To people who haven’t quite caught the silver bug, an interest in the US silver value might actually appear sort of…well, buggy! Even longtime silver investors and collectors find the topic multi-layered and difficult to explain.
Here at SilverValueUs.com, we’re here to peal back the veil to help everybody from new to advanced silver collectors make inform decisions about buying and selling silver. Take a few moments to explore the factors that drive silver values, how to make good choices about silver to buy or sell, and what silver might mean for the future.
What Drives U.S. Silver Values?
Throughout 2020, the price of silver has increased by over 50%. But, why did this happen? Will the price of silver continue to increase or will it fall back down? Is now a good time to buy or sell? To answer these questions, one must understand what drives silver’s value. Only then could you possibly predict what its price will do. Understanding silver’s value drivers will allow you to do this.
Supply-Side Silver Value Drivers
Silver, like all other commodities, has its value determined by factors affecting supply and demand .Supply factors are factors that limit or increase the supply of silver. This could include a change in the mining or smelting rate of silver or the speculation caused by the discovery of a new major vein of silver ore.
According to The Silver Institute, the supply of silver has been mostly steady for the past eight or nine years, but is dropping by 4% to 978.1 million ounces in 2020. PV Magazine credits Covid-19 for the silver production being at its lowest in over a decade.
This is for two reasons, pandemic shutdowns forced many mines and foundries to decrease production if not close down completely and many silver producers decreased production because they protected that the virus would also decrease demand. Lower demand would decrease the overall value of their silver and may make it more profitable to hold on to their silver until it increases.
Value Drivers on the demand side
Now seems like a good time to address what factors affect silver’s demand. Demand factors are factors that limit or increase the demand for silver. This mostly the different uses that silver has and the events that would change how much those uses occur. These uses include industrial applications, jewelry, for coins and bars, and for sentimental purposes.
One of the most surprising things about silver is that the majority of it is used for industrial purposes. According to Thomson Reuters, around 60% of the global silver supply is used in industry. The primary industrial uses of silver are as photographic silver, as photovoltaic silver, and in other electronic devices according to BouillonVault.
Photographic silver is silver nitrate that is used in X-ray machines and older cameras and is still the most common use of industrial silver. It has been declining though. One the other hand, the use of photovoltaic silver has been increasing in the past 20 years. Photovoltaic silver is used to make solar panels. Due to this, solar energy is the fastest growing industry for silver consumption due to photovoltaic silver. Silver also has many other applications including being used in batteries, antibiotics, glass coating , LED chips and many alloys.
With all this talk about the industrial uses of silver, it is important to remember that the more traditional demands for silver affect its value as well. According to investingnews.com, 201.3 million ounces of silver were used for jewelry last year alone. Silver, as a precious metal, is cheaper than gold but just as beautiful if used in the right piece.
Another similarity that gold and silver share is that they are both used in the making of coins and bars. Silver coins could be being used as currency or as bullion. Currency is meant to be exchanged for other goods or services, while bullion is held as an investment. There is evidence of silver coins being used as currency from as early as 550 BC. Though silver is still being circulated as a currency today, its use has diminished since the 19th century. This is due to the relative value of the coins not keeping up with the value of their weight in silver.
While using silver as currency may have declined, using silver as bullion has only increased over the past century. The popularity of silver investments caused the purchase of silver coins and bars to increase by 12% in 2019 alone. Silver is primarily such a popular investment because it holds its value relative to the dollar. This means that one ounce of silver will be able to buy the same amount of goods when even the amount of dollars it costs changes due to inflation or deflation.
The final reason people buy silver is for sentimental reasons. As stated above, silver has been associated with value for millennia. This value helps many who own silver feel more secure financially in uncertain economic times. Remember, silver keeps its value much better than almost any currency. Silver can also be part of a family heirloom that an owner may be less than willing to sell when the silver prices rise, even if it would be a substantial profit. This could create markups for silver items well beyond their weight in silver.
So, how does all this help us understand why silver prices increased so much in 2020? What affected supply and what affected demand this year? On the supply side; the main change was the temporary closure of mines in South Africa, Mexico, and Peru due to the coronavirus. This is what primarily lowered the supply.
As you can see, there are a lot of factors that can affect the value of silver in any given year, especially a year as eventful as 2020. But if you understand all the variables involved, you too can learn to understand and even predict silver’s value. Then, you will know if silver trading is something you are interested in.