investors don’t make the same waves that investors in the silver market do.  It’s been the relative standard for currency until recent times. The last currency to be divorced from gold was the Swiss Franc in 2000.

The price of gold is driven by supply and demand and speculation, like most commodities, but saving and disposal plays a larger role in the price of gold rather than its consumption. The gold reserves in the central banks and International Monetary Fund play a role in the price of gold as well. It’s interesting to note that the price of gold is also reflected in the interest rates of the time. It is common for the gold price to rise and fall with interest rates.

Gold passed its all time high of $1,900 per ounce in 2011, topping out at $1,921 per ounce, and have been as low as $252.80 in 1999.

Summary on What Affects the Price of Gold

Clearly the gold and silver market is one that constantly changes, so buyers and sellers need to research when selling or making purchases. The price of gold and silver fluctuates daily, so be sure you know what today’s price of gold is before you sell!

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