Silver Jumps Past $16 Per Ounce

Tuesday, April 12, 2016

Precious metals have been incredibly interesting to watch as of late, and one of the most interesting has been silver. In the beginning of the year, the price of silver started to spike as global concerns with regard to market conditions took hold. However, as time passed, silver started to lose its shine to an extent. Market conditions recovered and the value of the precious metal has started to head back up. In fact, just recently, silver broke through $16 per ounce. Today, we'll talk about why silver is headed back up and how long the trends are likely to last.

What Causes Price Movement In Silver

Before we get to why silver is starting to climb yet again, it's important that you understand just what causes price movements in the value of the precious metal. Silver, like any other commodity, is dependent on the law of supply and demand. This law dictates that when supplies are high and demand is low, prices must fall. Adversely, when supplies are low and demand is high, prices will likely move upward. However, because silver is a precious metal, determining value movements is quite a bit more complex than that. You see, precious metals are considered safe haven investments. So, there are certain events that will cause spikes in demand. For example, when market or economic conditions are poor, investors look to silver as a way to keep their money safe. This is also true in times of geopolitical uncertainty.

There's another major factor that plays a big role in the demand for silver, however. That factor is the United States Dollar. As with most other commodities, silver is priced using the USD. Therefore, when the value of the USD climbs, the cost of silver in nations outside of the United States goes up. This ultimately causes a reduction in global demand for the precious metal and declines in its price. Adversely, when the USD starts to edge downward, silver becomes less expensive in nations outside of the United States, leading to increased demand and price.

Why Silver Is Starting To Head Back Up

When it comes to the gains we're currently seeing in silver, there are a few key factors causing the movement...

  • United States Federal Reserve – The United States Federal Reserve has been expected to increase its interest rate. However, given current economic conditions, the Fed hasn't been able to do so. As a result, the value of the USD is falling, leading to higher global demand for silver, and helping to push the commodity's price upward.
  • Market Conditions – While the market seems to be on a bit of a recovery at the moment, it is incredibly fragile and uncertainties are swirling around. As a result, we're seeing a stronger demand from safe haven investors.
  • Economic Conditions – Around the world, economic conditions are in shambles. With several countries entering negative territory on interest rates, others struggling to stay above water, and uncertainties with regard to the US Federal Reserve, economic conditions are also driving demand from safe haven investors.

What We Can Expect To See Moving Forward

Moving forward, I have an overwhelmingly bullish opinion of what we can expect to see from the value of silver. The reality is that everywhere we look, we're seeing signs that point toward increasing demand. With demand rising and supply relatively stagnant, it seems as though gains are the key expectation moving forward. 

Joshua Rodriguez

Joshua Rodriguez is an avid financial professional. He is the owner and founder of CNA Finance, a partner at Modest Money, and a writer for US News & World Report, Investing.com, and more! Joshua takes a strong fundamental approach to market analysis and enjoys offering his take on what we can expect moving forward. You can reach Joshua at cnafinancehelp@gmail.com.