Silver

Overview

Investment demand remains the single most important driver of prices in the silver market.

The silver market is the second largest of the precious metals markets, behind only gold in terms of the value of metal flowing through the market on an annual basis.

The dollar value of the silver market, which includes trading volumes on the major futures and options exchanges and clearing volumes of the London over the counter market, combined with newly refined silver supply, stood at US $5.1 billion in 2013.

At the close of 2013, at least 2.3 billion ounces of silver were held in bars and coins around the world.

With silver producer mining costs declining, there are strong reasons to expect mining company equities to rise in the near term. In the long term, investors are likely to benefit from buying silver mining equities.

The silver market, when compared to the gold market, is a much more volatile market and investors are able to receive a much bigger response in the price of silver than that of gold.

Unlike gold, the price of silver swings between its perceived role as a store of value and its very tangible role as an industrial metal. For this reason, price fluctuations in the silver market are more volatile than gold.

So, while silver will trade roughly in line with gold as an item to be hoarded (investment demand), the industrial supply/demand equation for the metal exerts an equally strong influence on price. That equation has always fluctuated with new innovations, including:

Industrial demand has continued to steadily rise for Silver to account for nearly 60% of yearly global supply with no sign of slowing as the number of uses and applications continues to increase.

The rise of a vast middle class in the emerging market economies of the East, which created an explosive demand for electrical appliances, medical products and other industrial items that require silver inputs. From bearings to electrical connections, silver’s properties made it a desired commodity.

Silver’s lower pricing in recent years had caused heavy consolidation and cuts in supply production in the mining sector, despite the continued rise in demand industrially and from increasing investment demand.

It’s unclear whether (or to what extent) these developments will affect overall noninvestment demand for silver. One fact remains; silver’s price is affected by its applications and is not just used in fashion or as a store of value. Supplies continue to get drastically cut and dealers already report difficulty in delieverying orders. Premiums will rise and prices will eventually follow. Higher prices are coming.