Silver, like other precious metals, may be used as an investment. However, silver price has been volatile and has been influenced by many factors.
What is silver price?
Silver price is basically the market value of silver. Silver price may be influenced by various factors such as supply and demand, concentration of shares, investment demands, and state of economies.
Silver Price: Supply and Demand
If there's an increase in the demand for silver more than what's available at prevailing silver price, then traders will bid the silver price up. However, if there is decline in the demand for silver than what's available, then traders will bid the silver price down.
Silver has properties such as strength, malleability and ductility, electrical and thermal conductivity, sensitivity to light and the ability to withstand extreme temperature makes it one of the most sought metals by various industries. Such properties may increase industrial demand for silver, which may directly affect silver price in the market.
Silver Price: Concentration of Shares
Another factor that may affect the silver price is concentration of shares. If silver stocks or shares are held by a few traders, there is high tendency that the silver price may be manipulated.
To avoid silver price manipulation, stock exchanges may issue position limits that prevent unrestricted access to silver market. Position limits issued by stock exchanges control the number of contracts that a person or entity can purchase per month. Whereas position limits may prevent silver price manipulation by the few major stocks and shareholders of silver, it restricts market freedom and creates market distortions. Consequently, it would still affect silver price in the market.
Silver Price: Investment Demands
Due to the increased silver consumption in various industries, more and more investors are looking at silver as viable investment options. Silver price may be directly influenced by the increase in investment demands. Given the limited supply of silver in the market, the upsurge in silver investments may result to the exponential silver price increase.
Silver Price: State of Economies
The state of world economies directly influences the silver price. The silver price often track prices of other commodities for certain periods. For instance, when oil prices rise, silver price tend to follow suit as investors start to hedge in gold or silver stocks. When crude oil prices fall, silver price tends to fall, too.
Money devaluation may also affect the silver price. Silver price is tied closely to the decline of the US dollar. Silver and gold are usually utilised as hedge against declining currency.