On the Efficiency of the Markets for Gold and Silver

Abstract

Gold and silver have wide-ranging utility, from their use in art and jewelry to their use in the production of electronic equipment. The holding of gold and silver has always been considered a great treasure. Within the last decade a new use has developed for these metals: Individual investors and portfolio managers have recently begun to view them as possible investment assets. This paper examines the workings of the gold and silver markets from the investor's point of view. The prices of goods are important in their allocation among competing uses, and the same is true for gold and silver. Investors use the prices of the metals in making buy-and-sell decisions; however, the price changes for gold and silver permit these markets to be analyzed. Current theory maintains that market-determined changes in price-of-investment assets result from a changing set of information and that, given a competitive market system, the price changes tend to move the markets toward equilibrium. This is the essence of the efficient-markets theory. The purpose of this paper is to analyze the price changes for gold and silver to establish if the efficient-markets theory can be applied to the markets for these metals. This paper is divided into four sections and a conclusion. The relationship between the gold and silver markets and market efficiency is ex-

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