Chances are that you’ve heard about the impending recession and the risks of inflation. The serious issue isn’t the recession but the inflation. Inflation is an economic term for when the value of money depreciates and it’s capable of wiping out savings overnight.
If you have $20,000 in savings and you’re hit with inflation, that same $20,000 could only have $10,000 in buying power. To counter this, many investors are moving away from cash and towards other investments such as precious metals – one of them beings silver. In the section below we’ll cover inflation in more depth.
You can easily find 100-ounce silver bars for sale, silver coins and other forms of silver for sale online and it’s a significant step in the right direction. However, before you put in some real money, make sure you understand how market changes affect silver price action and what market forces to look out for. Here are the main ones you should watch closely.
6 Market Changes Affect the Silver Price
#1 The Forces of Supply and Demand
One of the reasons why silver is such a precious metal is its supply and demand equation. There is a constant demand for silver. However, its supply is limited.
The way the markets work, however, is that whenever there is a change in either the supply of or demand for a product, there is a change in price.
More often than not, that change in price is disproportionate to the causal change. If there is a strike that halts mining operations at a major silver producer, then you might see large spikes in the silver price in the short term.
If there is a new use of silver announced, such as solar panels, then there will also be frenzied bull activity in the market.
Most investors, economists and analysts understand the wasting effect of inflation on the value of a portfolio. It’s even worse when you’re looking at the long-term effect of nominal inflation.
Historically, silver is considered a safe investment and a hedge against inflation. While inflation will erode the value of your paper wealth, you can protect yourself by putting your wealth in silver instead.
Increasing inflation, therefore, leads to higher demand for silver, which leads to increased prices.
#3 The Dollar
The dollar remains the leading global currency and, as such, it has an inverse relationship with silver in terms of price. Participants in the silver market know that a strong dollar will push the silver price down. The savviest investors will take such times as opportunities to buy silver at bargain prices.
The impending crash of the dollar will dramatically raise the price of silver as it will take more dollars to buy silver. In other words, it also means that silver will sell for a lot more money. Silver can be used as a way to protect your money because your buying power might never change.
#4 The Price of Gold
This is something that is hotly debated and is popularly known as the gold-silver ratio. However, something that everyone agrees on is that the prices of silver and gold are related. When the price of gold goes up, then the silver price will typically follow. In fact, many traders trade based on the gold-to-silver ratio.
#5 Interest Rates
The interest rates will give you a general sense of what is happening in the markets. Investments in silver are usually long-term investments, so some investors take an interest in the short term over the long-term value gain of silver. The market price of silver, therefore, has an inverse relationship with interest rates ― similar to the dollar.
#6 Silver Scrap
There was a time when the photography industry consumed insane amounts of silver as it was the main component in photographic film. Because there is more non-silver photography today, there is a large amount of photographic film being recycled for the silver it contains.
This will likely raise the demand for silver prices. Also, with rising silver prices, there will be more coins and jewelry being melted down to increase supply to meet that demand.
Silver investments have the power to protect your buying power by preventing loss. This is extremely valuable especially if you have a lot of money saved up. To see if silver goes beyond protecting loss, you’ll have to calculate its worth based on buying power. We hope this quick guide brought to light some of the more important silver market factors.
Author: Bruno Souza