Volatility of Silver
Silver is a unique metal and its demand has been high ever since. It is a treasurable metal valued by both as store of value and as a form of currency. Silver has been a great component for industrial use, jewellery, photography, silverware and coins. Silver is produced in several countries and Mexico is the largest produce followed closely by Peru. The main consumers for silver are the U.S, UK, Mexico, India, France, Japan and Germany among others. Prices of silver have been extremely volatile or unstable historically.
The prices of silver follow gold prices closely. In a few years to come, the prices of silver may act as a substitute for Gold prices. Silver prices began to outpace other counterpart commodities like Gold and platinum in 2006. Its prices have been growing at a rate of 58% in the same year. The increased demand silver has been attributed to the launch of the Silver Exchange Traded Funds [ETFs] BY Barclays. There are numbers factors that affect the volatility of silver and they include;
- Industrial demand- Silver is utilize in many areas and new application are being explored in many areas. For instance, the industrial demand of silver in batteries, microcircuits and superconductors field is high and this may further increase non-investment demand. The increase in middle classes in new economies hopeful to enjoy western way of life and product may also contribute to the increase in industrial demand for silver.
- Large and private institutional investors- Large investors in the silver market have great power to affect volatility of silver. For instance, Warren Buffet bought 130 million troy ounces of silver at an estimated $4.50 per troy ounce [About $585 million]. Hunt Brothers are acknowledged as one of the large investors in the silver market. iShares in 2006 launched a silver exchange-traded fund; the iShare Silver Trust which by 2008 had been on hold of 180 million Oz silver as reserves.
- Gold prices- Gold is considered as the core driver for silver prices. Many investors are interested in most precious metals and this has led to higher demand of silver in the market. Despite the smaller market of silver as compared to gold, it does take a lot of time to drive the prices higher. During odd times when gold prices decreases, it was also evident that silver prices plunged by even greater edge.
- Regulations in the silver market- Controls in the silver market have also been imposed to prevent any kind of manipulation. There is a marginally positive relation between short future silver prices and spot silver prices. This suggests that the larger short future positions are associated with higher prices, but there are policies that govern the silver market.
- United States dollar- The relationship between silver and the US dollar [global trading currency] has been an inverse one. In case of recession or related crisis, the US dollar is considered a safe haven and many people globally tend to disinvest in commodities, but invest on the US dollar. Evidently, the prices of precious metals like silver tend ti decline during such financial crises.
- Other factors that affect volatility of silver include oil prices, stock indices, silver mining costs and political climate among others.
Silver is a valuable metal that guarantees incomparable revenues. It is a valued form of currency and industrial metal that is useful in many areas. Many investors consider silver as a great substitute for Gold in future, but the abovementioned factors that affect volatility of silver remain a problem of interest.
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