What Affects the Price of Silver?

The demand for silver extends far beyond jewelry or fine serveware.

The demand for silver extends far beyond jewelry or fine serveware.

Like any other commodity, the price of silver fluctuates based on the relation between supply and demand. However, silver is relatively unique among precious metals in that supply is relatively static and demand doesn’t decrease as its price rises. Despite a history of volatility, since 2002 silver’s value has increased more than any other precious metal, and experts expect its price to continue to rise.

Industrial Demand

Unlike gold, platinum, and other precious metals, industrial demand makes up over half the total demand for silver. Manufacturers use silver in many high-tech devices such as cell phones and flat-screen televisions, and its unique properties mean other metals can’t be used in its place. The small number of silver mines active globally means supply cannot be significantly increased in response to demand. As demand increases while supply remains static, experts predict the price of silver will continue to rise.

Medical Demand

The electronics industry alone does not account for all of the demand for silver. The metal is used in many high-tech medical devices, and researchers are finding increasing uses for silver in medicines owing to the metal’s biocidal properties. As an anti-bacterial and anti-microbial metal, hospitals and other medical facilities are exploring silver’s use as a disinfectant. These particular properties of silver continue to drive demand for the metal and impact its price.

Investment Demand

Gold’s price is largely driven by investment demand, because investors see it as a hedge against inflation. Silver’s volatile market meant it was previously used more to make a quick return than as an investment for wealth preservation. However, industry’s need for silver at any cost has made the metal more attractive as a long-term investment. Declining quantities of silver have led investors to stockpile the precious metal, especially since many are attempting to diversify their portfolios by holding hard assets.

Political Climate

When political events cause global uncertainty and economic instability, investors turn to precious metals to protect their wealth from the volatility of global financial markets. With silver in particular, prices could be affected by a choke in supply if the natural resources of countries that mine the metal are nationalized. In addition to these factors, increases in the gross domestic product of industrialized nations lead to an increasing demand for consumer electronics and other manufactured goods that use silver in their production, leading to a corresponding increase in demand for the metal, driving its price up.

 

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