Did Silver lose its sheen? Or is it time to buy

XP Invest
August 21, 2019

Often referred to as Gold’s poor cousin, Silver is still classified as a precious metal and has been used as a store of value for over 4000 years. It is often looked as an investment vehicle. By virtue of being a precious metal it is also often compared to Gold. It’s price however, is more volatile due to the lower volume of Silver that is traded. The price of Silver as compared to gold is much lower, which would make it a cheaper alternative investment to make compared to Gold, but sharing many of the same characteristics.

One of the factors impacting the price of Silver includes the US monetary policy. If the Fed were to increase the interest rates, people would move their funds to interest bearing investments rather than commodities or equities. There would be a dip in the price of Silver in this scenario due to a fall in its demand. Another factor impacting the price of Silver would be a dip in the equity markets, considered as a safe alternative investment, with the trade war looking to re-start in a few months. Silver would be a likely destination people parking their funds, leading to a rise in its prices.


Factors impacting the price silver go beyond financial markets. An interesting trait around the price of Silver is its correlation with other precious metals. Approximately 30% comes from primary silver mines. The remainder comes as a by-product of mining other metals. The price of Silver can thus, rely heavily on the price of other metals.

Silver also has a high industrial demand. It is among the best electrical and thermal conductor of all metals and is used in many electrical applications, particularly in conductor switches and fuses. Thus, industrial demand is a huge factor that determines the price of silver. Jewelry is another driving factor in the price of silver, though it is not as highly sought after as gold.

Gold and Silver are both often looked at as hedges against inflation, it can be almost self-fulfilling. Assume that there that the US market is going through an inflationary period; this price rise would reduce the nominal value of the US dollar. A reduction in the nominal value of the dollar would result in commodities such as gold and silver becoming more expensive, thus acting as a hedge.

The futures market is also a key indicator for the expected price of silver. Some of the major market players and market participants in the silver futures market include

1. The mining industry

2. Refineries

3. Electrical & Electronic companies

4. Photography (film)

5. The automobile industry

6. Solar energy manufactures

As we mentioned earlier, the price of silver can be driven heavily by the metals where it is a by-product of the extraction process and as we can see from some of the largest participants of the futures markets- the mining industry ranks among the highest.

Based on the historical price of silver, it may have bottomed out in 2019. There is a possibility for an increase in its demand given its lower price vs. gold and the unstable equity markets, there can however be factors that offset this upside. More fundamental drivers must also be considered. Several brokerages have also predicted an upward trend in the price of silver based on the prices on the futures market.

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