As with many commodities, what affects the price of silver is regulated by supply and demand. The factors that influence these numbers include large traders or investors who may be short-selling to hedge against financial stress. Events such as bankruptcy or default; the level of production from the mines that supply the silver; the cost of mining the silver; the amount of silver held in inventories by refiners or traders; and the cost of transporting silver from the mines to consumer markets. While silver is often considered a “financial” metal, its price is also strongly influenced by its industrial uses.
A Beginner’s Guide – What Affects the Price of Silver?
Silver is a factor in the cost of several industrial products and a key component in electrical wiring and computer circuit boards. Silver is used both directly and in the manufacture of other metals. Additionally, several “gray” metals are considered “alternative metals” to silver, but which have similar properties and are often used simultaneously with silver. Silver is not rare, but its value as a precious metal varies considerably.
Supply is the first and most essential factor. The majority of the silver mined is produced as sulfide-rich sphalerite (zinc blend) for zinc extraction. The U.S. has more than 95% of the world’s known silver reserves. However, the majority of production comes from Australia and the U.S.A. New Mexico and South Dakota are the leading producers of silver in the U.S.A., but the U.S. has been affected by high energy costs since the 1980s and increased regulation.
Understanding the Risks of Silver Price Drives
The price of silver is often affected by political events that have global trade or economic implications. Such events include strikes, sabotage, industrial accidents, acts of war, or natural disasters such as floods, earthquakes, or droughts. The effects can be exacerbated by psychological events such as fear of terrorism or inflation. Silver also has several physical attributes that make its price fluctuate.
The world’s leading producer, Australia, is far from the United States, which is the world’s largest consumer. Additionally, the supply chain for most silver is long and includes many intermediaries and warehouses. This contributes to both the variability of the price and the possibility of a bottleneck in the supply chain. The value of silver is also related to its purity; as silver is extracted from ore, it naturally becomes less pure.
10 Factors that Influence Silver Prices
- Supply and Demand
You have heard of the basic concept of supply and demand. As the population increases, the number of goods and services produced and delivered decreases. Just as with any good or service, the cost of production increases. If the cost of production is too high, then the demand will decrease, and the goods or services will not be ordered.
- Silver Scrap
The scrap generated by the mining process is called “waste.” The raw material costs of producing silver are expressed as the ounces of silver divided by the pounds of waste produced. The cost of waste is the opposite of scrap, and the scrap and waste rates can significantly affect the price of silver.
Silver’s mining and refining process has remained fairly consistent since ancient times. However, the recent advances in science and technology have led to a reduced environmental footprint. These environmental improvements include better water treatment, less waste production, and a growing concern for the health and safety of mining and refining workers.
- Economic Trends (Micro)
The recent economic crisis of 2008-09 and its aftermath have had a significant influence on the market and, consequently, on silver prices. The crisis led to increased regulation at the federal and state levels, resulting in increased costs and reduced profits. Additionally, the rapid growth of emerging market economies has led to inflation, which has decreased the dollar’s value. This has made an environment in which it is more expensive to produce and ship goods worldwide. While the U.S. economy has slowly been recovering, the effects of the recent crisis will likely persist for some time.
- National and Global Economic Trends (Macro)
Many macroeconomic factors affect the global silver market. These include gross domestic product, exchange rates, consumer spending, and changes in the financial sector.
Inflation is defined as the increased consumption and prices of goods and services over time. A significant increase in the purchasing power of the U.S. dollar would increase silver prices.
- Strength of the Dollar
The correlative strength of the U.S. dollar (as measured by fluctuations in the U.S. Dollar Index) directly affects the price of silver. Most silver is imported, and imports are typically paid for in U.S. dollars. As the dollar strengthens in value, silver becomes more expensive.
- Gold Prices
Although silver is not traditionally considered “the metal” that bears the brunt of the modern-day monetary system, its price is still significantly influenced by gold. Historically, silver has always been tied to gold somehow (as it is currently in the modern era). Even if the U.S. abandoned its currency and adopted a completely different currency (perhaps a precious metal standard), likely, a precious metal would still be used to settle debts among nations. Thus, investors would still consider silver to be more valuable than an alternative currency, and therefore, silver prices would still be tied to gold.
- Interest Rates
Interest rates affect the cost of borrowing money. Presently, interest rates are at historically low levels. Rising interest rates can lead to inversely correlated price changes for some assets, including silver.
- Government Policies
The political environment has a significant influence on both the production of silver and the metal market. Environmental regulations, industrial safety, and trade wars are all factors that can influence the price of silver.
Protecting Your Wealth with Silver During Inflation
In the current years, inflation has been a concern for many investors. The Consumer Price Index measures dictate the change in prices of a standard basket of goods purchased by consumers. In a current study, the Federal Reserve Bank of St. Louis found that over the last 100 years, the Consumer Price Index (CPI) has increased by an average of 5.7% per year.
Inflation has many effects on individuals and families. According to the Federal Reserve Bank of St. Louis, some of the notable effects of inflation include the following:
- Rising prices make it more difficult to build wealth.
- Rises in prices make it more difficult to budget and make it more difficult to pay off debt.
- The value of money may be reduced as it buys fewer goods.
- The purchasing power of the money has been eroded.
A way to protect yourself from inflation is to invest in physical silver and other precious metals. Silver has historically outperformed most other investments for long periods. The price of silver rarely fluctuates, which results in less risk and less opportunity for a loss of value. Silver is a great hedge against the effects of inflation.
This is because silver is a precious metal. Due to inflation, the purchasing power of precious metals such as gold and silver tends to increase over time. In other words, if inflation rates remain the same, the value of such metals will increase over time.
How Does Inflation Affect Silver Prices?
Silver is a “precious metal” and is, for this reason, a more valuable commodity in times of inflation. Silver is an inflation hedge as an asset that is not tied to any particular currency, and it is one of the only assets that will hold its value and become more valuable over time. The U.S. Treasury Inflation-Protected Securities (TIPS) is a debt instrument issued by the U.S. government.
They pay a fixed rate of interest, similar to bonds, but the principal value of the debt is linked to inflation. Investors receive a coupon payment at maturity that compensates for inflation, but the coupon payment is only a portion of the principal. This is why TIPS are referred to as “inflation-protected.” Because they are “inflation-protected,” they are a great way to preserve the purchasing power of the principal.
The TIPS market offers investors an inflation hedge that adjusts to fluctuating interest rates. Gold and silver are the only other commodities that offer investors this type of inflation protection. TIPS is an inflation-protected investment that offers investors an opportunity to hedge against inflation. The principal value of the securities is not tied to any particular currency and, therefore, will maintain its value regardless of fluctuating exchange rates.
The rate of inflation significantly impacts the purchasing power of a currency. The value of your money is diluted by inflation, which means that your dollars will buy less each year as the decade past. Investing in TIPS is a way to preserve your investments’ purchasing power and protect against the inflation that plagues our economy.
Why Is the Price of Silver Going Up?
- Record High Gold Prices
When inflation concerns investors, they tend to flock to the “safety” of gold. Historically, gold has outperformed inflation and most other investments, and this is why many investors flock to gold as a hedge against inflation. While gold has historically performed well, it has recently been a poor investment choice due to high prices.
In December of last year, the London bullion market announced that gold was trading at an all-time high. The price of gold was up nearly $100 from the year before. In January of this year, the price of gold increased from another $20 to nearly $1,200 per ounce. This is an increase of nearly 15% from the cost of gold in December. It is the highest price that the precious metal has ever been.
- Buying Defensive Commodities
Whenever you invest, it is important to diversify your holdings. By investing in various commodities, you can spread out your investment risk and reduce the risk of any single investment. Historically, silver has outperformed other commodity investments such as gold, tin, and copper, and silver has also been a haven during periods of inflation.
During periods of high inflation, investors tend to flock to the safety of precious metals such as silver and gold. During these periods, investors tend to steer away from more volatile investments such as stocks and bonds. Silver Supply and Demand Currently, there is a global silver shortage. Contrary to other precious metals such as gold and platinum, there is not a massive demand for silver.
Recommended IRA Companies
Augusta Precious Metals
Augusta Precious Metals offers over 400 precious metals, including gold, silver, platinum, palladium, rhodium, ruthenium, iridium, and rhenium. They offer storage, assaying, and certificate authentication. Augusta also offers mining exploration services.
Augusta Precious Metals has been in business since 1988, and they are one of our top-rated silver bullion dealers. These guys are quality. They have very professional service, and you know they are trying to treat you right. They offer a 7-day trial period, and you can buy silver at a discount if you decide to invest with them. Their fees are very reasonable, and you can choose to pay by check if you prefer.
- They are a family business, and the owner has over 38 years of experience in the wholesale precious metals industry.
- Augusta Precious Metals is one of the best places to purchase silver bullion, and they are a great choice if you want to invest in silver.
American Hartford Gold
American Hartford Gold is one of the oldest precious metals buying companies. They offer a variety of different ways for you to buy gold. You can purchase gold coins, gold bars, and gold certificates. In addition, American Hartford Gold will store your gold for you when you aren’t using it.
It has been a part of our network for over 30 years, and they are one of the most highly respected gold buyers in the business. American Hartford Gold is the oldest company in our network that does business internationally. In addition to their services here in the United States, they also offer these services overseas: Australia, Canada, Germany, Singapore, the United Kingdom, and more.
They handle all aspects of the buying and selling process from start to finish. This is a great way to purchase gold for personal use or as an investment. American Hartford Gold is a member of the BBB and the Better Business Bureau.
They are also a member in good standing of the National Futures Association.
- American Hartford Gold offers fast and discreet delivery of your gold.
- They offer a variety of payment options including cash, check, credit card, and wire transfer.
- This is another great option for those who want to buy gold online.
Goldco has been helping people preserve their wealth for centuries with retirement accounts, numismatic accounts, and investment accounts. Goldco has the best financial advisors, and they keep getting better at what they do. Their customer service is second to none, and they offer the best warranties in the business. Most importantly, their prices are great, and you’ll pay in cash. They have a large selection of American Silver Eagles and other silver coins as well.
Goldco is a company that has been rated A+ by BBB and other reputable customer rating companies. They provide fast delivery, and their customer service representatives are always willing to help you out. Goldco has provided customers with the ability to conveniently buy and sell precious metals for over 100 years.
- They sell gold and silver at a low price
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The reason why people choose Goldco is that they sell gold and silver at a low price with good service and secure transactions. You can also buy gold and silver with a credit card, but you will pay a higher transaction fee.
Final Thoughts – What Affects the Price of Silver
In this market, what affects the price of silver is determined by various factors. Many commodities can affect the price of silver, including gold, copper, palladium, and tin. In addition, many factors influence supply and demand in the market, including mine production, recycling rates, and global manufacturing.