Gold and silver price actions have been the opposite of dramatic for months now, they have been boring. In the last 100 days, gold has moved sideways in the US$100 range between $1725 and $1825.
Silver had a similar experience moving in a US$5 range between $21.50 and $26.50. These ranges are quite small when compared to exciting moves in Tesla shares and cryptocurrencies such as Shiba!
Some people think that being boring this year means we should not own the precious metals at all because it means missing out on exciting things happening everywhere else.
However, this week we’re going back to basics for a refresher about why humanity loves silver and gold, doing so for thousands of years.
The Science Behind Gold
The facets of science that make precious metals valuable, and well – precious; are things that neither bitcoin nor Tesla shares can compete with.
So, we’re going to talk about the science of where gold comes from. And no, we are not talking about mining companies!
We love gold because it comes from stars. Literally, gold is only made in the explosion of massive stars colliding with one another (aka, the “Big Bang Theory”), Read more on the topic.
Only something epically dramatic and powerful like neutron star collision explosions could create the energy required to inject extra neutrons into heavy elements which make the element even heavier and change it from something like iron into gold.
These explosions also spread and scatter the newly formed gold atoms across the universe.
Before becoming gold, the iron was already stable and heavy, after becoming gold it is chemically perfect such that it doesn’t need to react with any other element, the ultimate leveling up!
Copper needs oxygen which is why it rusts into a green colour. Gold needs nothing and is chemically inert. This inertness is why gold is loved, it is permanent, its shine is permanent.
Why We Still Love Gold
Gold found under Stonehenge which had been formed into a dagger over 4,000 years ago. It turns out that the gold of that dagger came from mines in Ireland.
Gold is unique for another reason. You can divide gold over and over again into smaller and smaller pieces but none of those pieces are valued any less than a larger piece on a per weight basis.
Yes, this sounds complicated but think about the largest diamond you’ve ever seen, now if we cut that large diamond into five smaller diamonds does the price of the five smaller diamonds still add up to the price of that one large diamond?
No, it does not. Larger diamonds are worth far more than small diamonds. But with gold and silver, they can be divided into smaller and smaller items without becoming cheaper per ounce.
This is why gold and silver have been used as currency for thousands of years while diamonds are not used as currency by any country. No one wants a currency that loses value when you try to make a change!
Gold is rare on earth for three main reasons:
- The explosions of stars that created gold and seeded the universe with gold atoms are very rare. Those explosions predated our solar system and are not likely to repeat, thus the amount of gold in our solar system is fixed.
- Gold is a heavy element and so the gold that is inside the planet tends to be deep into the core. It’s far deeper than we can easily find and mine and bring to the surface.
- This means only in very rare places where gold happens to exist near the surface in large enough concentrations can anyone build a mine and profitably pull it out of the ground. The figure below shows just how little gold there is on the earth’s crust compared to other elements. All the gold ever mined would fit into two Olympic swimming pools.
So, what would you pay to own the only thing in the universe that is permanent? Because that is what you’re buying when you buy gold!
Although it might not be exciting bitcoin, gold and silver have stood the test of time and value. In comparison, you will have a really hard time leaving your Bitcoin to your grandchild.
This means that being boring is part of what gold is supposed to do, the price grinds higher over the years but does not need crazy volatile excitement to prove itself or to draw a crowd of investors.
From The Trading Desk
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Gold prices have eased slightly Wednesday morning on the back of a stronger dollar and slightly lower bond yields as we wait for the Fed announcement later today.
The Fed kicked off its 2-day meeting on Tuesday with an announcement expected Wednesday by Fed Chairman Powell giving more detail on the central bank’s plan for monetary policy.
The market is expecting the Fed will announce a reduction to its $120 Billion per month bond purchases, with an expected reduction of $15 billion per month bringing an end to the tapering which started in March 2020.
We will also have key US job data out later this week with nonfarm payrolls due this Friday.
The Bank of England meets this week on the 4th of November.
The Governor of the BOE has recently openly raised concerns regarding inflation.
Central banks have come under mounting pressure to cool rising prices amid continued inflationary pressures.
The market here is pricing in a 15bp rise in interest rates.
GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)
02-11-2021 1791.50 1790.45 1313.71 1314.01 1545.71 1544.44
01-11-2021 1786.55 1793.80 1308.11 1311.09 1544.12 1548.77
29-10-2021 1796.30 1769.15 1304.47 1287.23 1542.12 1524.12
28-10-2021 1798.20 1803.50 1308.55 1308.26 1552.57 1546.86
27-10-2021 1783.85 1795.25 1299.89 1306.22 1539.64 1545.53
26-10-2021 1801.90 1785.55 1306.20 1294.17 1551.80 1538.61
25-10-2021 1799.20 1805.25 1308.38 1312.60 1547.13 1555.04
22-10-2021 1792.30 1808.25 1298.16 1311.52 1540.48 1552.74
21-10-2021 1785.30 1779.30 1294.16 1288.39 1533.57 1528.42
20-10-2021 1778.15 1778.00 1291.29 1289.76 1529.74 1526.77
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