Factors That Affect the Price of Silver

Just like gold, silver is also a precious metal that is considered a good investment. The traditional use of silver has been in the creation of jewellery but off late it has manage to gain popularity in industrial applications. This interest has led to an increase in the demand for silver for the purpose of manufacturing.

Over the last 5 years, the silver price in India has seen some remarkable movements. There have been various factors that have led to this movement but it clear that the price moved up from less than Rs. 30,000 per kg in 2010 to around Rs. 44,000 in the beginning of 2011. From there it rose steadily to cross Rs. 65,000 per kg in the first of the year itself. Soon after that it crashed, coming down to almost Rs. 47,000 in the second half. From there the price followed a sideways trend till 2013 when it started falling again, rising only temporarily to Rs. 50,000 near the end of 2013 and from then it has been a downward trend till August of 2015, when the prices came down to almost Rs. 30,000.

5 Year Silver Prices in Indian Rupees (price per kilogram)

So what are the factors that cause the silver rates in India to fluctuate so much?

Industrial demand for silver
Silver has become very popular in the manufacturing sector. Requirements are coming in from manufacturers of electronics, producers of medical equipment, etc. which has led to the demand for silver rising considerably. This rise in demand has also been a factor that drives prices of silver. From the industrial perspective, since silver is also obtained from copper, any changes in the demand for copper can affect the price of silver as well.

Strengthening of the US dollar
Since the last depression, the US dollar has been rising steadily. It is trading in the region of Rs. 61 to the dollar, which is making the procurement of silver more expensive. This, in turn, is affects the price of silver. As the dollar gains strength, the price of silver rises and as it falls so does silver.

Gold prices
There is no hard and fast rule for this but it has been noticed that the price of silver tends to follow the same trends as that of gold. This means that if the prices of gold rise or fall due to factors like demand, change in cost of importing, rise or fall in the cost or production etc.

Large investments
The market for silver is not as big as that for gold and that is why unusually high transactions tend to affect its price. This fact has been seen twice, first in the 1980’s when the Hunt Brothers bought vast quantities of silver and silver futures which forced the prices up to an all-time high of $48.70. This was seen again in 1998 when billionaire Warren Buffet invested nearly $680 million in silver. At the time the price of gold was falling and so was that of silver and this investment prevented the prices of silver from hitting an 18 year low.

Determining what trend the prices of silver will follow is not an easy undertaking but if these markers are followed then it becomes much easier to understand if the price of silver will rise or fall.

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