The silver price is constantly changing, and it’s important to understand why. The silver spot price, as displayed here on ATS Bullion, updates throughout the day in real time Sunday through Friday.
Many bullion dealers sell their metals slightly above the current silver spot price, known as a dealer premium. This enables them to make a profit and stay in business.
Silver, like gold, has been a trusted store of wealth and value for centuries. It continues to hold this reputation of reliability today, serving as an investment and a commodity for industrial use in modern society.
The price of silver is constantly changing, never sitting stagnant for very long. This is a result of several factors including supply and demand, currency fluctuations, inflation fears, geopolitical risks, and central bank monetary policy.
For those looking to invest in silver bullion, understanding these factors is important. Many people buy precious metals to help diversify their portfolio, while others see them as a form of insurance against economic instability. These investors are often referred to as “preppers” and believe that silver will play an important role in bartering and trade in the event of a catastrophic economic collapse. Precious metals also act as an alternative to paper currencies, such as the U.S. dollar, which have been criticized for their depreciation over time.
Supply and Demand
Silver prices rise and fall based on supply and demand. Like any other product, available supplies generally exceed market demand, and when they don’t, prices tend to fall (unless there’s a distortion in the marketplace, such as a monopoly).
The silver futures markets are set up to clear industrial demand, with a built-in assumption of fairly continuous monetary demand by a small but stable number of coin collectors. When monetary demand for silver jumps suddenly, as it did around 1980, it can overwhelm industrial demand, and the result is a physical shortage of silver in monetary form that drives prices upward.
When silver prices move higher, mining companies are incentivized to produce more, and byproduct prices can help offset the high cost of silver mining. But when the paper price of silver moves down, preventing the futures market clearing price from rising to meet it, physical coin and bar producers are put in a tough spot.
Silver prices are driven by a number of short-term factors. Serious analysts and educated investors in metals focus on evaluating these factors in context, to understand why markets trend up or down.
Physical silver demand climbed to a record high in 2021, led by increased investment in 5G technology and continued growth in the green economy. Silver’s use in photovoltaic cells helps harvest solar energy for use in homes and businesses.
Historically, when industrial demand declines, the silver price goes up and vice versa. That’s why the futures market has a built-in assumption of fairly continuous industrial demand that keeps the clearing price in line with the underlying supply and demand fundamentals. But there are times when this relationship breaks down and the paper price jumps far ahead of the underlying physical demand. That’s when speculators and investors alike are likely to see enormous premiums for physical coins.
Silver bulls are lining up at some important price zones. Several technical indicators show a positive picture for the silver price, but a few fundamental considerations need to be taken into account before taking a buy-side position.
A key factor is the potential disconnect between physical and paper markets. While the clearing prices in futures markets are based mostly on industrial demand, there is a built-in assumption of fairly continuous monetary demand from a very small number of silver coin collectors. But if trust in the dollar crashes suddenly, as it did around 1980, monetary demand for silver can jump far higher than industrial demand and overwhelm supplies.
The only way to stop a run into silver is to raise interest rates. That is not possible right now because doing so would quickly collapse the economy and stocks. Instead, bankers can push down the paper price of silver by shorting futures contracts. But that has the added effect of prolonging physical shortages and forcing backwardation in the market – which is what we are seeing now.