Silver bars might be an invaluable store of value, but gold is believed to be the primary driver for its prices. In a bullish market, interested parties tend to take interest in every precious metal. This easily leads to a rise in demand for silver.
Silver has a smaller market compared to gold, so it never takes long to drive its prices up. In a bearish market, investors lose confidence in the commodity pretty fast leading to a fall in its prices. Research shows that silver prices have a tendency to follow gold prices. When the price of gold rises, that of silver also increases – by an even greater margin. And when the price of gold falls, that of silver falls as well but by a bigger margin.
Increasing demand from the industrial sector
The growth of the industrial sector has seen a big rise in demand for silver bars. New applications for the precious metal are being explored in semiconductors, batteries and microcircuits among others. This will only continue to increase the non-investment demand for silver. Then there is the expanding middle class in emerging economies – a group that aspires to western products and lifestyles. As long as this group continues growing, the demand for silver products and thus industrial usage of silver will be on the rise.
The relationship between gold and silver and that between gold and oil point to an existing influence of oil prices on silver bar prices. The mining of silver is such an energy intensive process; if the price of oil falls, silver prices would definitely follow suit. A rise in oil prices would also trigger an increase in silver prices. Silver and oil are also both industrial elements raising the argument that factors affecting their demands ought to be common. The positive correlation of gold and oil is 0.8 and is considered as very strong. That between silver and oil is 0.7, not quite as strong, but not weak either.
Regulations in the silver market
As a solution to complaints arising from investors in the past, the Commodity Futures Trading Commission (CFTC) put in place several measures to regulate the silver market to prevent manipulation. Some investors complained that the silver market was largely controlled by a small group of individuals who had enough power to influence silver prices whenever they wished. Investigations however show that there haven’t been any attempted manipulations as claimed. Silver has been trading close to the spot price which shows that the close movements are just but an indicator of healthy market forces in action.
The US dollar
Studies show an inverse relationship between prices of silver bars and the US Dollar Index. In times of recession, investors from all over the world usually disinvest in commodities to invest in the US Dollar. However, during the same period, the prices of most precious metals such as silver and titanium tend to fall. This relationship clearly suggests that these precious metals, silver included, can only be used as a hedge against inflation in the long term, but they cannot be used as