Like gold, silver is a precious metal. It was often used as currency in ancient times and had the function of storing value. The volatility of silver prices is well known, so investors should pay close attention to silver prices. More importantly, understanding the factors that affect the price of silver will help develop trading strategies.

Like most commodities, the price of silver is determined by speculation and supply and demand. It is also affected by market conditions (large traders or investors and short selling), industrial, commercial and consumer demand, hedging financial pressures and gold prices.

Large traders or investors

As we all know, the price of silver is much lower than that of gold, so the value of the silver market is also much lower than that of the gold market. Larger traders or private institutional investors have the opportunity to influence the price of silver. Take the Hunter Brothers as example, in January 1980, they caused the London silver fixing price to soar to US$49.45 per troy ounce, and silver futures reached an all-time high of US$50.35 per troy ounce. Another example is Buffett's purchase of 130 million troy ounces of silver in 1997, at a price of approximately US$4.50 per troy ounce, with a total value of US$585 million. All these clearly show that large traders or investors have the ability to influence the price of silver in the market.

Hedging financial pressure

Like other precious metals, silver can be used as a hedge against deflation, inflation or devaluation. The price of silver is affected by the current market value of currencies, especially the U.S. dollar. From the perspective of the relationship between silver and the U.S. dollar, we can clearly see the inverse relationship between the silver price and the U.S. dollar index. When the U.S. dollar depreciates, the demand for silver increases and the price of silver naturally rises.

Gold price

Although it may not be obvious to new investors, the price of silver usually follows the price of gold. Therefore, the price of silver is greatly affected by the price of gold. As the demand for gold improves, the price of gold rises and the price of silver rises accordingly; when the price of gold falls, the price of silver will fall sharply. Generally speaking, silver has a tendency to follow the price of gold.