Silver is a commodity, a precious metal like gold, platinum or palladium. Being in such exclusive company, it is no wonder silver is viewed as gold’s “little brother.”
Supply and demand levels play an essential role in the price of silver. The quantities of silver above and below ground also play an important role in the price. Its price determines whether exploiting silver ore makes sense or not. Silver is deep in the ground and the extraction process is expensive so a low market price for silver makes it an unfeasible investment.
The forex dashboard offers the opportunity to trade silver as it is quite an active market. Silver is paired against the USD, and the pair is known as XAG/USD. Therefore, when trading silver the US economic news and data influences the pair, just like with gold (XAU/USD).
Speaking of gold, the two tend to move in a correlated manner; it is very rare to see gold and silver move in different directions. If this does occur, it typically happens within lower timeframes, due to seasonal factors. In any case, traders use a so-called “gold-to-silver” ratio to determine when it is safer to trade silver based on its general correlation with gold.
What Moves Silver Prices
Believe it or not, scrap silver drives market moves many times larger than its own price. Silver is used in the manufacturing process of many products and because it has such an active industrial component, when certain industries go bust (e.g. products aren’t in demand anymore) scrap silver increases the amount of available silver. Therefore, with more silver available, the price will have a harder time rising. Silver jewellery, coins, the photography industry, etc. are just some examples of how scrap silver can influence supply and demand.
Just like gold, silver is seen as a safe-haven investment. Therefore, changes in macroeconomic trends around the world can influence investors’ appetite for silver. For instance, when the economy falls into a recession, investors tend to protect their portfolios by adding a safe-haven component, increasing the demand for gold or silver. Alternatively, booming economic conditions stimulate investors to take more risk, causing the demand for silver as an investment to decline.
Like gold, silver protects against inflation. Higher inflation levels eat away at the value of a currency, while silver has the power of retaining its value. Silver acts as a hedge against inflation, and in times of high inflation investors typically dedicate a more significant portion of their portfolio to silver or gold.
Finally, the strength of the dollar plays a crucial role when trading silver. Look for inflation (Consumer Price Index), GDP (Gross Domestic Product), NFP (Non-Farm Payrolls), and other 1st tier economic data from the United States to create swings in the silver market too.
- XAG/USD stands for Silver against the U.S. Dollar.
- Supply and demand imbalances influence the price of silver.
- Traders closely watch the gold-to-silver ratio.
- Silver can be a hedge against inflation.