Silver remains a highly liquid asset thanks to tight spreads and top-notch trading volumes. The latter attribute is what causes silver to trade with stark chart patterns. Some attribute silver to a smaller silver market relative to gold due to silver markets volatility. This volatility allows intraday traders to take advantage of big intra-day market swings. Silver also has a versatile range of industrial uses. Silver remains a core component of electronics, mirrors, dental alloys, and applications across industries. While investors value silver as a safe-haven asset, industries value metal as a key component. The demand for silver, therefore, remains high. Is trading in the silver market worth it? Yes.
Silver price history
Compared to the 2019 average price, the 2020 average silver price was $20/troy ounce, an appreciation of 16% higher. The price reached a low of $12.13/troy ounce after mid-March, following a robust year-commencement at $17.98/troy ounce. The cost of silver appreciated to a high of $28.99 per troy ounce in August. The reason was that the COVID-19 pandemic led to an increase in investor and industrial demand. The price was the highest after March 2013. Coin and bar consumption increased for the fourth consecutive year.
Consumption for industrial uses was reckoned to have depreciated in the first half of 2020 thanks to pandemic lockdown restrictions, lowered inventory recoupment, supply chain disruptions, and pockmarked labor forces within factories. Jewelry and silverware consumption of silver was estimated to have dwindled by 23% and 34%, respectively. In 2020, there was escalated physical investment in silver, reaching an estimated 7,370 tons (236.8 million troy ounces) compared with 5,820 tons (187 million troy ounces) in 2019. Global holdings attained a reported 28,800 tons (925 million troy ounces) as against 30,890 tons (993 million troy ounces) in 2019.
World silver mine production plummeted by 6% in 2020 to an estimated 25,000 tons, largely due to dwindling output from mines in China, Mexico, and Peru, primarily owing to pandemic shutdowns. However, United States silver mine production jacked up slightly in 2020 as against that in 2019 largely of high output at Alaska mining operations.
What is silver trading?
Trading in silver market involves speculating on the price of silver to profit from any value movement. While traditional silver investing would concern itself with buying and holding silver bars and coins, silver trading lets you gain exposure to the market price. As a result, taking ownership of the physical metal is unessential.
Through futures, spot prices, shares, and ETFs, the lion’s share of silver trading occurs. Using these instruments, you can ride the back of rising and falling silver prices using these instruments – the further the market moves in the direction you’ve predicted, the more you’d profit. Conversely, the more it moves against you, the greater your losses.
Following gold, silver is the most frequently traded precious metal asset, thanks to its use in electronics, tableware, and jewelry. There is also strong demand from investors.
What is the gold-silver ratio?
The gold-silver market’s ratio evaluates the proportional relationship between the two precious metals at any given point in time. It measures the quantity of silver needed to buy an ounce of gold using spot prices. For instance, if the ratio is 66, you’d need 66 ounces of silver to buy one ounce of gold.
The gold-silver market’s ratio typically appreciates during bear markets and depreciates during bull markets. As a result, gold becomes more expensive than silver in economic downturns. However, once the economy recovers, gold’s value plummets and trades nearer silver’s value again.
Gold has historically always been worth more than silver, but this relationship isn’t set in stone. For example, if the gold-silver ratio fell below one, silver would surpass gold as the most valuable precious metal.
What moves the price of silver?
Silver’s price is set by supply and demand – if demand for silver is higher than the levels of supply available, prices will rocket, and if the supply of silver is more than demand, prices will plummet. Silver prices are far more volatile than most other metals, so it’s good to be aware of the market’s factors. These include:
Economic and political uncertainty
Like gold, silver is employed as a safe-haven investment in periods of market upheaval. This is because both precious metals are seen to keep their value while other asset classes depreciate. As inflation rates rise, silver is seen as a store of wealth over higher-risk assets.
Silver is highly conductive, anti-bacterial, and extremely malleable. Many of the applications of silver are resistant to economic decline. For instance, batteries, water purification, and dentistry are all considered essentials regardless of the business cycle.
The US dollar
In common with most other commodities, silver is denominated in US dollars. Therefore, any fluctuations in the USD price can make silver more or less expensive to investors. For instance, if the US dollar appreciates, silver would become more costly to purchase in other currencies, causing demand to crash.
The mining of other metals
Silver is seldom found in its elemental form but is instead combined with other substances such as sulfur, arsenic, and galena – a lead ore. Consequently, silver is most commonly discovered via mining for other metals. So, any increase in demand for metals such as copper and lead can cause an appreciation in silver supply.
How to trade in silver market
- Create a trading account
- Choose which underlying silver market you want to trade
- Open your first position
- Monitor your trade using fundamental and technical analysis.
You employ derivative products to speculate on the underlying market price whenever you trade silver.
Silver spot prices
Silverspot prices let you trade the current price of silver ‘on the spot.’ Conversely, you’d be exchanging at a specific price on a future date with futures.
Good spot commodity markets are non-expiring, letting you see continuous market prices. These also allow you to trade silver without rolling your position on expiration.
A futures contract is an accord to buy or sell silver for a set price on a future date. Futures contracts can be settled in cash.
Traders holding their silver positions open to the expiry date will either settle their position or roll it over to the next delivery.
Silver futures can be traded on exchanges across the world. Futures contracts are quality and quantity standardized. As far as silver goes, a standard contract is worth 5000 troy ounces of silver.
Using spread bets and CFDs on the underlying market, you can trade silver futures with a good broker. You’d have the same monthly and quarterly expiry dates and no overnight funding fees to pay. At the start itself, all costs are factored into the spread.
Stocks and ETFs in Silver Market
Trading silver stocks and ETFs is the preferred way to get indirect exposure to silver prices.
Silver stocks can include companies involved in exploration and mining, besides those involved in the production of silver for industrial purposes. As silver is a common by-product of other discoveries, these companies are generally also mining for other metals.
With the commodity’s price, silver stocks usually have a positive correlation. When demand for silver rises, these companies earn more from their discoveries. The company’s growth and stock return also influence the share price. These could cover the gamut from news and earnings releases to production costs and hedging activities. A couple of major silver industry players include Endeavour Silver Corp and Barrick Gold.
Conversely, you could get broader exposure to the silver market using an exchange-traded fund (ETF). ETFs are bought and sold stock-fashion, barring they take their underlying value from silver or groups of silver stocks.
Ready to start trading silver? Open an account today or practice trading in a demo account.
As with anything in the market, if you are investing in silver, bullion has both pros and cons. What’s appealing to one investor may not be a good choice for another.
Investors’ interest in the silver market grows whenever the silver price rises.
Silver Market as an investment opportunity
Silver can offer protection
Investors are drawn to precious metals during times of upheaval. When political and economic uncertainty is rife with stress, legal tender generally becomes secondary to assets like gold and silver market.
It’s tangible money
While cash, mining stocks, bonds, and other financial products are accepted forms of wealth, they remain digital promissory notes. For that reason, they are all prone to depreciation. Silver bullion, on the other hand, is a finite tangible asset. Although it is susceptible to market fluctuations like other commodities, physical silver is unlikely to crash completely. Market participants can buy bullion in different forms, such as a silver coin or silver jewelry, or purchase silver bullion bars.
It’s cheaper than gold
Between gold bullion and silver market bullion, the white metal is less expensive and therefore more accessible to buy, but it’s also much more versatile. If you want to buy silver in the form of a coin to use as currency, it will be easier to break than a gold coin since it is lower in value. Just as a US$100 bill can be a challenge to die at the store, dividing an ounce of gold bullion can be a hard nut to crack. As a result, silver bullion is more practical and versatile than physical gold, making this type of silver investment more attractive.
Silver offers higher returns than gold
Since the white metal is worth nearly 1/79th the price of gold, buying silver bullion is affordable. In addition, there’s the bonus of a bigger percentage gain if the silver price goes up. Actually, silver has surpassed the gold price in bull markets in the past. GoldSilver claims that, from 2008 to 2011, silver gained 448 percent, whereas the gold price appreciated by just 166 percent in that same period.
History is on silver’s side
Silver has been used as legal tender for hundreds and thousands of years. There’s an expectation that it will endure. At the same time, a fiat currency may collapse when individuals invest in physical silver. Whether through buying a silver bar, pure silver, a coin, or other means, there is a confidence that its value has and will continue to last.
Cons of investing in Silver market bullion
Lack of liquidity
If you hold physical silver, it may still not be liquid. You cannot use silver bullion bars or a silver bullion coin to make everyday purchases such as groceries. Hence, you will need to convert that to currency first, and the ability to sell in a hurry can be a problem. In a jam, pawnshops and jewelers are options, but they are not necessarily the best-paying ones.
Danger of theft
Unlike most other investments, such as stocks, holding silver bullion can leave investors susceptible to theft. Securing your assets from burglary by using a safety deposit box in a bank or a safe box in your home will mean additional costs. Furthermore, the more physical assets, including silver jewelry, are in your home, the more at risk you are regarding robbery.
Weak return on investment
Although silver market bullion may be a good safe-haven asset, it may not perform as well as other investments. It may not compare well with real estate, for instance.
For some investors, mining stocks may also be a superior choice compared to silver bullion. As Randy Smallwood, president and CEO of streaming company Wheaton Precious Metals(TSX: WPM, NYSE: WPM), expressed, “Streaming companies will always outperform bullion by itself.” This is apparently because of organic growth and dividend payouts that bullion cannot provide. Other options for investors interested in silver include investing in an ETF or silver futures.
High silver demand leads to higher premiums
When investors try to buy any bullion product, such as an American silver eagle, they quickly find out that the physical silver price is generally more elevated than the silver spot price. This is due to premiums put in place by sellers. Moreover, if demand is high, premiums can go up fast, causing the purchase of physical silver bullion to become more expensive.
A very brief overview of recent silver market’s price history
After remaining low-keyed at the $14-$16 per ounce range in the first half of 2019, silver prices rocketed to reach close to $20 in mid-2019. This was thanks to a reduction in interest rates in the US. However, with the global economic growth halting, lower industrial demand for silver led to a drop in prices close to $17/ounce in September 2019. Silver has had its fair share of volatility between 2009 and 2018, with prices ranging from $14/ounce to $50/ounce.
Silver market prices have seen a lot of volatility, with prices sharply rising from 2009 to 2011, mainly driven by climbing investment demand for the metal post-global financial crisis. Subsequently, this was followed by lower interest rates due to quantitative easing.
Upon S&P issuing a “negative” outlook on the U.S.’s “AAA” (highest quality) sovereign-debt rating for the first time, prices even reached $50/ounce in April 2011 (though the annual average was $35 for the year).
However, following positive steps from the government to avoid a major debt crisis, silver prices started to decline from 2012.
Strong recovery in the US economy and ending the QE program caused a continuous drop in silver prices even as a marked absence of inflationary pressure led to the rise in financial asset prices. This created a big opportunity cost for those who had looked to silver as a store of value instead.
Silver prices have remained low-keyed from 2015-to 2018, with the average annual price/ounce ranging from $15.68 to $17.14 during this period of economic growth. Sound fundamentals nevertheless promise robust 2021 performance.
Is trading the silver market worth it? Absolutely! Silver assuredly benefits from a ‘best of both worlds’ narrative, thanks to its reputation for being a precious and industrial metal. With industrial demand forecast to grow while investment demand stays stable, a certain source (Metals Focus) believes the annual average silver price in 2021 will appreciate by 33% from last year’s level to reach $27.30 per ounce. Silver prices rocketed to 27% in 2020 to an annual average of $20.55 per ounce. All you need is a good broker – and you’re good to go!