Four Little Known Factors Driving the Price of Silver

Silver is one of the world’s best-known commodities, though it is often overshadowed by the presence of gold. The metal is used both as a safe haven investment as well as a play on larger macro economic trends, as silver has a significant role in the industrial world. But there are a number of price drivers behind this white metal that investors may be unaware of. Below, we outline four little known factors playing into the price of silver in an effort to give investors a leg up on this commodity [for more commodity news subscribe to our free newsletter].

  1. Inflation/Currency Issues: Silver is seen as an inflation hedge and has been a store of money for centuries. If the people of the world lose faith in fiat currencies, it will likely be gold and silver that benefit. While gold often steals the show, silver is more volatile; meaning that while it leads on the downside it also leads on the upside as well. Furthermore, since silver is less than 1/50th the price of gold, it remains an obtainable goal for many people in poorer countries around the world, suggesting that demand could be lifted by those without the wherewithal to buy gold but are still looking for an inflation hedge. With all of the talk of money printing to help indebted economies, the demise of fiat currency has become a bigger threat as the years have gone on. Some have even gone as far to suggest that a gold or silver standard could come in the future. Although this is pure speculation, a precious metal standard would likely lead to a massive silver spike [see also Commodity Plays For the End of Fiat Currency].
  2. Photography Industry: Without a doubt, one of the least-known uses for this hard asset is its prevalence in the photography world. Silver is extremely important to the  industry; in 2009, usage hit 160 tons, down from just under 190 tons in 2000. Silver nitrate and silver halides are used in film, but with the rise of the digital age, silver’s usefulness in the photographic world has seen a drop-off. If this downward trend continues, it could put significant pressure on the industry but then again, thanks to the metal’s near 99% recycling rate out of photographic film, this might not be such a negative after all.
  3. Emerging Market Demand: Silver demand has surged in recent years thanks to rising wealth levels in emerging markets across the globe. This increase in income has allowed consumers to buy up more jewelry, silverware, and other status symbols, helping to boost the price of the precious metal. More recently, however, the strength of the world’s most prominent emerging markets has come into question. Many accuse China of being faced with an economic slowdown that will only further in coming years. Should major countries like the BRIC nations fall on hard times, the price of silver may crater as demand for the asset does the same [see also 25 Ways To Invest In Silver].
  4. Use of Substitutes: Technological advancements have made possible substitution of cheaper metals in certain applications. For example, aluminum and rhodium are replacing silver in mirrors and other reflective surfaces, stainless steel is replacing silver in flatware, and the move towards digital photography has hurt silver demand as well. However, this substitution trend can work both ways; many are experimenting with using silver in place of platinum or palladium in numerous applications due to its drastically cheaper price per ounce. If these substitutions in-favor of silver outweigh the negatives, the substitution process could be a net benefit for the white metal. Investors should be aware that if a company can get away with using a cheaper alternative to silver, they will likely seize the opportunity. Pay close attention to the trends concerning silver’s use as well commodities looking to displace the metal.

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Disclosure: No positions at time of writing.

This entry was posted in Actionable Ideas, Asset Allocation, Commodity Futures, Precious Metals, Silver and tagged . Bookmark the permalink.

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6 Responses to “Four Little Known Factors Driving the Price of Silver”

  1. [...] other precious metal, silver is often overshadowed by the performance and prevalence of gold. In reality, this white metal is a much more practical option than its [...]

  2. [...] an investment standpoint, there are a number of factors that make a compelling argument to allocate to silver over gold. First and foremost, silver is a [...]

  3. [...] firm throughout 2013″ writes Geoff Candy. This short term outlook may give a better view on silver’s future for those looking to make a speculative play. That being said, silver is also sitting well off of [...]

  4. [...] Another Canadian firm, Silver Standard Resources comes in last on our list with a market cap of $1.2 billion and an ADV of  966,000. Like all the other stocks on this list, SSRI’s share price plummeted in 2008, falling roughly 80% from its pre-recession high. Despite being nearly decimated, the stock managed to regain some lost ground, but has struggled over the past year [see also Four Little Known Factors Driving The Price Of Silver]. [...]

  5. [...] prices remain the second key variable for investors to look at aside from production volumes, but they remain much more difficult to [...]

  6. [...] mining stocks, silver futures and options contracts, and silver exchange-traded funds is another driver of silver prices. In 2002, for example, the demand for coins and medals was 31.6 million ounces compared with 118.2 [...]

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