The law of supply demand drives all prices in a free market. Silver is no exception to this rule. As demand increases, and people become willing to pay more, the price will rise. When demand falls, and with it the price people are willing to pay, the price will also begin to fall. There are many factors that can affect the price of silver.
Below we’ll explain a few of the major causes increases in the price of silver as well as some of the potential causes for a decrease in silver prices. Considering we’ll be seeing a lot of price changes for silver over the next few years, this is absolutely critical to understand for anyone who wants to invest in silver coins, stocks, or other investments.
Fear of Inflation
Fear of inflation drives prices on the silver market because silver is a marketable commodity, unaffected by the value of any country’s currency. When a country’s economy is in turmoil, when there is a concern about a country’s currency falling in value, precious metals continue to hold their value. They quickly become a better investment than bonds or any form of paper money.
Silver is also a commodity, and is susceptible to speculation. When speculators predict that the price of silver will rise, they effectively cause the price of silver on the open market do rise.
Fear of Economic Collapse
Fear of an economic collapse will drive interest in all precious metals. When the issued currency begins to lose value, silver will hold its value and can continue to be sold for its true worth. Periods of high inflation, an unstable economy, and general fear about the future will drive the demand for silver up, forcing the price up with it.
Silver is also used in several industries. In addition to being used for creating fine jewelry, it is also used in dental fillings, for currency, and for medicinal purposes. It was used for treating infections before antibiotics were available, and continues to be used for dressing some wounds and in some plasters. It is also used for soldering electrical contacts and has uses in some batteries. When any of these industries have a spike in sales, there will be corresponding increase in the demand for silver.
The above paragraphs explain what causes the increase in demand and prices for the price of silver. But let’s look at what makes the price drop.
Fear of Deflation
Just as inflation causes silver prices to rise, deflation can cause those prices to drop. Deflation is the result of falling prices. When the prices of a country’s goods fall, the buying power of that country’s currency will rise. The value of that country’s currency will actually increase, making the currency a more appealing investment. The demand for silver, and other precious metals, will decrease.
Fear of Popping the Bubble
Speculation can also drive the price of silver down. When investors are concerned that the price has risen too high, and is not sustainable, the fear is that the bubble will pop, causing a sudden drop in the value of any commodity. To prevent this from happening, investors in silver commodities will predict lower silver values, causing an actual decrease in price.
Stock Market Bubble
When an excess of people decide to place their stock market investments in silver, the result can be a stock market bubble. As more people develop a demand for these stocks, the price reflected in the stocks can actually exceed the value of silver. If the bubble pops, investors still holding their shares in silver may find that they are worthless.
Less Industrial Demand
Just as increases in industrial demand will drive the cost of silver up, a decrease in that demand will pull the value back down. If another conductor is found for batteries, for example, then the demand for that industrial use will fall. As the demand falls, the price will also be affected.
Silver is a precious metal, and a commodity. Its demand as a metal leaves it subject to the laws of supply and demand. It’s position on the commodity market leave it open to market fluctuations. High demand drive the price, low demand causes the price to drop, but silver remains a solid investment.