Tuesday homework:

1) Why have the prices of gold and silver risen so much recently?

Mainly due to the weakness of the US currency, the Dollar. The US trade the precious metal reached a record of $1,569.30 an ounce, which is a new record. The same factor has an impact on the silver prices, which have recently reached a level of about 47$.

2) Why has silver risen more than gold?

Whereas gold is mainly used for the jewelery, silver's rally has been driven by its use in industry, particularly in electronics. The demand for silver increased significantly (21% last year) and, therefore, its price incrased more.

3) Why may higher rates of world inflation make investors turn to precious metals for investment?

Because the precious metals are considered to be a hedge against inflation. That is because these are the real assets. There is a bit of history in that:

Historically, gold and money have been pretty much synonymous so pure Gold was immune to inflation. But that didn't stop currency inflation. In the early days kings discovered that they could "extend" their money supply by adding just a bit of lead to the melting pot. Unfortunately, as the percentage of lead increased the value of the coins decreased causing the first cases of inflation. (And also creating the habit of biting coins to see how soft they were and thus how much lead they contained).

So, in general terms, we can name the gold a "the essence of the money".

4) How are future decisions by the Fed likely to affect the price of gold?

Prices of gold respond the inflation, so if the FED increases the interest rates, the gold will cost less.

5) According to the efficient capital markets theory (strong version), the current price of a commodity should already reflect all knowable factors that are likely to affect the price? Does this mean that speculative buying (or selling) is pointless?

No, because they can speculate on the future events (so far noone can confidently predict the future) . For example, on the situation in the Middle East, which effects the oild prices. The real hard-core speculants may also try to pretend to have some info, which noone other does, and spread the rumours among the investors.