As a precious metal, silver offers investment possibilities. You can invest in silver in a few different ways. You can purchase silver bullion, minted bars or sovereign coins. You can also invest in exchange-traded funds, or ETFs. No matter how you choose to invest in silver, it is important to understand the silver price forecast.
What Factors Affect the Price of Silver?
Key factors influencing silver price forecasts include:
- Current economic conditions: Both microeconomic and macroeconomicfactors influence the price of silver:
- Microeconomic factors: People spend money on jewelry and other items with precious metals in good economic times. In difficult times, these kinds of purchases are frequently the first deferred. Experts watch economic growth and health in emerging markets closely. Even in difficult economic periods, a certain demand for luxury products like fine jewelry and watches persists, and high-end demand can also influence silver prices.
- Macroeconomic factors, including national and global trends and geopolitical events: Like gold, silver is thought of as a safe haven investment as investors view it as retaining purchasing power and value better than paper currency and other assets in times of economic uncertainty. Economic crises usually lead to a significant increase in silver prices.
- Government policy, including United States monetary policy: Silver has an extensive history as a medium of exchange. Government policies and actions continue to influence silver markets today. National mints like the United States Mint consume a large portion of the worldwide silver supply by producing bullion and numismatic silver coins.
- Inflation: Silver is historically viewed as a hedge against inflation. While inflation can bring down the value of paper currency, silver offers protection against losses in purchasing power.
- Interest rates: Interest rate levels indicate market conditions overall. Market prices of silver typically have an inverse relationship to interest rate levels.
- Price ratio between gold and silver: Gold and silver prices have historically been intertwined. Generally, as gold prices rise or fall, silver prices follow.
- Silver scrap: Photography used to use huge amounts of silver as it has light-sensitive properties, but non-silver photography now dominates that field, driving down demand. A large stockpile of film has also been recycled for the silver content.
- Supply and demand: Basic supply and demand theory makes silver valuable. Silver supply, considered along with mining costs, can impact prices. Silver supply is limited, but the demand for silver is constant. At the same time, any perceived or actual decrease in either supply or demand moves prices, frequently in ways disproportionate to the real change. For example, a strike that pauses mining at a big producer may cause a short-term jump in prices. Areas that drive silver demand include:
- Strength of United States dollar: The U.S. dollar is the leading global currency. As a result, the dollar tends to have an inverse relationship with silver prices. A strong dollar can put pressure on the price of silver.
- Technology: The price of silver is directly and indirectly affected by existing and new technologies. Many new technologies utilize physical characteristics of silver that are not found in other metals. Conversely, some new technology replaces silver used in other everyday objects, such as new aluminum alloys replacing silver in mirrors. Overall, however, demands for green applications and solar photovoltaic systems make technology a net bullish factor in terms of both silver prices and demand.
Why Do Some Experts Predict a Positive Future for Silver Prices?
Experts predict a positive future for silver prices for a number of reasons. A positive future for silver prices can come from:
- Continued technological innovation: Many technological innovations rely on silver. Markets for electric cars and solar panels, for instance, are driving increased silver consumption. Because silver will continue to be an important commodity, values are likely to stay high. In addition to a variety of medical appliances that use silver, the metal is used in technology such as:
- Decreasing supply: While demand for silver may be increasing, mine production may be declining. Increased demand, coupled with depleted supplies could cause the price of silver to rise even more.
- Behavior of Western governments: Governments in the Western world continue to take on massive debt load while they print more money. As a result, interest rates may remain stable or go lower, creating an environment that supports gold prices and silver prices by extension.
- Geopolitical tension: Uncertainty in the world drives people to invest in precious metals like silver.
Why Are Some Experts Skeptical of Silver Prices?
Other experts are skeptical of silver prices. Reasons for skepticism include:
- Unpredictability: Experts skeptical of silver warn that silver price fluctuation may be less predictable than with other commodities. As global demand for silver can influence silver prices, it can be difficult to predict all factors that play a role, especially when it comes to events outside your country. While investing in silver takes you outside of the financial system, your investments may still be affected in bad economic times if the value of silver drops.
- Increased price fluctuation: Silver prices also tend to fluctuate more than gold prices. Gold is usually less affected by supply and demand, as gold has a sentimental value that other metals and commodities don’t have.
- Stronger ties to world economies: Silver, like other precious metals, is used as an investment that protects against a market crash. However, because silver is used so much in industrial sectors, prices are often more closely tied to wider economic performance than prices of gold.
As with any other commodity, silver has periods of ups and downs. However, silver is historically more volatile than gold as a result of both lower market liquidity and a smaller market. If you’re investing in silver, your focus should go to longer-term forecasts and trends.
Once you understand the different factors that can impact silver prices, you can look at a silver price forecast to guide your decisions as you invest in this precious metal.