10 Key Factors That Determine The Price of Silver

Silver Price from 1970-1985, Hunt brothers cornering the silver market

The price of silver is determined by supply and demand on major exchanges, as traders react to inflation expectations, interest rates, industrial demand, and geopolitical events.

For millennia, humans have tracked the price of silver to craft coins, jewelry, and decorative items.

These days, we demand the “white metal” for the production of semiconductor chips, touch screens, solar panels, RFID chips, and medical devices, making the silver price more relevant than ever.

What is the Silver Spot Price?

The definition of “silver spot price” is the price that an investor will pay for the immediate delivery of one ounce of silver. The spot price reflects the real-time market value of silver.

The silver spot price fluctuates constantly based on trading activity from marginal buyers and sellers. In reality, retail investors cannot actually purchase silver at the spot price because silver dealers and brokerage firms always charge a premium over spot. When making a purchase, investors pay the spot price plus the premium.

How is The Silver Spot Price Determined?

There is no centralized, authoritative price for silver. When quoting the “spot price,” dealers and exchanges typically use a combination of reference sources, such as:

The NYMEX Continuous Contract Price

The New York Mercantile Exchange (NYMEX) is the world’s largest commodities futures exchange.

A “futures contract” is an agreement to buy or sell a specific quantity of silver in the future for a specific price. Futures contracts allow companies or investors to lock in a price today for a product that will be delivered tomorrow.

Because each contract expires on a specific date, it is difficult to provide a continuous, long-term price of silver without the gaps and interruptions caused by contract expirations. The “continuous contract price” solves this problem by linking the prices of successive futures contracts to create a single, uninterrupted price chart. The composite price provides an accurate real-time benchmark.

The LBMA Silver Price

The London Bullion Market Association (LBMA) is an international trade association that represents the global over-the-counter (OTC) market for gold and silver bullion.

The LBMA Silver Price (or Daily Auction Silver Price) is a global benchmark for silver, determined through an electronic auction. The auction is conducted every day at 12:00 noon London time. During the auction, banks, bullion dealers, refiners, institutional investors, and other market participants submit buy and sell orders for silver. The system calculates a clearing price that matches the highest number of buy and sell orders.

Silver ETF Prices

Large silver-backed exchange-traded funds also serve as accurate benchmarks for the market price of silver. The largest such ETF is iShares Silver Trust, also known as SLV.

Prices from silver wholesalers

Silver refiners and wholesalers often quote their own spot price, which can be used as a benchmark. The world’s largest silver wholesalers include Metalor, PAMP, and Argor-Heraeus in Switzerland, Asahi and Elemetal in the US, and the Royal Canadian Mint in Canada.

Silver prices change every day. View the current silver price here.

What drives the price of silver up or down?

The price of silver, like the price of any asset, is determined by individual buyers reaching agreements with individual sellers. In a liquid market with many buyers and sellers, we get the impression of a smooth, continuous, unified price. But it is important to remember that the prevailing price in any market (silver included) is always the result of many individual transactions between marginal buyers and sellers. When we speak about “factors that influence the price of silver,” we really mean factors that encourage individual buyers to accept a higher price for silver (or demand a lower one), or factors that encourage individual sellers to demand a higher price for silver (or accept a lower one).

The factors listed below do not have a direct causal link to the price of silver, but they do influence how individual market participants appraise the value of silver, and therefore influence what kind of agreements buyers and sellers will reach in the marketplace.

Here are some of the key factors that influence the price of silver:

Macroeconomic Factors Affecting The Silver Price

Inflation: Silver is seen as a hedge against inflation and currency devaluation. High inflation rates and weakening currency can drive investors to buy silver, increasing its price.

Because silver’s supply is limited (and it requires time and energy to dig out of the ground), silver tends to retain its purchasing power much better than fiat currencies. The more dollars are printed, the higher the ceiling on silver’s price.

Interest Rates: When interest rates fall, silver tends to rise. The reason is because silver does not pay interest (like bonds and some other assets). As interest rates rise, silver demand falls because the opportunity cost of holding non-yielding assets rises. Lower interest rates make silver more attractive, while higher rates make bonds and savings accounts more attractive.

Lower interest rates also correlate with a larger money supply. The more money bouncing around the system, the higher the silver price.

This chart shows the rough inverse relationship between the price of silver and the 10-year treasury yield, a benchmark interest rate:

Economic Growth: Strong economic growth tends to increase industrial demand for silver. Silver plays a role in the production of semiconductors, solar cells, batteries, medical devices, and more. Conversely, economic downturns can reduce industrial activity and silver demand, thus lowering the price of silver.

Monetary Policy: Central bank policies, including quantitative easing and money supply expansion, can impact silver prices. Policies that lead to currency devaluation tend to boost silver demand.

Geopolitical Factors Affecting The Silver Spot Price

Political Stability: Political instability, trade tensions, and geopolitical conflicts can drive safe-haven demand for precious metals. Gold and silver tend to follow each other in safe-haven buying. For example, unrest in the Middle East and war between Russia and Ukraine can increase the demand for gold, which thereby increases silver demand. Investors turn to precious metals during times of uncertainty.

Regulatory Changes: Changes in mining regulations, environmental policies, and trade policies can affect silver production and trade, influencing prices.

The General Mining Act of 1872 allows for gold, silver, copper and other metals to be mined from federal lands at low lease prices and without paying back royalties. It was passed during the pick-and-shovels time of the early gold rush era — and doesn’t consider the environmental impact of mining with modern technology.

Congress has attempted to increase the cost of leasing land and introducing mandatory royalties that benefit taxpayers. New regulations that make mining more expensive could increase the price of silver.

Market Sentiment: Investor sentiment, driven by news, forecasts, and market trends, can lead to speculative trading and price volatility. Perceptions about economic conditions, inflation, and geopolitical events can all impact sentiment.

Global Events: Major global events, such as pandemics, natural disasters, and large-scale technological shifts, can disrupt supply chains and alter demand patterns, influencing silver prices.

In 1971, President Nixon took the US dollar off the gold standard. In the following decade, the price of silver skyrocketed from $1.60/oz to a peak of $48/oz.

In the late 1970s, the Hunt brothers attempted to corner the silver market by buying up massive quantities of silver and taking delivery. To prevent this, the COMEX increased margin requirements and capped the number of contracts any single entity could hold. As the regulatory measures took effect, investors lost confidence and began selling off their silver holdings, leading to a rapid decline in prices. The Hunt brothers were forced to liquidate their positions at significant losses, plunging the price to $5.50 by mid-1982.

Price of silver from 1970-1985, Hunt brothers corner the silver market

A more recent example: When the pandemic hit the US in the beginning of March 2020, the price of silver dropped 37% in just four weeks. When the US government started printing money to prop up the economy, silver’s price skyrocketed by over 140%. Investors feared that loose monetary policy would cause runaway inflation.

Technical Factors Affecting The Silver Price

Speculative Positioning in The Futures Market: Companies use futures contracts to stabilize their cost of raw materials. For example, imagine a company needs 100,000 ounces of silver to manufacture solar panels. They enter a futures contract to lock in a price of $30/oz for the next month. No matter what happens to the market price, the company will be able to acquire the silver next month for $30/oz.

Hedge funds and other speculative traders also trade futures. They go “short” or “long” in the futures market (aka bet that the price of silver will fall or rise) to make money.

If there is a huge amount of net short positioning, meaning many market participants are betting on the price to fall, this can actually be a bullish signal because it indicates that the market is running out of selling pressure. To go short, speculators sell assets they do not currently own, with the expectation that they can buy them back at a lower price in the future. If the price begins to rise instead, they have to quickly buy the asset back so they don’t lose money (a “short squeeze” dynamic).

Industrial Demand for Silver Drives Its Price

Silver’s excellent electrical conductivity makes it crucial for manufacturing of electronic devices. It is used in conductors, switches, and circuit boards found in smartphones, computers, and other appliances. Silver is also used in photovoltaic cells of solar panels. During periods of economic growth and technological innovation, industrial activity leads to higher demand for silver. Conversely, economic slowdowns reduce industrial demand, potentially lowering silver prices.

The industrial uses of silver guarantee a constant source of demand. This long-term price support makes silver an attractive option for commodities investors.

Silver Scrap Can Influence The Price of Silver

Before the growth of digital photography, silver was a popular element in film photography due to its ability to reflect light. As film photography declined, film became a large source of scrap silver.

Silver scrap can also come from old coins, jewelry and silver tableware. When silver hits a huge price spike — like it did during the 1970s and again in 2010 and 2011 — people are encouraged to melt down and repurpose silver scrap. This increases supply and stabilizes the silver price.

When is The Best Time to Buy Silver?

The best time to buy silver is when it is undervalued against other assets.

Right now, silver is historically undervalued against gold, the stock market, and the total money supply. Growing industrial applications in renewable energy and medical technology means the price of silver will need to rise to meet demand. Right now is an excellent time to start adding silver to your portfolio.

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