Factors that Affect Volatility of Silver

Factors that Affect Volatility of Silver

The price of silver has remained volatile throughout history. Even though the ratio of gold to sliver prices has varied previously, recent observations reveal that sliver prices closely follow gold prices and may become substitutes in future. This article explores different factors that affect volatility of silver with a deeper analysis of how this volatility affects silver prices in the market.

Like any other commodity in the market, the price of silver changes depending on the relationship between supply and demand. However, silver behaves uniquely in the market when measured against other precious metals. It tends to exhibit static supply and its demand does not drop with increase in prices like in other commodities. Despite its volatility since 2002, the value of sliver has risen more than that of another precious metal in the world. According to experts, this trend is not about to stop.

Factors that affect volatility of silver- Demand

Demand is the main influencer of volatility of silver prices in the world today. Industrial, consumer, commercial and investment demand play a major role in determining volatility. Firstly, industrial needs of silver affect its price more that gold. Silver is largely used for industrial, commercial and consumer purposes. Some of these areas include photography, computers, automobiles, water purification, medical use, superconductivity, solar, televisions, coins, medals and jewelry. Therefore, the factors that affect the volatility of silver are based on these uses, which cut across different areas, ranging from technology to the world of medicine.

It is worth noting that electronics alone does not account for the ever-increasing demand of sliver in the world. Because of silver’s biocidal properties, the metal finds massive usage in high-tech medical devices research. Medical experts are also exploring the possibility of using silver as a disinfectant because of its anti-bacterial and anti-microbial properties. These specific properties continue to drive the price of the metal.

Investment demand also determines volatility of sliver, just like gold, which investors see as a hedge against inflation. The high prices of silver in the market is a show that investors previously used it to make a quick return more than a preservative of wealth. However, because of the high industrial demand, the metal has become an attractive long-term investment.

Factors that affect volatility of silver- Gold Prices

Besides demand, other factors that affect volatility of silver are gold and oil prices. Even though different factors drive the price of silver up in the skies, gold remains a primary driver of this volatility. Investors always have higher interest in precious metals, leading to higher market demand. Since silver does not have a huge market share like gold, its price shoots up within no time. In a bearish market environment, investors lose confidence in silver, leading to a sharp decline in prices. From an analysis of the ratio of gold to silver prices, it is evident that silver appears to follow the trend of gold in the market.

Factors that affect volatility of silver- Oil and U.S Dollar

Just like gold prices, oil prices too affect the volatility of silver. Oil and gold have had strong relationship throughout history. From the above analysis of gold and silver prices, it is logical to conclude that oil and silver should be having a stable correlation. The argument behind this is that silver mining is an energy intensive process. Therefore, a fall or rise in oil prices will cause a similar deviation in the price of silver in the market. Silver and oil also have a stable link because they are both industrial elements. Even though this is the case, oil is perishable whereas silver is not.

Moreover, an inverse relationship exists between silver prices and the USD Index. During economic recession, people invest in the US dollar more than previous metals. Thus, the prices of these precious elements including titanium, and palladium decline during recessionary periods. This means that silver can only be used as a long-term hedge against economic inflation. Other factors that affect volatility of silver are stock indices, political climate and market regulations.

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