Gold and silver are two of the most well-known precious metals in circulation today. As such, they also have a few characteristics in common. First, both assets are extremely liquid. Second, both assets are viewed by the general population as being valuable commodities or, in some cases, an actual currency. Despite their similarities, one ounce of gold trades at approximately USD 1,700 per ounce, whereas an ounce of silver trades at USD 27.

To determine why this price difference exists, we must first consider what can influence silver prices.

Factors that influence silver prices

Although there are many factors that influence the price of silver, here are some of the most well-known.

Interest rates

Interest rates typically paint a pretty good picture of the overall market conditions. The higher an interest rate (as seen in a higher bond yield), the less attractive holding a non-interest bearing asset such as a precious metal will be.

Supply and demand

Like any other asset of value, the laws of supply and demand are at work. The metal itself is scarce, meaning the supply is limited, while demand has stayed consistent over time. As businesses and investors continue to purchase and stockpile silver bars and bullion, the market price will continue to rise.

Furthermore, any perceived increase or decrease in the supply or demand will also move prices. These perceptions are often disproportionate to the actual changes that occur.

Government policies

Since silver has been seen as a medium of exchange for so long, the market price of silver continues to be influenced by government actions and policies.

Technology advancements

Another factor that should be considered is the introduction of existing or new technologies. As silver continues to find new use cases, the value increases. This is true since the asset is seen as less likely to be replaced. Alternatively, when new technologies find cheaper metal alternatives to silver, the price can be adversely affected.

Industrial demand

Industrial demand is attributed to over 50% of the demand for silver. Some of its uses include cell phones and TVs since its properties can’t be provided by other metals. Since there are so few silver-specific mines, production can’t respond in direct relation to demand, driving the price of silver upwards.

Macro-level trends

In general, silver like other precious metals, is seen as a safe investment since it retains its value better than paper currency. In economic crises, many look towards these assets as alternative currencies when fiat currency is no longer as valuable. In contrast, when the economy is good, buyers may be less likely to purchase silver since it doesn’t generate dividend income like other investments might.

Value of fiat currencies

The U.S. dollar is generally viewed as the leading global currency and has a price that responds inversely to that of silver. In periods of hyperinflation, the price of silver will be driven higher. Conversely, if the dollar is strong, the silver market will remain low.

Mining of other metals

The majority of all silver in circulation today has come about as a by-product of mining other metals like lead or zinc. Therefore, during times when mining other metals are high, more silver may also come into production, increasing supply and decreasing price.

Population growth in China

China is known to be the world’s largest consumer of silver. As the population of the country grows, so does the demand for silver.

Investing in Silver

Many consider gold to be more expensive than silver since gold is more widely used and seen as an “alternative currency” more commonly than silver. Additionally, gold is in higher demand by both central banks and individual investors than silver. That said, silver is still seen as a good long-term investment due to the protection it offers against inflation, which is believed to continue propelling the asset towards increased value in the future.

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