Supply and Demand Impact on Gold and Silver

Key Takeaways

1. Gold and silver prices are set by supply and demand: prices fall when supply rises or demand falls, and rise when supply falls or demand rises.
2. Gold is driven mainly by economic uncertainty, geopolitics, and inflation, acting as a hedge, while silver is more volatile due to its industrial uses and tends to follow gold’s trends but with greater swings.
3. The gold-to-silver ratio helps investors gauge relative value: above 80:1 suggests gold is overpriced relative to silver; below 50:1 suggests the opposite.

Both gold and silver have served humanity as precious metals for thousands of years. However, like any commodities, the price of gold and silver are governed by the laws of supply and demand.

This page explores the ways that supply and demand dictate the price of precious metals. We also provide some tools that gauge market sentiment, like our Fear and Greed Index. If you’re ready to understand the whys behind the value of gold and silver, though, read on.

A Primer In The Law of Supply and Demand

Supply is the total amount of gold or silver that is readily available for purchase. Demand is the aggregate amount of gold or silver that buyers are seeking to purchase. Supply and demand are usually depicted on a graph that compares price (y-axis) against quantity (x-axis).

Supply represents the sellers, who are willing to sell more gold and silver as the price goes up. Thus, supply begins low on the graph and moves upward.

Demand represents the buyers, who are willing to buy more gold and silver as the price goes down. Thus, demand begins high on the graph and moves downward.

The intersection point between the two lines is known as the equilibrium price. It is the point where both buyers and sellers agree on price and quantity.

Here are the guiding principles for changes to either the supply curve or the demand curve, all else equal:

• As supply increases, the price goes down.
• As supply decreases, the price goes up.
• As demand increases, the price goes up.
• As demand decreases, the price goes down.
• There are many different drivers that can affect either the supply, demand, or both when it comes to gold or silver.

Gold vs. Silver Comparison Table

Interplay Between Gold and Silver

The price of gold and silver are somewhat correlated to each other due to the intersection of their uses. Because jewelry customers are not averse to substituting gold for silver or silver for gold, depending on the situation, their values do influence one another to a moderate degree.

Savvy investors closely monitor this relationship by tracking the gold-to-silver ratio. The ratio is simple – a comparison of the current price of gold to the current price of silver.

The rule of thumb for the gold-to-silver ratio is the 80/50 rule. When the ratio of gold’s price to silver’s price exceeds 80:1, the conventional wisdom is that gold is overpriced and silver is underpriced.

When the ratio falls beneath 50:1, however, the opposite situation occurs. Gold is likely underpriced, and people are paying too much for silver.

The gold-to-silver ratio should not be the only part of your decision to buy or sell gold or silver, but it can be an informative tool to let you know where things stand.

What the ratio can reveal, though, is the movement of supply and demand within each metal’s price history. Increases in the ratio reflect increased gold demand or decreasing gold supply, while decreases in the ratio reflect the same things for silver.

Short-Term vs. Long-Term Price Drivers

Supply and demand for gold and silver are unusually driven by various external events. However, where demand is often pushed by short-term or acute events, supply tends to be affected by more long-term trends. So, let’s talk about some of those drivers.

Short-term – Demand shocks

Sudden shifts in the prices of gold or silver are usually attributable to events that have affected demand for one of them. At the end of the day, demand is a more emotion-driven factor, so events that generate emotional responses from investors tend to play out on demand for the metals. Here are some of those events:

• Economic shifts – Massive shifts in a nation’s or the world’s economy can provoke near-immediate reactions in investor demand. A new boom may lead to consumer confidence and drop the demand for gold. A recession may cause nervousness and fear in investors, and cause demand to spike.
• Geopolitical situations – Conflicts of any kind cause nervousness across the board. Wars can obviously unsettle things, but international cyberattacks or trade disputes can cause fear for investors worldwide. In those cases, demand for silver and, especially, gold tends to skyrocket. On the other hand, when peace deals and treaties are settled, investor optimism pushes them back toward other more traditional investments.
• Central bank observers – Central banks deal in large quantities and expenses when they buy or sell commodities or other financial vehicles. Because they are the financial institution representing a sovereign government, their activities are made public. Many investors mimic the investment choices that central banks make, meaning that a new policy to buy gold will cause demand to rise, while a selloff of silver will push demand and the price down.

Long-term: Supply trends

• Central bank policy changes – Because they move so massively, changes in central bank policy can materially affect the supply for either of these precious metals. Shifting to a buy policy can reduce the supply of available gold or silver and create upward pressure on the price. However, if a central bank sells off its stores of gold or silver, it can create a surplus on the market and cause the price to decrease.
• New or dry mines – The discovery of a new source of gold or silver ore can create an entirely new paradigm for the available supply of it. Thus, if any new veins come to light – particularly if they are quite rich – can push the price down. On the other hand, if a top mine runs dry, the supply gets squeezed, and the price of the metal will rise. If a new mine’s ore is of lower quality, it may not be sufficient to buoy the supply.
• Mining logistics – A piece of ore must be recovered from a mine using manpower and heavy machinery, transported to a refiner, refined into its final form, then transported again to the retailer to sell. The existing supply of gold and silver rests on the notion that all of these processes will continue to produce the same level of output. However, disruptions to these steps, be they machinery, manpower, or transport-related, will cause the supply to drop. Conversely, technological advances or new treaties may cut the costs of bringing the metal to market and cause a price reduction.

Trends in Gold and Silver Markets

Gold has been a big news topic for the past few years. Since 2020, there have been three specific periods of rapid growth that have escalated gold’s price to new heights.

One of them happened in 2020 due to the COVID-19 pandemic. Another one occurred in 2022 after Russia’s invasion of Ukraine.

In February 2024, the Hamas-Israel war and massive inflation in most large countries, including and especially the US, in 2023 and 2024 caused the price of gold to spike.

Its ascent steepened in 2025 after the election of Donald Trump and the implementation of his radical tariff policies.

Silver’s price has been generally increasing since 2020 as well, but despite silver’s greater degree of volatility than gold, its price shift has been less dramatic than that of the yellow metal.

The economic effects seen with gold do trickle down to silver, though. Demand for silver tends to increase when gold becomes too expensive for most investors and, frankly, jewelry purchasers.

Silver’s price is also buoyed by the industrial demand for the white metal, which surpasses the industrial demand for gold. Silver is the most conductive and reflective metal, and it is antibacterial to boot. Thus, industries such as electronics, medical, and, more recently, solar energy consider silver integral to their processes and machinery.

Related articles: 

• 100 years of gold history
• Bullion price vs. spot price
• How to buy gold and silver at spot
• Gold ETFs vs physical gold

Conclusion

Both supply and demand play an impactful role in the pricing of precious metals, such as gold and silver. However, fluctuations in the price are usually attributable to demand due to their emotional component. More long-term trends are indicative of supply, instead, and can indicate that gold or silver might be available in the future.

The best thing to do is to keep track of both metals on our live price charts. We also offer the Fear and Greed Index, which captures some of the more subjective elements associated with investing in gold or silver. Finally, you can watch the gold-to-silver ratio with our chart, which allows you to see both the current ratio and what the ratio has been in the past.