How Volatility Affects Silver



Volatility and silver

One theory that explains why silver is more volatile than gold is that silver is cheaper than gold, which allows investors to take a precious metal position without investing a substantial amount of money. Investors can also opt for temporary positions in silver in hopes of quick gains, which adds to the uncertainty of the metal.

Precious metals are known to perform better in a volatile atmosphere. However, a direct relationship between volatility and precious metals may or may not hold. The overall market volatility depicted below by the Volatility Index (VIXY) (VXZ) has been trending downward since the beginning of 2017. Despite the falling volatility, silver prices (IAU) (SLV) have been slowly trending upward.

Silver Price versus Volatility Index 2017-03-23

Influence of the US dollar

Though the volatility of silver has fallen recently, many analysts are expecting silver to trend upwards in the coming months. The medium-term outlook for silver is positive and could touch the $20 mark.

Though silver doesn’t seem to a hedge against the volatility of the markets, it could surely be a hedge against the falling currency market. The precious metals are strongly influenced by the US dollar, as they are dollar-denominated assets, and they often rise when the US dollar drops.

Mining stocks that follow metals and are affected by the dollar include Fist Majestic Silver (AG), Royal Gold (RGLD), B2Gold (BTG), and Randgold Resources (GOLD). These stocks have seen a fall in their price over the past one month due to tumbling precious metal prices.

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