Silver price fluctuations BY Josete97 Silver is a very ductile and malleable metal used for thousands of years utensils, for trade, and as the basis for many monetary systems. Its value as a precious metal was long considered second only to gold. In Ancient Egypt and Medieval Europe, it was often more valuable than gold. Silver is currently about 1150th the price of gold by mass, and 70 times more valuable than copper. Silver did once trade at 116th to 1/12th the price of gold, however, the discovery of great silver deposits in the Americas.
These new discoveries made the price of silver fall dramatically, due to the excess supply prices were forced down, as the demand did not match supply at so high price levels. Demand for silver has changed over the past years. Firstly, the use of high-purity silver for color paper in home and other color printers made the price of silver increase due to a rise in the demand for silver from the printing sector. As more silver was demanded, the price of it could be increased as in this case silver was a “need for the printing sector in order to produce colored paper.
So this meant silver was now more price inelastic as prices could go up, meanwhile the demand for the good would not all equally to the rise in price. Moreover, as the demand for smartphones increases, so does the demand for silver, we call this derived demand. Smartphones use silver to produce their micro-chips, so as the demand for smartphones increases, so does the production of these phones, which leads to an increase in the demand for silver. As more phones are produced more silver is needed, so the demand for silver increases.And as the demand for silver increases so does its price.
However, as new industries which involve silver in their production grew, others like the photographic industry, which involves silver in its production, fell rapidly. So this means that the demand for silver did not rise as fast as it could. If the photographic sector grew, prices of silver would be much higher. Furthermore, the supply of silver is relatively scarce. Mexico is the top world producer of this product, accounting nearly 15% of the world’s total production; it is closely followed by china and Peru.Primary silver costs rose to $8. 88 an ounce in 2005, reflecting higher prices for labor, electricity, and maintenance charges. This increase in costs lead to a significant rise in the price of silver.
As it was now more expensive to produce silver, the firms were forced to raise their prices in order to maintain the same level of profits they had before. This increase in prices does not seem very important, but in fact, it made surprisingly the Jewelry industry boost profits. Silver being more expensive, Joint with They saw silver now being more luxurious.This is a very rare case, as a rise in prices was followed by a rise in demand.
Silver has an in-elastic demand; particularly in the manufacturing of electronics as silver is the best conductor of electricity known to man. Silver cannot and will not be replaced by the industrial sector as a conductor of electricity for two reasons: it is relatively inexpensive and it is the best product for the Job, so therefore its demand is in-elastic, as no matter how much the price rises, the demand will not fall equally to the rise in price.For example when a smartphone irm begins to source components to build its consumer products, it buys tons of many products, and tiny amounts of silver. When you buy a smartphone that costs ?‚¬500-1000, it contains at most 1 gram of silver, which barley costs ?‚¬0. 60. Even if silver were to explode in price from $18 per ounce to $180 per ounce, which is a dramatic change, the price of the silver component in a smartphone would grow from ?‚¬0. 60 to ?‚¬6.
So, even after silver explodes in price, the smartphone markets will still be very much willing to use silver, as ?‚¬6 on a $500 smartphone is Just 1. of the price. Moving on, silver has an in-elastic supply. This is because even if the prices rise or fall, supply will tend to not increase or decrease much. As the production costs of extracting silver are so high, and it is a very scarce raw material, an increase in price for example, will not make the supply go up, as in this case it is too expensive and so it is not profitable to increase production to satisfy relatively small price fluctuations. Nevertheless, for the past 10 years, supply of silver has become more elastic.This is ue to the uses of silver in the new technologies.
For example, the boom in the smartphones sector has made the supply of silver more elastic as it has been forced to react to the changes in this telecommunications sector. Overall, it can be said that for the past ten years, the price of silver has experienced many price fluctuations, due to the new technologies involving silver in the production, the growth of inequality in many countries, which has led to more demand or luxurious goods as there are more ritch people, and finally the increase in production costs.