What Drives the Price of Silver?

In making your first foray into a physical silver investment, understanding the key factors that drive silver prices is crucial. While sharing many qualities with other precious metals investments, silver’s value is driven by a range of shifting factors that set it apart from commodities like gold or platinum. Understanding this unique precious metal will help you understand if it’s the right choice for diversifying your own portfolio. At Gold Stackers, we specialise in the sale of high-quality precious metals and are passionate about giving the right product advice to our clients. Read on to understand if our silver products might be a good addition to your investments.

TL;DR

• With silver’s industrial applications continuing to evolve and its mining supply continuing to wane, silver’s price could stand to increase as the renewable power industry matures.
• Silver has traditionally performed well as a ‘safe-haven’ asset, with global political and economic instability only increasing its value.
• Recent price increases during turbulent periods like the COVID-19 pandemic indicate silver’s enduring value to discerning investors.

Supply and Demand Dynamics

The price of silver, like anything else, is driven primarily by supply and demand. As it stands, the majority of silver comes from mines as a byproduct of mining other metals like copper, zinc, and lead. Mexico is the world’s largest silver-producing company, with China, Peru, and Chile following behind. Australia is the home of a number of silver deposits, the most prominent of which are found in Western Australia. 

As silver in the earth becomes more scarce, mining yields and ore qualities will continue to decline, pushing up the silver price. While qualities may decline, industrial demands appear to be increasing. While silver has been mined for millennia, it continues to perform in interesting and unique ways into the twenty-first century, with new applications still being found. Its exceptional electrical conductivity makes it a popular choice in electric car batteries and solar panels. As these technologies continue to rise in popularity, so might silver’s investment demand. Historically, silver’s appeal has been similar to gold – in that it is a stable, ‘safe-haven’ asset that hedges against inflation thanks to its tangibility and enduring value. Investors looking for an option that still benefits from that stability often consider exchange-traded funds (ETFs) to purchase silver, due to its convenience and lack of storage costs. 

Economic Indicators 

When interest rates are low, investors often search for a safe haven – and find it in precious metals like silver. As silver is a physical asset with a limited supply, it’s historically been considered a good hedge against inflation. But, why is the silver price-dropping in periods of economic instability, still? This isn’t necessarily a true or persistent trend, but as the economy contracts taking industry with it, there is a chance that silver’s industrial value drivers diminish.

Typically, the US dollar’s strength has an inverse correlation with the prices of both gold and silver – when the US currency is strong, these precious metals appeal less as safe-haven assets, and when it’s weak, they become more appealing thanks to their historical stability.

Market Speculation and Sentiment

As in any financial market, investor sentiment is a key driver of value for silver. The media, as a key shaper of this, does too. If a positive economic sentiment is circulating, or if the market conditions are expected to stabilise, silver prices are less likely to climb – as is true with gold. Speculative trading can also play a crucial role in the volatility of silver prices, as futures contracts give traders the ability to bet on short-term price movements, which can, in turn, magnify price fluctuations.

Both silver and gold investors should keep an eye on major economic institutions like central banks, which hold a large portion of the world’s precious metals – their selloffs of these precious metals will, of course, signal a diminishing silver price.

Geopolitical Events

You might have heard that investors often engage in precious metal investing during times of instability – financially and politically. From controversial world leaders taking power to global warfare, turbulent geopolitical events tend to boost silver prices, as well as the prices of other precious metals.

This is clearly evident in past silver price data: silver price spikes have often been in line with major periods of geographical instability. As a physical, mined asset, trade tensions between major players can drive silver prices higher through resulting scarcity. In this same way, economic instability and global military conflict are often seen to reduce trust in national currencies and make safe havens like gold and silver more appealing. 

Technological Advancements 

Silver’s recent strengths are partially the result of its exciting applications across emerging technologies like solar and electric vehicle batteries. Industrial applications make up over half of silver’s usage globally – mostly in the electronic devices that now shape so much of our lives: smartphones, circuit boards, and gaming consoles. As solar panels become commonplace and a larger part of the energy grid, silver also stands to benefit – silver is a key part of these devices and how they convert the sun’s rays into power. There’s also a promising trend in the recycling of silver – with AI automation helping to improve silver yields from e-recycling enterprises. 

Mining Industry Developments 

Present mining industry outputs are struggling to meet global industrial demand for silver, which is driving silver prices higher. However, global mining players are focused on improving their extraction technologies and searching for new deposits with geospatial modelling technology. Underdeveloped silver deposits do still exist, but they still face the rising operational cost pressures that other silver operations do. Notably, there are deposits awaiting development in central New South Wales that could provide a steady supply to the global market. However, as mining’s public relations tensions continue to escalate in light of climate change fears, regulations might limit the yield of these mines or halt their development completely. A significant new supply seems unlikely and as a result, the silver price is unlikely to be diminished to any significant extent by these new projects and technologies. 

Historical Trends and Patterns 

The silver market has historically been a safe haven for investors, with patterns indicating that economic instability predicts an increase in silver prices. In fact, its role as a safe haven asset has been validated in centuries past as well as in the modern day – even as recently as the COVID-19 pandemic. In 2020, when lockdowns were announced globally, silver prices rallied, just as they did during the American Civil War of the 19th century.

Silver’s reputation for price instability over gold is, in some cases tied back to historical examples – particularly the ‘Silver Thursday’ event that saw a pair of American brothers attempt to corner the silver market, causing the silver price to drop dramatically. Not only did this crisis provide valuable insight into the benefits of portfolio diversification, it led to federal legislation restricting commodity market trading. It’s these insights that help guide the behaviour of silver traders today, helping them make sound and sensible decisions around their investments.

Understanding the factors that cause the silver price to increase or decrease – from supply and demand dynamics through to geopolitical events – is crucial in making an informed investment decision. Ultimately, while silver prices do respond to industrial supply and demand increases, its stability as a scarce, tangible resource should continue to provide baseline stability into the future. However, as it is somewhat more volatile than gold, it’s crucial that investors remain vigilant and informed if they wish to maximise their returns and minimise their risks. Gold Stackers is here to act as a partner in the investment process

If you’re ready to start a conversation, get in contact with us – we’re always happy to advise on products that will meet your investment interests and needs.