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.
Silver is a compact store of value and is considered a safe haven investment during times of economic uncertainty such as we’re experiencing today. In this way, silver acts in a similar manner to gold; however, many investors prefer silver to gold in these market conditions because silver prices per ounce are significantly less than gold prices.
Growing Investment Demand
Silver is a smaller market than gold, which means that demand from big institutional investors can have a much greater impact on silver prices than is seen with gold prices. For example, silver prices almost doubled in the late 90’s because Warren Buffet’s investment company acquired 130 million ounces. From the current trends, there is a highly favourable outlook for demand for silver as an investment and silver prices are poised to continue growing for the foreseeable future.
Escalating Industrial Demand
Unlike gold, most annual demand for silver is for industrial applications. Silver is the best known electrical conductor, so we expect that demand for silver in new technology will continue to rise as technology is integrated into more aspects of our personal lives. This also means that silver will be more sensitive to changes in growth and inflation expectations than is gold. Silver prices and prices of other commodities tend to rise when economic growth and inflation are anticipated, which could make silver a more effective hedge than even gold is. Silver bridges the gap between precious metals as a store of value and precious metals as a commodity, and for that reason some investors actually refer it to gold.
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.
Silver the Best Investment over the next Decade
The long term outlook thus looks extraordinarily bullish for silver prices, and silver is well poised to become the investment of the decade. Both gold and silver prices will continue to climb as growing demand, shortening supply, and ongoing economic issues continue to escalate. Now is an excellent time to buy silver with FirstGold™ as silver prices are still at affordable levels, and are expected to grow exponentially in the future.