Precious Metal Market Milestones: What's Behind the Rising Prices?

The price of precious metals began a sharp move up in November 2005. The metal that seems to be most talked about right now is gold, which closed on December 12 at $536.50 a troy ounce, the highest price in 22 years, and was $502.50 at press time on December 20th. Why the spike? One reason is increased demand from investors who fear rising inflation and want to diversify their portfolios; using gold has historically been seen as a hedge against inflation in uncertain geopolitical times. The September 11, 2001 terrorist attacks renewed this notion of gold as an investment haven during turmoil.

Other reasons include increased industrial usage and demand from developing nations. In China, for instance, gold has been part of the culture and tradition for 5,000 years and is still regarded as a regal tangible asset. China has recently liberalized gold ownership after gold hoarding was forbidden in 1949; now it's more accessible and, since 2003, some banks...