Silver Prices in the USA: What Affects its Price? 

Silver, a popular choice for those investing in precious metals, offers a unique appeal. While it may be more volatile than gold, its potential for high returns and strong demand makes it an attractive investment. Alongside supply and demand, various economic factors influence silver pricing, including inflation, US dollar strength, recessions, interest rates, monetary policies, geopolitical events, market manipulation, and Government policies/regulations. In this blog, we will detail each factor that impacts silver prices. 

Silver Demand 

Silver has massive industrial uses, such as electronics, solar panels, medical equipment, batteries, and military equipment. Nearly 50% of all silver demand comes from its industrial applications. Therefore, a rise in demand for these products could drive the price up. For example, silver is used heavily in electrical wiring and batteries, so as the demand for electric vehicles rises, the demand for silver will likely also increase. Silver's use of solar panels also represents an opportunity as governments worldwide are pushing for renewable energy. The International Energy Agency (IEA) projects that solar power capacity will account for 80% of the growth in global renewable capacity. This is the result of the construction of new large solar power plants, as well as an increase in rooftop solar installations by both companies and households.

Silver's jewelry and investment demand is also substantial. Since silver is much cheaper than gold, it appeals to many consumers. Silver is affordable, durable, hypoallergenic and versatile, which makes it popular in jewelry. As for its role in investments, this demand accounts for a significant portion of silver demand. Silver is a safe-haven asset, a tangible store of value, and highly accessible due to its price.  

Silver Supply 

The primary source of silver is mining, which is mined in two ways: primary silver mines and byproduct mining. Primary silver mining occurs when silver is the main product of the mine, and byproduct mining occurs when silver is extracted as a byproduct of mining other metals. The top silver-producing countries are Mexico, China, and Peru. However, there have been challenges in mining supply, such as the decline of ore grades, environmental regulations, geopolitical risks, and the lack of discoveries of silver deposits.  

Another source of silver is recycling, which accounts for approximately 18% of the supply annually. It comes from industrial scrap, jewelry and silverware recycling, and photography waste. However, many modern electronics use nano-sized silver, making recovery more complex.  

The final supply source is private investors and ETFs. Silver ETFs, or exchange-traded funds, are investment funds that hold physical silver in vaults. They are a popular way for investors to gain exposure to the silver market without having to store the physical metal. Bullion and coin hoarding are also quite popular, as many investors accumulate large amounts of silver during economic crises.  

Over recent years, silver has been experiencing a supply deficit, meaning demand is outpacing supply. Since silver is so widely used, supply-demand imbalances, like the one we are currently experiencing, are more likely to occur. If this deficit continues, it could push prices higher. In 2024, the silver deficit was estimated to be 182 million ounces.

Inflation and Silver Prices

Inflation impacts silver's price because silver is seen as a store of value. As inflation weakens money's purchasing power, assets like silver become more attractive.  

Historical Examples: 

Silver Price Chart 

Based on these examples, silver demand tends to rise if inflation remains high as investors seek protection. If inflation falls and central banks tighten policy, silver prices may fall.  

US Dollar Strength: Impact of the US Dollar on Silver

Since silver is priced in US dollars, its value fluctuates with the currency's strength. Since silver is traded globally in US dollars, silver tends to fall when the USD is strong, making it more expensive for foreign buyers. However, silver prices tend to rise when the USD is weak, increasing silver demand globally.  

Both silver and the US dollar are considered safe-haven assets, but they tend to perform differently during economic uncertainty. Depending on the investor, some may prefer cash and treasury bonds, while others may lean toward hard assets like silver. Given their different behaviours, having both in your portfolio to diversify and protect against market shifts is advisable.  

Recessions 

The impact of recessions on silver prices is much more complex than gold's. This is because silver is a dual metal: an industrial metal and a precious metal investment. Thus, silver's price is influenced by both industrial and investment demand.  

Silver Price Behaviour during Recessions: 

Interest Rates & Monetary Policies 

Interest rates influence investment demand, inflation expectations, and currency strength—all which impact silver. Typically, when interest rates are low, silver prices rise. This is because bonds and savings accounts yield little return, making silver more attractive to investors. Low rates also weaken the US dollar and make borrowing cheaper, which boosts industrial demand.  

When interest taxes are high, silver prices tend to fall. This is because higher interest rates make bonds and cash savings more attractive. They also strengthened the US dollar and caused slow economic growth, reducing the demand for silver.  

Federal Reserve Policies 

The Federal Reserve (Fed) controls interest rates and the money supply, influencing silver pricing. Silver becomes bullish when the Fed cuts rates, which is considered a dovish policy. The Fed lowers rates to stimulate the economy, weakening the dollar and raising inflation expectations, making silver attractive as a hedge.  

Silver becomes bearish when the Fed hikes rates, which is considered a hawkish policy. The Fed raises rates to fight inflation or cool an overheated economy. This causes higher bond yields, which turns investors away from silver. It also strengthens the US dollar, which reduces global silver demand.

Geopolitical Events and Silver Prices

Geopolitical crises can trigger panic buying, economic uncertainty, inflation concerns and trade disruptions, all of which influence silver pricing. As we know, silver is a safe-haven asset which has increased demand during crises. Wars, sanctions and political instability increase government spending. This can cause inflation, making silver more attractive. Additionally, since over 50% of the global silver production comes from Mexico, Peru, China, Chile, and Russia, if conflicts or trade restrictions affect mining operations, the silver supply will tighten, pushing silver pricing higher. When there is political uncertainty, this also weakens investor confidence in curries and stock markets, which pushes the demand for hard assets like gold and silver. Lastly, de-dollarization also impacts silver prices. As many countries reduce reliance on the US dollar, silver and gold have become more attractive as alternative monetary assets. Central banks also increase silver and gold reserves, which drives demand upwards.  

Silver Market Manipulation 

For a long time, silver has been rumoured to be manipulated by large banks and institutional traders. Silver prices can be manipulated by naked short selling, selling silver contracts without owning silver to suppress prices. They can also be manipulated by high-frequency trading, which uses algorithms that execute thousands of trades per second to push prices up or down. Lastly, the COMEX paper silver distorts the pricing, as more paper contracts exist than physical silver. 

Historical Examples of Silver Manipulation 

Silver Price Chart