AlaynaGocke

Block2
18February,2015

Howcancertaineventsandotheroccurrencessuchasoligopoliesaffectthepriceofsilver?
Everythinghappensforareason.Everyeventthatoccursduringyourlife,eventhe
smallestthingsuchasleavingyourhouseaminutelaterthanyouwouldhavewantedcanhave
aneffectonyourlifeandchangeitforever.Whatiftherewasanaccidentabouttohappenthat
youavoidedbecauseyouleftlate?Thisisallapartofthebutterflyeffect,thetheorythatasmall
changeinoneplaceofacomplexsystemcanhavelargeeffectssomewhereelse.Agreat
exampleofthiseffectusedinliteratureisRayBradburysshortstory,
ASoundofThunder.
In
thisstory,amangoesbackintimetohuntdinosaurs.Theideaofthehuntisthatthehuntersget
toshootananimalthatwasgoingtodieshortlyafterthemomentwhenthehunteristoldtoshoot
it,thusleavingnoeffectonthefutureaslongasthehunterdoesasheistold.Thehunterinthis
storydoesnotdoasheistoldandstepsoffofthepathheistoldtofollow.Heendsupstepping
onabutterfly,whichchangesthewaypeoplespellinthefutureandadifferentpresidentis
electedaswell.Thestoryshowshowsimplethingssuchassteppingonabutterflyinthepastcan
changethecourseofthefuture,whichdemonstratestheideasofthebutterflyeffect.Everything
inourlivesislikeachainreaction.Oneinstanceofthisiswhenwepurchasethings.Outside
eventshaveeffectsonstockprices,whichcanraiseorlowerthepricesofselectcommodities.
Therearemanyoutsideinfluencessuchasproductionratesandoligopoliesthataffectthesilver

prices.Manyoftheinfluencesthataffectsilverpricesaremanmade,theseoccurwhenpeople
takecontrolofthesilvermarketandsilverprices.
Silverwasdiscoveredin5000BC.Silverhasmanyusesthatincludejewelry,coins,
silverware,electronics,photography,medicine,medals,etc.Silversmarketpricevariesbased
onnumerousoutsideinfluences,suchasdemandandsupply.Itsstockpriceasof2/6/14is
currently$16.27perounce.ThetopproducingcountriesareMexico,PeruandChina.Thetop
silverproducingcompaniesintheseareasareFresnilloplc.,BHPBillitonplc.andKGHM
2
PolskaMiedzS.A.
.Therearetwowaystorefinesilver:Inthefirstprocess,silveroremustfirst

becrushedintopieces.Next,theoreisoxidizedandasolutionofwaterandsodiumcyanideis
added.Finally,zincdustisaddedtoprecipitatethemetalfromthesolution.Inthesecond
process,theoreisheateduntilitbecomesmolten.Acrustofzincandsilverformsonthesurface
ofthemix.Thesilveristhenseparatedfromthezinc.Peopleusingmachinesusuallymakethese
processeshappen.SilverhasvalueintheUSmarketbecauseitisapreciousmetal,makingitrare
andvaluable.
Itresistsoxidationandcorrosionaswell.SilverisavaluablecommodityintheUS
aswellasmanyothercountriesacrosstheglobe.Itspricecanbeaffectedbymanyoutside
events.
Silverisaninelasticcommodity.Thismeansthattheproducerscannotchangetheoutput
ofsilveronshortnotice.(investopedia)Ifaneventwastohappenthatincreaseddemandof
silver,thepriceofsilverwouldgoupsignificantlyduetothefactthatitisinelastic.Insilvers
case,highdemandmeansahigherprice.Forexample,thedemandofsilveriscurrently
increasingduetoamorefrequentuseofsilverinsolarpanels.Thiscouldraisepricesbecause
thereisalackofreservesandahigherdemand.(wordpress)Overalongerperiodoftime,

however,theproductionratesofsilvercanbechangedbythecompanyproducingit,which
makesitanadaptablecommodity.Thedemandforsilverdoesnotvarywiththeprice,which
furtherprovesthepointthatitisinelastic.Silverconsumersbuyinghabitsgenerallystaythe
same,whetherthepricegoesupordown.Thereisalwaysaneedforsilver.
Thepriceofsilverisrelatedtothetermsoligopoly,supplyanddemand.Aneventthat
occurredin2011wherethetoptwosilverproducingcompaniesslowedtheirproduction.
(SilverSeek)Thisgavethemsomekindofcontroloverthesilverpricesconsideringthatthey
wereproducingthemostsilver,essentiallycreatinganoligopoly.Thesetwocompaniesbrought
thepriceofsilverupbydecreasingthesupply.Withthatsaid,Iwouldassumethatthedemand
forsilverstockswouldgoupbecausepeoplewouldseeagrowingopportunityandwouldhope
thatthepricewouldcontinuetogoup.However,thisisnotthecase.Accordingtoanarticleby
silverseek.com,thoughthepricewentup,thecompaniesarenowtryingtocontrolmarket
sentiment.Thismeanstheyarebringingdownthepriceandtryingtocrushtheinvestors
incentivetobuysilverstock.(SilverSeek)Theytrytodrivetheseinvestorsawayinordertogain
morecontrolofthesilvermarket.Becausethetwocompaniesthathavecontroloverthesilver
marketcoulddrasticallychangethepriceatanytime.Thismeansthatitisprobablynotasmart
choicetoinvestinthesilvermarket.
Thetermsubstitutioneffect,whenpricesincreaseconsumerswillreplacea
commoditywithacheaperalternative,doesnotrelatetosilver.Thisisbecausethereisaconstant
needforsilver,anditwillbepurchasednomatterwhatthepriceis.Thissetssilverapartfrom
othercommoditiesbecausethesubstitutioneffectiscommoninothercommodities.Consumers
seethatthepriceisgoingup,andtheyfindsomethingelsethatwillfulfilltheirneedsatalower

price.Silverissomethingwealluseonadailybasis,however,itisnotsomethingweall
purchasefrequentlyorcouldsimplyreplacewithanalternativeproduct.Anexampleofthisis
silversuseinmedicalsupplies.Thereisalwaysaneedforsilverinthemedicalfield,andit
wontbesubstitutedforanotherproduct.Thisdoesnotoccurinothercommodities,likechicken.
Ifchickenisreallyexpensiveandthepricesofothermeatsremainconstant,likewhenceteris
paribusoccurs,thenpeoplewillsimplyreplacechickenwithanothermeatuntilthepricegoes
backdown.Thesubstitutioneffectjustdoesnotapplytosilver.
Theeconomicterm,quantitativeeasing,alsorelatestothefluctuationofsilverprices.
Quantitativeeasingis
when
acentralbankpurchasesgovernmentsecuritiesorothersecurities

fromthemarketinordertolowerinterestratesandincreasethemoneysupply.(investopedia)
Thegovernmentitselfdoesnotpurchaseanysilverinthisinstance,itisfundraisinginasense.
Thegovernmentsecuritiesusedforthistechniquearesimplytoraisemoneyandgetthemarkets
backtoanormalstate.Thiscreatesanincreaseinthepriceofthestockthatthegovernmentis
targeting.Thepurposeofquantitativeeasingistoincreasemoneysuppliesbygettingcapitalfor
financialinstitutions.Silverstockpricerose65%duetoquantitativeeasingin20082010.
(USGS)TheFederalReservewastryingtokickstarttheUSeconomyafterthemarketscrashed,
sotheyusedthistechnique.
Whenpeopleareundertheimpressionthattheeconomyisdoing
well,theywillinvesttheirmoneyinthemarkets.Forthisreason,thestockpriceofsilverroseso
muchduringthistimeandquantitativeeasingbecameasmartsolutiontothecrash.
Predictingtheseeventsthataffectthepricesofcommoditieslikesilverarealmost
impossibletopredict,especiallysincemostofthefluctuationsinsilverpricesaremanmade.
Whenresearching,IrealizedthatIcouldnotfindasingleeventthataffectedthepricethatwas

notcausedbypeople.Thecausesallhadtodowithmanmademanipulationsthatcreatedinflux
intheprice.Theseoccurrencescannotreallybepredicted,exceptbythepeoplewhohaveplans
toaltertheprice.Onethingleadstoanother.Nobodycanpredictthefuture,weneverknowwhat
isgoingtoaffectus,justlikeweneverknowwhatisgoingtoinfluencethepriceofcertain
commodities.

WorksCited
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"Google."
Google
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"HowIndustrialDemandforSilverIsPriceInelasticandWillLeadtoExplosioninthePriceof
Silver."
SilverInvestmentIdeasTradingTips
.N.p.,31July2011.Web.19Feb.2015.
"MedicalUsesofSilver."
Wikipedia
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"QuantitativeEasingDefinition|Investopedia."
Investopedia
.N.p.,12Apr.2009.Web.09Feb.
2015.
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SilverCoinMeltValueswithLiveSilverPrices
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Feb.2015.
"ThreeSilverPlaysThatCanWeatheraShortTermDownturn."
DailyGainsLetter
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Web.8Feb.2015.

"USGSSilverHistory&SignificantEvents."
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n.d.Web.20Feb.2015.
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