The Silver Price is On the Move: Silver Follows Gold
We often talk about gold prices here at The Daily Reckoning Australia, but now silver is starting to make a move too.
At time of writing today, the price of silver in US dollars was up 3%, 2.55% in AUD, and trading at AU$26.64 an ounce.
What affects the silver price?
While silver is commonly used for jewellery, it’s also used for electronics, batteries, medicine, and semiconductors — among other things.
This means that demand for silver will usually increase when times are good. But silver is also considered a safe haven during an economic crisis.
Another factor that influences silver prices is interest rates. Since silver offers no return, it becomes more attractive when interest rates are at record lows.
And, silver is also a commodity, which means that supply and demand will also affect it.
The pandemic has increased demand at a time when supply is also suffering disruptions with the closures of mines and silver mints. Mexico, the largest producer in the world of silver, had to suspend activities because of the outbreak.
Silver will also usually follow gold in its moves up or down.
But that hasn’t really been happening.
That is, until now…
Why are silver prices moving now?
So far though — during the COVID-19 outbreak — silver has been underperforming. As you can see below, after prices collapsed in March silver stayed around the $23–24 mark until last week, when prices spiked.
Source: Silver Price
The pandemic is increasing demand for silver, and it’s also affecting supply.
At the same time, trade rhetoric between the US and China is ramping up.
The global economy is bracing for a recession as COVID-19 has closed countries and affected production. On Friday, a report by the US Federal Reserve showed that total industrial production for the US in April collapsed by 11.2%, the most in the report’s 101-year industry.
We have central banks printing large amounts of money to keep their economies afloat, higher unemployment, and market volatility.
Any or all of the above could be pushing silver prices higher…and gold.
So far since last week, silver has increased by over 11% in US dollar terms. Year-to-date gold has seen a 15% increase in US dollars and a 26% return in Australian dollars.
If you are looking to get exposure to precious metals like silver or gold but aren’t sure where to start, check out Shae Russell’s step-by-step guide titled ‘Best Way to Buy, Sell and Store Gold’.
You can access this free report here.
For The Daily Reckoning Australia