Factors that Influence the Silver Price
As a precious metal and investment tool, silver generally receives less attention than gold. The silver price per ounce is far below that of gold, which may cause some investors to view it as less worthwhile. However, the silver price has risen significantly in the last few years, and many experts now believe that silver makes an excellent investment. Record gold prices and their connection to the silver price are one explanation. The increasing industrial use of silver is another factor that could help the silver price continue its upward trend.
When people think of silver, they may first think of coins, jewelry, silverware, and silver bars or bullion. Since silver was removed from U.S. currency in the middle of the 1960s, coins’ increasing rarity and value have attracted some investors. Others prefer bullion as a stable, tangible product, while those with jewelry and traditional silverware may consider the silver price more in terms of selling possessions for monetary gain.
Are silver coins making a comeback? and how will it affect the silver price?
Silver coins may be poised to make a noticeable comeback, however. In 2011, Utah became the first state to again make silver and gold coins legal currency. Sale of these coins will be not be subject to capital gains tax in the state, which could help increase the silver price as investors look for ways to maximize earnings. For now, purchasers will likely use special depositories to store the legal tender. These establishments will in turn issue a form of debit card that has purchasing power based on the value of the deposit. Roughly a dozen other states are considering proposals similar to Utah’s, and if they pass, the increase in demand could further affect the silver price.
Still, U.S. demand is not the only contributor to the silver price. The market exists worldwide, and global demand is the real consideration. Some countries, including China, continue to mint silver currency, creating an ongoing need. Current economic conditions also affect the silver price as more people turn to precious metals to protect or increase wealth. Yet worldwide industrial use of silver creates the greatest demand and potentially has the greatest impact on the silver price.
In 2005, coins, jewelry and silverware combined for only 34 percent of the silver fabrication demand. The photography industry, with both cameras and developing chemicals, made up another 19 percent, while other industrial uses comprised 47 percent. By 2010, demand for “personal-use” silver increased only by about 2 percent. With the explosive popularity of digital photography, that sector’s demand fell to less than 10 percent. Meanwhile, the demand for industrial use rose nine points to nearly 56 percent. Many factors affect the silver price, yet industry use cannot be dismissed.
In 2010, the silver price increased dramatically due to both investor interest and industrial demand. As recently as 2001, the silver price averaged only $4.37 per troy ounce. By 2009, the silver price rose to an average of $14.67, and in 2010, it averaged an impressive $20.19 per ounce. This year, the silver price quickly surpassed 2010?s dramatic increase by averaging $31.86 per troy ounce in the first quarter, and it has since gone as high as $43.48 in one day’s trading. Predictions about the continued increase or the possible drop in the silver price vary, of course, but as demand increases and supply naturally continues to decline, investors are currently betting it will go even higher.
The demand for silver in industrial use, and the associated rise in the silver price, comes from the metal’s exceptional conductive properties. Silver has superior thermal and electrical conductivity, it doesn’t corrode, and it can withstand a wide range of temperature variances. These qualities make the metal attractive in technological and industrial manufacturing, and the relatively affordable silver price is also appealing. The array of uses for this metal is staggering, and as populations continue to grow, as nations such as India and China continue expanding industrially, escalating needs follow. It’s easy to assume that the silver price will increase accordingly.
In the average home, everything from microwave ovens and washing machines to plasma televisions, batteries and light switches use silver. Cell phones, which have become ubiquitous worldwide, use silver. Silvered mirrors are commonplace, and thermal-pane windows use silver’s reflective qualities to repel the sun’s heat in summer and keep heat inside during winter. The list of products goes on, and as new uses are discovered, both demand and the silver price will rise.
In the medical field, the health benefits of silver create another market that can affect the silver price. Silver has long been known as an antibacterial agent, and it has proven helpful in fighting infections, like MRSA, that spread in hospitals. It’s especially useful in treating burn victims and for wounds, and silver is being used increasingly for water purification.
Silver seems to be gaining a reputation as something of a magic metal from having such a wide range of uses. Investors are learning its value well and have been flocking to buy it, which partially explains the soaring silver price over the last couple of years. On the other side of the coin, so to speak, fear is another element that drives the silver price.
Politics, the economy and the silver price today.
It’s no secret that recent economic circumstances have been both difficult and precarious. The U.S. nearly defaulted on its debts due to political conditions. Some European countries have been on the brink as well and have needed to be bailed out financially. Banks are closing, unemployment is high, and a few countries have adopted controversial austerity programs. In such unfortunate situations, people want protection for their money, and it’s the same whether someone has considerable wealth or modest means. Turning to precious metals is popular, and it benefits the silver price. While the price of gold has become astronomical, the silver price remains more reasonable for an average individual.
Given silver’s many practical uses beyond beauty, it’s no surprise that it has gained so much attention in recent years. The silver price may be somewhat tied to gold, but the gold-to-silver ratio ? the amount of silver one ounce of gold will buy or how many ounces of silver are needed to buy one ounce of gold ? appears to be turning more in silver’s favor. Historically, gold fares better in a recession. Yet with the silver price continuing to increase despite a few dips, the gold-to-silver ratio has been slowly declining. This means that it takes slightly less silver to buy an ounce of gold in September of 2011 than it did in February. If the silver price continues its rise, that ratio could become even smaller.