What Drives the Price of Silver?
Silver is a commodity, and like any other commodity, its price is a reflection of current supply and demand. Silver is somewhat unique in the precious metals space, however, as its value may be driven not only by investment demand but also industrial demand. This allows silver to potentially experience the best of both worlds. In a strong economy, industrial demand for silver may heat up and potentially drive prices higher. In a slow economy, or during times of risk aversion, silver may potentially benefit from investment demand as investors look for perceived safe havens to put capital to work in.
Silver Market Fundamentals: It is important to understand that while only a small portion of gold is used in industry, a very large portion of silver is used in modern day industry. Silver is used in jewelry, but is also utilized in an ever-increasing variety of industrial applications.
According to The Silver Institute, 95 percent of annual silver demand falls into just three categories. These categories are:
- Jewelry and Décor
Silver in Modern Industry: Recent years have seen more and more uses for this incredible metal becoming main stream. Silver is used in many products as well as sub-components of products, and we are now surrounded by this white metal. Here we will examine just a few of the thousands of potential uses for silver to demonstrate why demand for this metal may continue to rise:
Your car-tens of millions of ounces of silver are now used in cars every year. Electrical connections in your car are facilitated by silver contacts. Silver switches are used to perform such mundane tasks as starting your car’s engine, opening or closing your power windows and adjusting your seat. In fact, silver even makes it possible to see out your back window. Silver-ceramic lines are present in the rear windshield. These lines can be heated in order to melt snow or ice from the glass and maintain visibility. Even your car’s anti-freeze contains ethylene oxide, a compound made from silver.
Batteries- Modern technology has provided millions with the ability to do more. Many common everyday gadgets, like an iPhone or a watch, are powered by small batteries. Silver oxide batteries have been replacing the older lithium batteries. Silver oxide batteries are now widely used in watches, hearing aids, cameras and other small electronics. Silver oxide batteries provide a greater power-to-weight ratio, thus delivering more bang for the buck. Silver oxide batteries are also being used to phase out lithium ion batteries commonly used in laptop computers and cell phones. The silver oxide battery provides a superior power source with a favorable environmental footprint over other alternatives.
Switches- Silver is widely used in electrical switches. Silver is an excellent conductor of electricity and makes a great choice for television and light switches as well as circuit boards and plasma screen displays. Silver is very reliable, and may be used for millions of on/off cycles.
The world is growing, and as more developing nations such as China begin to utilize better technology, demand for physical silver in industry may continue to expand at a very rapid pace.
Silver in Jewelry: According to The Silver Institute, approximately 275 million ounces of silver was used last year in jewelry and silverware. Silver is highly sought after in these arenas for several reasons. Silver is a precious metal, and is more affordable than other types of metals. This provides jewelry makers and buyers with a cost-effective metal to use that is very durable and will stand up to the test of time and wear. Silver can be worn with almost anything, and all types of stones may be used in conjunction with the white metal. Silver may even have some health benefits, and is reportedly hypoallergenic and may have other healing properties. The metal is durable, easy to clean and looks beautiful.
Investment Demand: Silver is widely regarded for its investment value. Nearly 200 million ounces was reportedly used last year in coins and bars, and we would expect this number to continue to grow. Silver, like gold, has been recognized as a reliable store of value for thousands of years. Silver is not only recognized the world over, but is also traded and exchanged all over the globe. Physical silver as an investment may potentially offer numerous benefits. Some of the potential benefits include:
- Lack of counterparty risk
- Ease of acquisition
- May potentially hedge against currency, economic or geopolitical turmoil
Silver has never been easier to acquire than it is today. Even those on a very limited budget can begin to build a precious portfolio. Silver is not only available everywhere, but it is also available in many forms. Silver can be bought for investment purposes in coin, bar or round form.
The world is an ever-changing place. As such, we would expect investment demand for silver to continue to grow along with industrial demand. Emerging markets, along with a potential shift in global currency markets may be some of the primary drivers of silver in the future.