In our current economic climate, silver is experiencing high demand from industrial sectors, and while prices for silver remain more volatile than gold prices, ultimately silver will benefit from its dual position as a store of value and a cornerstone of industry. Even though change in the industrial demand is one of the reasons that silver prices are much more unpredictable than gold, silver can be more defensive in a high growth and high interest rate environment. To learn what to watch with silver, find out the fundamental factors affecting silver prices.
Growing Investment Demand
Escalating Industrial Demand
Endless Quantitative Easing
Quantitative easing, or QE for short, is a way for governments to artificially stimulate the economy by directly increasing the amount of money circulating in the economy. Usually, central banks try to stimulate the economy and the amount of lending indirectly, by lowering interest rates; this encourages consumers to spend money, as opposed to saving it. However, when interest rates have hit bottom, a central bank’s only option is to pump money into the economy directly. They accomplish this by buying assets, usually in the form of government bonds, using money they simply produce out of thin air. The institutions selling those bonds have this new money flood into their accounts, which increases the money supply as it can now flow through the economy. Recently, QE3, a third round of easing since the global financial crises, has been implemented by central banks.
How does this affect gold and silver prices? Quantitative easing destabilises the financial system, and results in significant inflation and an adverse impact on savings and superannuation funds. Gold and silver prices end up rising due to the decrease in the dollar’s value. In addition, smart investors flock to safe assets like silver and gold to protect their purchasing power – as a result, gold and silver prices increase, and we will see silver prices continue to grow as the current round of QE remains open-ended.