Weekly Market Recap (August 16) – What Factors Determine the Trend of Silver Prices?

What Factors Determine the Trend of Silver Prices?
Published on: Aug 16, 2024

Silver prices typically follow the trend of gold. However, once silver begins to rise, its increase often surpasses that of gold. As of the end of July 2024, silver prices had risen nearly 30% from March. Although there has been a recent pullback, silver remains at a relatively high level. Furthermore, the gold-to-silver ratio is at a historically high 87.57, indicating that silver is cheaper relative to gold.

Like gold, factors influencing silver prices include geopolitical risks and recession risks that drive safe-haven demand, as well as interest rates and the dollar’s trend. However, unlike gold, industrial demand significantly impacts silver prices, particularly in the long term.

In March 2024, David Wolfin, the President, CEO, and Director of Avino Silver & Gold Mines Ltd. (ASM: TSX/NYSE American, GV6: FSE), provided an update on the company’s recent developments during the METALS 100 interview. He also shared details about the Oxide tailings project and his perspective on silver. The company’s wholly-owned Avino mine is situated near Durango, Mexico, and produces gold, silver, and base metals.

Broadly speaking, factors affecting silver prices can be categorized into macroeconomic factors, geopolitical factors, technical factors, and industrial demand:

Category Factor Impact on Silver Prices
Macroeconomic Factors Inflation Silver hedges against inflation and currency depreciation. High inflation leads to increased silver demand and higher prices.
Interest Rates Decrease in interest rates boosts silver prices due to lower opportunity costs of holding silver. Conversely, increased money supply from low rates typically correlates with higher silver prices.
Economic Growth Strong economic growth increases industrial demand for silver, causing prices to rise. Weak growth has the opposite effect.
Monetary Policy Policies like quantitative easing and monetary expansion depreciate currency, which increases silver demand and prices.
Geopolitical Factors Political Stability Turmoil, trade conflicts, and geopolitical tensions drive demand for silver as a safe haven, boosting prices. Examples include unrest in the Middle East and the Russia-Ukraine war.
Regulatory Changes Changes in mining, environmental, and trade regulations can affect silver production and trading, influencing prices.
Market Sentiment News, forecasts, and trends influence investor sentiment, leading to speculative trading and price volatility based on perceptions of economic conditions, inflation, and geopolitical issues.
Global Events Events such as pandemics, natural disasters, and technological changes disrupt supply chains and demand, affecting silver prices.
Technical Factors Futures Market Speculation Futures contracts are used for hedging by mining companies, while speculative trading by hedge funds can lead to price fluctuations. A large net short position might signal bullish trends, potentially causing a short squeeze.
Industrial Demand Sector Usage Silver’s conductivity makes it essential in electronics and solar energy. Economic activities in countries like the U.S., China, and India heavily influence prices due to their substantial industrial sectors utilizing silver in various processes.

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