Jun 2024


Jun 2024

What Drives Silver Prices?

By StoneX Bullion

Like gold, silver is an attractive investment that offers intrinsic value and a hedge against inflation. Unlike gold, however, its price isn’t just driven by its status as a precious metal but also by various external factors. Whether you’re a seasoned investor or new to the world of precious metals, understanding what drives silver prices can help you make more informed investment decisions.

In this article, we’ll explore the most important factors influencing silver prices, including supply & demand, economic conditions, technological advancements, and government policies.

Why you should invest in silver

Before we get into what influences silver’s price, let’s look at reasons that make silver a valuable investment. Understanding the benefits of investing in silver can provide some background into the factors that can drive its price up or down.

Reasons to invest in silver include:

  • Historical store of value: Silver is a tangible asset with intrinsic value that’s been cherished for centuries. Its enduring value over time makes silver a prized asset that’s unlikely to lose its attractiveness any time soon.
  • No counterparty risk: Buying physical silver offers a way to invest without the counterparty risk found in other investments, such as shares, stocks, and bonds. This provides investors more control and assurance over their assets.
  • Inflation hedge: Like gold, silver has historically proven to be a hedge against inflation. When inflation devalues paper currency and other assets, silver tends to retain its purchasing power. Historic records show that silver prices will even increase during periods of high inflation.
  • Scarcity: Silver has high demand and finite supply that makes it a scarce metal. While it’s not as rare as other precious metals, this scarcity makes silver an attractive investment.
  • Potential for larger gains: The silver market is more volatile than gold. This means it can lose more value than gold in bear markets, but there’s the potential for much larger gains in bullish markets.
  • Currently undervalued: Gold and silver have an interesting relationship documented in the gold/silver ratio. When the gold/silver ratio is high, it indicates that silver is undervalued and gold is overvalued. When the ratio is low, it means the opposite. At the time of writing, the gold/silver ratio indicates that silver is currently undervalued - making this an ideal time to purchase the metal.
  • It’s affordable: Silver offers an affordable entry point into the world of precious metals investing, providing largely the same benefits as investing in gold but at a much lower price point.
  • Industrial uses: Silver’s demand largely comes from industrial uses, and these demands are increasing. It’s currently used to manufacture everything from mobile phones and medical equipment to solar panels and TVs.

Read more: Why You Should Consider Silver Investment

What drives silver prices?

Before making any investment, it’s wise to understand the factors that can influence that investment's price movements. Let’s take a look at the various factors that can drive silver prices up or down.

1. Supply & demand

Supply and demand is one of the fundamental drivers of silver’s price. While silver demand is constant, its supply is relatively limited. The 2023 World Silver Survey by the Silver Institute reveals that demand for silver reached record highs of 1.24bn ounces while the supply remained flat. This was one of the largest silver deficits ever recorded.

Silver’s price will increase when demand is high and supply is relatively low. This supply/demand can be both perceived or actual. For example, if silver mining was temporarily interrupted due to a worker’s strike, prices may increase over the short-term. Likewise, if a major solar panel manufacturer announced they would start using silver, the precious metal’s prices would inevitably rise.

Similar reading: What Drives the Price of Gold?

2. Silver scrap

Recycled silver, known as silver scrap, is an important source of supply and can affect the precious metal’s price. A popular example of silver scrap is with the photography industry, where silver was widely used for its light-sensitive qualities. As non-silver photography grew more popular, silver demand decreased, however large stockpiles of photographic film could be recycled for its silver content.

There’s also a huge amount of old silver coins and jewelry that can be melted down and added to the market supply of silver. Essentially, the amount of silver scrap available can influence silver prices as it adds to the market supply of silver.

3. Technological advancements

Advances in technology can both increase and decrease silver demand, affecting its price. For example, innovations in electronics and renewable energy (like photovoltaic cells used in solar panels) have increased industrial demand for silver in recent years. On the other hand, the above example from the photography industry demonstrates how technological advancements also have the potential to decrease demand for silver.

It must be noted that technological advancements can also lead to silver being replaced with other metals, such as the use of aluminum alloys in cheap mirrors or stainless steel in place of traditionally silver household items. Despite that, current technological advancements show a demand for silver and are contributing to its value.

4. Economic trends

Economic conditions can also affect silver’s prices. During periods of economic stability, more people spend money on silver jewelry and other items. This drives the price of silver upwards. When the economy is stagnant or unstable, people are less likely to make these purchases and silver’s price can drop.

That said, there can often be demand for precious metals during periods of economic instability. Investors may flock to buying silver as a way to protect their funds and this can sometimes increase demand and prices.

5. National & global economic trends

Like gold, silver is considered to be a safe haven asset. This means that silver prices tend to maintain value, and even increase in value, during periods of instability when fiat currency and other assets decline. During economic crises, there’s even more demand on silver and other precious metals and this can skyrocket silver prices.

On the other hand, this can mean a decline in silver prices during a strong economy. While a good economy can encourage people to purchase silver jewelry and luxury items, as in the example above, it won’t pay dividends or generate interest income.

Read more: The Fineness and Purity Of Silver Explained

6. Inflation

As with gold, silver is considered to be an excellent hedge against inflation. During periods of high inflation, the purchasing power of paper currency decreases and tangible assets like silver become more valuable. This skyrockets prices as investors seek to preserve their wealth.

7. Value of the US dollar

Silver is typically traded in US dollars, so its price generally has an inverse relationship with the dollar. This means that when the dollar is weak, silver becomes more affordable. This drives up demand and prices. When the value of the US dollar increases, silver becomes more expensive, reducing demand on the mainstream silver market and decreasing silver prices. Silver has a similarly inverse relationship with interest rates.

8. Global conditions

Geopolitical events, natural disasters, and other global conditions can affect the price of silver. Factors such as trade tensions, political instability, and conflicts can lead to increased silver demand as people turn to the precious metal as a safe haven asset. Natural disasters that disrupt mining operations can also increase the price of silver as it affects supply.

Another example is the COVID lockdown in 2020. During this period, many employees switched to working from home and shopping online, boosting investment in technology companies. This in turn influenced silver prices, as silver is essential to tech industries.

9. Price of gold

The gold/silver ratio is a hotly debated topic, however it’s undeniable that there is a historic relationship between the price of these two precious metals. If you examine historical price charts, you’ll observe that silver prices tend to increase and decrease as gold prices surge or fall. Wherever gold moves, silver will follow.

Many investors base their silver investment decisions on the gold/silver ratio, buying or selling silver when it’s expensive or cheap relative to the price of gold. To learn more about the gold/silver ratio, you can read our guide here: What is the Gold Silver Ratio? Gold Silver Ratio Chart

10. Government policies

Silver demand and supply can be affected by various government policies. For example, central banks around the world buy and sell silver bullion. This can have an effect on silver price trends if, for example, a country is in debt and sells their silver reserves to ease economic pressures.

At the same time, government policies like mining regulations and environmental laws can also influence silver prices. For example, stricter mining regulations can reduce silver supply while subsidies for greener technologies can increase demand (for example, by encouraging more people to purchase solar panels).

Read more: Why Central Banks Buy Gold

11. Large private or institutional investments

Large-scale silver investments by private or institutional investors can also drive silver prices. When investors buy large quantities of silver, they can drive prices up due to increased demand. When they sell off large holdings, silver prices can decline. The actions of these major players can have a significant role in the volatility silver markets.

Summary: What drives silver prices?

Silver’s price can be driven up or down depending on numerous factors, from technology to global conditions and the activity of few, powerful investors. Because it’s such a volatile market, it’s important that silver investors keep track of the silver spot price and global affairs that can move prices up or down. This can help you get the most out of your investment.

If you’d like to enter the world of silver investment, or grow your portfolio, you’re in the right place. As one of Europe’s leading precious metals dealers, StoneX Bullion offers an impressive range of investment-grade silver bullion bars and silver coins from the world’s best-known mints. Whether you’re looking for a Silver Vienna Philharmonic Coin or an impressive 100g silver bar, you’ll find it here. Explore our selection of bullion and secure your future with the enduring value of silver.