Silver Price

Silver price: what does it depend on?

By its classification as a precious commodity, it’s valued both as a store of value and currency. The demand for this beautiful piece of white metal is always on the high, as a result of its unique characteristics, immense industrial use and relative scarcity and the resultant effect is price increase. Many savvy investors hold silver, just like gold, as measure of “safe landing” during the time of economic crisis. It’s largely depend on the valuation of other assets, demand and supply, not necessarily on economy.

Following are key factors, the price of silver depends on:

Supply and Demand

This is one factor that makes the precious metal valuable, as its price always tend to respond with the supply and demand equation. In most cases, the demand is constant while the supply is limited. However, using the economic reality of the market, whether in the upward movement or the downward movement; the demand and supply tend to move the price. For example, any industrial action that disrupts mining or technological breakthrough that requires silver as a raw material spikes up demand in high proportion and the resultant effect is price increase.

Valuation of other assets

Silver is correlated to other commodities in particular, gold, the global Brent oil and copper. The valuation of other commodities like gold, affects the price of silver. So, gold is considered as the primary driver for silver prices. In the stock market or in a bullish environment, the interest in most of the precious metals increases in the investment demand for silver leading to price adjustment. It does not take much to drive the prices higher.

Seventy percent of silver emerges as a by-product of the mining of other precious metals. The silver prices of the by-product is the function of the price of the other metals, mined along with silver.

Inflation

Inflation tends to hold sway when it comes to portfolio value, as investors see silver and gold as tools to hedge against inflation. During inflation especially nominal inflation compounded over a long period of time, the value of paper currency is eroded and silver becomes a good purchasing power to protect such losses. What this means is that, the demand for silver will increase leading to price hike. Prices of silver are correlated to global inflation.

Strength of the Dollar

The U.S. dollar, being the leading global currency maintains inverse relationship with the price of silver. Many savvy investors take advantage of this knowledge to find the bargaining prices for silver purchases.

Interest Rates

Most analysts and investors see the level of interest rates as a parameter that indicates the overall market conditions. Just like the U.S. dollar mentioned earlier, interest rates have an inverse relationship with the price of silver. In periods of high interest rates, the prices of silver tend to fall and vice versa.

Since investments in silver are not made for short term returns, some savvy investors would prefer for interest payments instead of long-term appreciation of holding silver.

Industrial Demand

The industrial and economic demands of silver cannot be exhausted. This underlines the fact that more emerging technological advancements like film technology contribute to a rise in the industrial usage and what this means is that, the demand will keep rising with overall ripple effects on the pricing.