For its applicability in jewelry, photography and electronics, silver has long been in demand as a precious metal and an industrial component. As with any other commodity, the price of silver moves based on the supply of raw silver and the demand for its use in specific applications. However, several other factors influence the price of silver, from advances in technology to movements in the global economy.
Supply and Availability
The price of silver can change with the supply of the metal and its availability on the open market. In 1859, discovery of the Comstock Lode in Nevada brought $50 million worth of silver into the market. The consequence of this sudden glut was a steep drop in price. In the 1970s, brothers Nelson and William Hunt attempted to corner the market on silver by buying up more than three-fourths of the market. Their efforts drove the price up from $5 to more than $55 per ounce.
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Demand and Industrial Applications
When the supply of silver remains stable, the demand can move up or down. When demand for silver increases, so does its price. When demand falls, so do prices. Demand can change as a result of economic forces, investor tastes and new applications. When new photographic technologies replaced the need for silver nitrate and other silver-based ingredients, prices for silver fell. The increased demand for silver in solar panels is expected to increase the metal's price.
Response to Inflation
When inflation occurs, tomorrow's money becomes worth less than the same amount of today's money. Many investors place their money into precious metals as a hedge against inflation. Some use gold to protect their wealth from the dangers of reduced value due to inflation. Because silver usually experiences more dramatic price fluctuations than gold, many of these same investors purchase silver to make a quick return. When the inflation subsides, silver prices fall and investors sell their stockpiles.
Political concerns in countries with high supplies of -- and demands for -- silver can also affect the price. For instance, Peru is one of the largest producers of silver and has the world's largest supply of in-ground silver reserves. Peru's new president, Ollanta Humala, hinted that he might nationalize the nation's silver mines, placing silver production under government control. If that were to happen, it would restrict supplies of the precious metal and drive up the price.
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- TradersLog: The Hunt Brothers and Their Attempt to Corner the Silver Market
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- Resource Investor: Why Silver Prices in 2013 Will Continue to Perform
- Commodity Online: Why Silver Price Will Boom to $50/oz