What Drives Silver Prices?

Noted for its strong fundamental use case and millennium-spanning history of trade, silver has seen gains of over 20% so far this year as the Federal Reserve’s rate hike cycle comes to a close and inflation becomes more manageable. 

This rise in price comes after hitting industrial demand highs in both 2021 and 2022, driven by macroeconomic factors such as the end of China’s COVID lockdowns and commitments to renewables. 

Silver is unique in that it is the most reflective metal, with the highest thermal and electrical conductivity, which is why the average solar panel contains around 20 grams of it. This highlights silver’s fundamental use case as an industrial metal: alongside storing value and being used as a medium of exchange, it has practical applications.

That is not to say that silver’s price can only travel in one direction.

Despite its reputation as a safe haven like gold, both historically and in recent times, silver prices have been volatile as it struggles in the face of decisions made by the Federal Reserve, interest rates, and more. 

What other factors influence Silver’s price? 

Supply and demand 

According to data from the World Silver Survey 2023 the supply of silver remained flat while the overall demand reached a record high of 1.24bn ounces, putting silver in the largest deficit on record. 

This supply and demand can be broken down into several types, all of which have the potential to drive price action:

• Investment: ownership of physical – or digital – silver bullion has long been seen as a safe haven investment. 

• Industrial: whilst silver is pushed out of, for instance, the creation of mirrors, it is used heavily in the enormous technology manufacturing industry.

• Mining: Driven in large part by Mexico, it is expected that mining production will increase by 5% this year. 

• Scrap and by-products: there is a vast amount of silver that has been used, for example, in older forms of photography or old coins that needs to be recycled and reentered into the market.

• Retail:  amid the ongoing global cost of living crisis, it is no surprise that the global demand for silver jewellery is set to fall up to 10% this year. 

Macroeconomics 

The macroeconomic environment will have significant influence over the price of silver – and everything else – whether that may be monetary policy decisions like economic sanctions and interest rates, war, the threat of banking sector turmoil, global health emergencies, sustainability, and any number of other factors.

Each of these factors creates economic uncertainty that influences (if not outright dictates) economic behaviour. 

The Value of the Dollar on Silver Prices

History has shown that a strong dollar applies pressure on silver – and gold – prices in a negative way. In theory, this is because the exchange rate reduces foreign investment demands.

The future may see this impact lessened if the US dollar loses its status as the world’s reserve currency.  

Gold prices impact Silver prices

Gold and silver typically rise together, with silver likely to experience higher percentage gains due to its lower price. Much like silver’s shared history as a tradeable, tangible asset, there’s a comfort associated with investing in hard commodities that have historically appreciated in value over the long term.

Can Silver beat inflation?

Silver, like gold, is a natural and powerful hedge against inflation because it preserves its inherent value much better than paper currencies which are more dependent on external factors. 

Whilst the purchasing power of fiat currencies decreases as a result of inflation, conversely, the scarcity of precious metals enables them to retain their purchasing power. 

Will Silver go up in the next 5 years?

In a compiled list of numerous analyst price predictions, the following table shows the silver price predictions for 2023:

As you can see, these predictions vary wildly but lean more towards bullish than bearish. Investors or potential investors are encouraged to do their own research. 

Will Silver hit $100 an ounce?

Arbitrary price targets aren’t particularly helpful, and a long-term focus on fundamentals and technicals should be prioritised, but there are many analysts that believe once a previous high (in this case, nearly fifty dollars in April 2021) is reached again, silver has the potential to exceed it by a considerable margin. 

Given silver’s strong fundamental case and favourable macroeconomic conditions, the prospect of silver challenging record levels looks credible.

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This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis. The opinions expressed in this article, do not purport to reflect the official policy or position of Kinesis.