What Factors Could Cause the Price of Silver to Fall?


Quick Answer

Among the factors that cause the price of silver to fall is investor pullback when the price rises too high after a boom in speculative buying, reports Kiplinger. Another factor is the fluctuating demand for silver in industrial applications such as electric switches, batteries, fuses and photovoltaic cells. The silver market is smaller than the gold market, and trends in economic activity have a more significant impact on silver prices.

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Full Answer

Investments in silver can take the form of purchases of the physical metal or purchases of stocks, and consumers face different risks with each investment type, as explained by Bankrate. Investors buy physical silver in bars, bullion coins and collectible coins. Bars and bullion coins derive value only from their inherent silver quantity, while collector coins also have value according to the trends of the collectibles market. Many investors acquire physical silver as a hedge against the uncertainty of changing economic conditions, but because of its volatility, they consider it as part of portfolio diversity rather than a primary investment item.

Investments in silver mining company stock or exchange-traded funds involve greater risks but potentially higher profits, according to Bankrate. Mining stock investors face the possibility of a drop in silver prices as well as ineffective management of the company. It is imperative that potential investors study the market thoroughly before dealing in commodities such as silver.

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