How Inflation Can Affect Silver Prices

How Inflation Can Affect Silver Prices

It’s pretty much common knowledge among U.S. investors by now that inflation and commodities’ prices go hand-in-hand. Sure, there are various other factors that come into play when market makers set gold and silver prices two times each day, but it’s no secret that inflation is a massive factor of the equation.  This is helpful when investors use a commodities trading platform to profit from precious metals markets, so here we will look at the various ways inflation can influence silver prices.

We’re not just talking about inflation of all fiat currencies, either. No, the type of inflation that has the most profound effect on the silver spot price is the inflation of the U.S. Dollar. Silver and other commodities are priced (for the time being, at least) in U.S. currency. This means that when the U.S. Dollar Index (USDI) falls, it increases the relative values of commodities like silver.

Currency Devaluation

If inflation is nothing more than currency devaluation then do precious metals like silver actually gain any real value? After all, it seems as though the metals are only priced higher because the currency in which they are priced is worth less. Fortunately for gold and silver bulls, however, this couldn’t be further from the truth.

When the U.S. Dollar loses value and inflation starts to rear its ugly head, this beginning a chain reaction among investments and investors. People abandon cash and interest-bearing accounts. They pull out of stocks owned by companies that are backed by U.S. currency, and they search for something that moves in the opposite direction of the dollar. Precious metals are a common solution.

Silver Prices

Inflation, therefore, does not only affect silver prices in the short-term – it can have a long-term and lasting effect on the price of precious metals. On the other hand, a perceived lack of inflation can cause investors to lose interest in precious metals. During deflationary periods, goods and services seem to cost less than they should so many investors forget to balance their portfolios with silver, gold and other commodities.

Regardless of the current inflationary climate in the United States, it’s important to remember that economic cycles work in 10-20 year bursts so when things look good you might want to prepare for the worst, and the opposite is also true. Right now, stock markets look solid and real estate values seem to be rebounding…so what do you think is the next smart move?

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