Free Essay: Factors That Affect Volatility of Silver
For quite a long time now, the prices of silver have been quite volatile. Recently, it has been established that silver prices mainly go along with those of gold. In fact, there are indications that in the future, silver may even be used to substitute gold. Silver is a precious metal that can be used a currency or as a retainer of value. The volatility of silver can be attributed to quite a number of factors as illustrated below.
One of the factors that affect the fluctuation of silver prices is the kind of investor. Based on statistics, it has been established that the prices of silver have often been dictated by large and private investors. In fact, they have the ability to impact the prices in the market. For instance, if a renowned investor like Warren Buffet purchases silver today, there is a higher chance that the price he acquires them at will prevail in the market for quite a long time.
Industrial demand for silver is also another factor that affects the volatility of the precious metal. The reason for this is because more than half of the total demand for silver is generated from industries. Silver is used by manufacturers in making a variety of hi-tech products like flat screen TVs, cell phones among others. Due to the unique characteristics of this precious metal, other metals cannot be used in its place. It has not been easy to increase the supply of silver to match the demand owing to the scarcity of the mines. As a result of the increasing demand while supply remains constant, it is predicted that prices of silver will continue moving upwards.
The volatility of silver has mainly been attributed to the fact that most people used the precious metal as a means of making quick returns compared to investments for the preservation of wealth. However, the increasing demand has convinced many to view silver as an ideal commodity for long term investment. Due to the decline in the supply of silver has led many investors towards stocking large quantities of it. This can also be attributed to the idea that many people are diversifying their portfolios to invest in hard assets. Thus, investments demand can also be said to impact the volatility of silver.
Gold prices can also be attributed to the volatility of silver. Just like it has been stated above, silver has a significant relation to gold such that some investors even substitute the two. Gold prices are always tracked by those of silver. As the demand of gold increases that suggests a rise in its price, silver also faces a similar situation. In the event that gold prices begin taking a downward trend, silver will lose even more value.
Apart from the above discussed factors, volatility of silver can also be affected by the political climate, hedge against financial stress, costs of mining the precious metal among others.
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