What Drives Silver Prices?
Understanding the pricing trends for silver requires a careful study of a number of different factors. Some of these market dynamics work against each other, making the study of silver prices more complex. For example, when the costs of production reach a certain level, any market price below those costs means less mining and supply. On the other hand, higher silver prices support more expensive mining and production, increasing supply.
We briefly summarize below the 10 price factors that serious analysts and educated investors in silver evaluate for making decisions to buy or sell silver. Of course, each of these factors generates extensive research and study, as does their interrelationships. However, an awareness of these market movers will help you understand more of why the market trends up or down.
Remember that while any one factor may gain special attention at a given time, it is important to consider all of them in context to understand both short-term price movements and long-term trends.
10 Factors that Drive Silver Prices
1. Supply and Demand
2. Silver Scrap
Another way this factor plays out is that increasing prices will cause more existing silver jewelry, coins, and other products to be sold and melted down for addition to the market supply of silver.
It is worth noting that Silver Institute studies show much of the readily accessible stockpiles of silver and scrap have been exhausted at today’s silver prices for the commodity.
Contradicting that is the fact that new technology is, in fact, helping to replace silver in more mundane applications. For example, new types of aluminum alloys are acceptable replacements for some cheap mirrors. The same goes for the common use of stainless steel flatware in many households rather than the traditional silver items.
Nonetheless, it is new demands from solar photovoltaic systems and many green applications that generally make technology a net bullish factor for silver demand and prices.
4. Economic Trends (Micro)
However, even in rough economic times there is often demand for luxury products, including watches and fine jewelry. Reports on the trends in this area of high-end demand often serve as an indication of overall economic trends, which influences silver prices.
5. National and Global Economic Trends (Macro)
The other side of this issue is that a strong, vibrant economy may decrease demand for silver from investors and other buyers. While that active economy will generate greater demand for silver in industrial and jewelry applications, it does not pay a dividend or generate interest income.
7. Strength of the Dollar
8. Gold Prices
9. Interest Rates
10. Government Policies
Investing in Silver
Along with these factors, it is important for you to understand the difference between speculation and investment, as well as short-term and long-term investing. The very nature of markets is that they react rapidly to short-term factors like those cited above. Speculators and end users, such as jewelry manufacturers, find it important to watch these rapid changes.
However, most long-term investors are more interested in evaluating the trends that these factors indicate. The key to that long view of investing in silver is to enjoy the protection it offers, pick up bargains when possible, and rest assured that the value of silver holdings will increase substantially in the years to come.
You can read the complete overview about the factors with related pictures at the following link: LINK