May 17, 2023

The future of silver and precious metal prices in general is much like any investment asset. If investors could reliably predict where prices would be next year, five years, or fifty years from now, everyone would be rich.

Instead, predicting markets is notoriously difficult. There is no crystal ball that will tell you what an asset will do with absolute certainty.

That said, there are trends and market conditions that can influence the price of precious metals. When you’re trying to build your investment portfolio, it helps to learn what influences the price of silver and other metals. While no one can ever predict prices with absolute certainty, when you know what to watch, you can make better, more informed decisions.

What Market Conditions Affect the Price of Silver?

Before you start investing in precious metals, learn about the market conditions that tend to affect their prices. These are the primary factors that can affect the value of precious metals.

#1 Supply and Demand

When it comes to commodities like silver, economics 101 is a good place to start. Supply and demand will always determine silver prices, but how this plays out in the real world can be a bit complicated.

Silver demand comes from two primary sources: industry and investors. Industrial demand for silver includes jewellery, medical equipment, electronics (including smartphones, computers, etc.), the automotive industry, solar panels, and more.

Roughly half of all silver demand is for industrial purposes, and this side of demand tends to rise when the global economy is growing. There’s more demand for electronics, jewellery, power consumption, etc.

Over the past several years, silver demand has outstripped new supply. More of the metal was consumed in industrial manufacturing than was mined. However, the impact on prices is generally dampened by the release of silver reserves. These reserves are held by governments, banks, and mining companies.

#2 Political Uncertainty

Supply and demand are not the only factors that can impact silver prices. While silver has considerable industrial demand, it also shares a close relationship with gold, which is largely driven by investor sentiment. Silver and gold prices often rise and fall in tandem, and investors can look at the same factors that impact gold.

Political uncertainty, inflation, and stock market volatility are all factors that drive investor sentiment. When investors talk about political uncertainty, they talk about their faith in global stability. When foreign relations between superpowers break down, the market becomes less predictable, and the value of currencies drops. Recently, COVID-19 drove gold prices to rise 30%, and silver also benefited from the change in sentiment.

#3 Inflation

Precious metals have a history of maintaining their value against inflation. Given the period of high inflation many countries around the world have entered, there is significant interest in investing in silver as an inflation hedge.

Although gold and silver have historically acted as an inflation hedge over long periods of time, silver in particular has a lot of short-term volatility. What this means is that precious metals can preserve wealth over decades and longer, but year-over-year, their performance as an inflation hedge may not be as reliable as you want it to be.

If you’ve been thinking about selling your silver jewellery, doing so when inflation is high can be a double-edged sword. On the one hand, prices may be elevated due to current inflationary pressures. On the other hand, if you’re going to keep the proceeds liquid, the cash can quickly lose value for the very same reason. Finding the balance can be tricky.

A stack of wooden blocks printed with red percentage symbols

#4 Interest Rates

While high inflation can be good news for precious metals, rising interest rates can have the opposite effect. Precious metals do not generate interest or dividends, unlike income-generating assets like bonds or dividend stocks.

During periods of high interest rates, demand for gold and silver can fall as most conservative savings tools like bonds and certificate deposits begin to generate more income. This can get very complicated when interest rates start to rise to combat high inflation, but when the math makes bonds and certificate deposits profitable, investment follows.

#5 Stock Market Volatility

High market volatility can shift investor sentiment away from stocks and toward safe-haven assets. These typically include assets like gold and silver, which have little correlation to stock market prices. Volatility is a measure of how rapidly prices rise and fall on the stock market. High volatility means a large degree of uncertainty, with the potential for steep losses happening quickly.

If you want a measure of stock market volatility, the CBOE Volatility Index (VIX) measures volatility on the S&P 500 as a whole and is a good indication of general market volatility and investor fears. A rising VIX may be good news for gold and silver prices.

Managing volatility in your investments is an important piece of modern portfolio building. One way investors spread out their own risks and reduce volatility is often through so-called safe-haven assets, including precious metals, real estate, and reserve currencies.

Selling Silver: Sell Today or Hold for Better Prices?

Now that you know some of the major factors that affect the silver market, the question of when to sell your bullion remains. These are some of the questions you should ask yourself when you’re deciding what to do with silver jewellery, valuable silver coins, and other precious metals.

Will you earn a profit?

It’s the most basic question of investing: will you earn a profit when you sell? If you purchased the silver jewellery or bullion yourself, it helps if you keep documentation of your transactions. That way, you can find out what you paid for it years down the road. Don’t forget to consider inflation when you crunch the numbers.

You can use an inflation calculator to quickly find equivalencies between years. For example, if you bought an ounce of silver in 1990 for the spot price of around $5, that’s roughly the same as $10 in 2023. If you can get more than that, it is a profitable return, even with inflation factored in.

What are you going to use the money for?

What you plan on using the money for can also be a factor. During a period of high inflation, selling silver just to keep it in cash may be counter-productive. Your cash can quickly lose value unless you invest it in a high-interest savings account or some place where it can generate interest.

However, if you’re going to use the money to pay down debt, that temporary influx of cash can make a long-lasting difference in your financial health. Interest payments eat into your savings with every bill, and reducing them with a lump sum payment generated from selling silver can be a savvy financial move.

What are your investment goals?

Understanding your investment goals will go a long way toward guiding your decision-making process. Different assets fit different strategies and situations. If you do not have much in the way of savings and you are investing long-term (i.e., for retirement or another goal at least 10 years in the future), you may be better served by higher-risk investments with more potential for growth. The longer timespan means your investments have more time to recover in case of a crash.

If your investment goals are nearer to the future, safe haven assets are worth holding onto until you need to liquidate them. This includes assets like gold and silver.

Finally, if your goal is multi-generational wealth preservation, precious metals are well-suited to this purpose. Even if other parts of your portfolio are oriented toward faster growth, gold and silver are notable for maintaining their value, and you can expect them to be valuable years into the future.

Do you have a good silver buyer?

Muzeum has a long history of providing the best prices for silver, gold, and other precious metals to our customers. Make us your choice for silver buyers in Toronto when you’re ready to cash in your investment to get the best returns you can.

Five stacks of silver coins in front of a calculator and magnifying glass

The Future of Silver Prices (and Other Precious Metals)

Where will silver prices be in five years? What about ten? While no one can tell you with confidence where silver prices will go, you can look toward silver’s history and the major economic conditions that affect silver prices to see what might be in store.

While things can change, precious metals continue to serve a role as a safe haven thanks to their role in the money system before fiat currency. Even though gold and silver are no longer used to back paper currencies, investors like them because of their historical role as money. When investors get worried about reserve currencies like the U.S. dollar, either due to high inflation or geopolitical instability, demand for precious metals rises.

Supply and demand have the potential to become another factor. Silver is a finite, non-sustainable resource. Although humans have been mining it for millennia, there is a limit to how much of it exists in the Earth. Whereas most of the gold that is extracted through mining is still in existence today, silver is used in a number of applications where it is not or cannot be recycled, contributing to a potential global silver shortage.

How scarcity will impact silver products in the next couple of decades is up for debate. Rising prices could incentivize increased production from mining companies, but only about 20% of silver comes from dedicated silver mines. The rest is mined as a by-product in mines primarily meant to extract copper, lead, and zinc.

In summary, not even the experts can reliably predict the future of silver, but that doesn’t mean you can’t make informed decisions using the history of silver and learning about the market conditions that expert analysts use to predict future silver prices.

Before you buy or sell silver, evaluate the move compared to your financial goals and strategy. Is it profitable to sell silver you already own or inherited right now? Do market conditions look favourable for the near- or long-term price of silver? Even though experts may not know with certainty what will happen next, they do know the trends.

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