Silver Spot Price

Why Do Investors Buy Physical Silver

Investors are drawn to silver due to its scarcity and broad utility in healthcare, automotive, and energy sectors, ensuring ongoing demand. Holding physical silver also means avoiding counterparty risk, which is the possibility of another party failing to meet their contractual obligations. In scenarios where entities like banks or companies such as FTX collapse, those holding physical silver are protected, making it a strategic asset for various investment portfolios. 

Silver Price History

In the 1990s, silver prices were stable at around $5.00 per troy ounce ($0.16 per gram) but began to climb in the 2000s, experiencing significant highs and lows. The lowest price recorded was $3.55 per troy ounce ($0.11 per gram) in 1991, with the highest peak at $48.70 per troy ounce ($1.57 per gram) in 2011. The year 1980 saw a remarkable rise to $49.45 per troy ounce ($1.59 per gram) amid a financial crisis caused by the Hunt Brothers' attempt to dominate the silver market, leading to regulatory changes to prevent such occurrences. Silver enthusiasts often use the high price of 1980 as a benchmark for its potential in scarcity situations, equating to $184.64 per troy ounce ($5.94 per gram) in 2023 dollars. 

Most recently, silver prices have been rallying over $30 per troy ounce ($0.96 per gram) and trading in a range of $29 to $33 per ounce ($0.93 to $1.06 per gram), starting May 15th, 2024. This is a 10-year high for the price of silver, and follows gold's historic price movements. As silver has rallied, the gold to silver ratio has dropped to five year lows at times, offering our ratio traders a chance to capitalize on a favorable trade. Forecasters and analysts are predicting silver will follow gold's price movements in the current environment. 

Using All-Time Highs for Timing

Historical highs serve as crucial indicators for investors looking to time their market activities. The 1980 and 2011 peaks are considered, with the former being viewed through the lens of market manipulation and systemic risk and the latter representing a more stable market condition. Adjusting these peaks for inflation offers a perspective on silver's potential, with $184.64 per troy ounce ($5.94 per gram) for 1980 and $66.61 per troy ounce ($5.94 per gram) for 2011 serving as references for its achievable heights under different circumstances. 

Could Silver Reach $100, $300, or $1,000 Per Ounce?

The question of whether silver can reach $100, $300, or $1,000 per ounce ($3.21, $9.64, or $32.15 per gram) is explored in depth in our Knowledge Center article “Could the Price of Silver Ever Reach $1000 Per Ounce?” Despite ongoing speculations and high expectations set by various market commentators, such price targets have yet to materialize.  

Silver remains a solid investment choice due to its tangible nature, substantial appreciation since the 1990s, and the guarantee that its value will not diminish to zero, thanks to its scarcity and utility. We recommend thorough research and prudent investment in silver. 

Factors that Influence Silver Prices

The dynamics of silver pricing are shaped by multiple factors: overarching macroeconomic trends, market sentiment, and specific sector demands. The global economic landscape, including inflation, interest rates, and growth metrics, plays a pivotal role. Investor sentiment, swayed by geopolitical developments and the quest for secure assets, often triggers swift price shifts. Silver's industrial applications, notably electronics, and sustainable technologies, further dictate its market value. Additionally, the output of silver mines, the political stability of key producing areas, and the US dollar's value, given silver's dollar denomination, all feed into its price volatility.

An illustrative example occurred on November 28th, 2023, when dovish comments from Fed's Christopher Waller regarding potential 2024 rate cuts led to notable market reactions. This resulted in a 4.21% increase in silver prices, paralleled by a drop in the two-year treasury yield by 8.9 basis points, demonstrating the market's sensitivity to such announcements.

How is the Silver Spot Price Determined?

The silver spot price is primarily set on commodity futures exchanges such as the COMEX, representing the immediate purchase price. This price is found through an ongoing auction where bids and asks for silver futures converge, reflecting the immediate supply and demand. This process, sensitive to economic indicators, geopolitical events, and market sentiment, makes the COMEX spot price a global benchmark for silver.

Although COMEX is pivotal in this process, other entities like the LBMA and exchanges in Tokyo and Shanghai are essential in establishing a cohesive global silver pricing structure.

How Silver Futures Influence Silver Spot Prices

The silver spot price represents the current market value of silver for immediate delivery, reflecting real-time supply and demand dynamics. Silver futures, on the other hand, are contracts that obligate the buyer to purchase or the seller to deliver silver at a predetermined price and date. These futures contracts play a crucial role in shaping silver spot prices through several key mechanisms. 

First, price discovery occurs in the futures market, where large volumes of trading influence overall market sentiment and expectations. If futures prices rise due to strong demand or speculation, spot prices often follow suit as investors anticipate higher future values. Conversely, declining futures prices can exert downward pressure on spot prices. 

Second, arbitrage opportunities help align spot and futures prices. When discrepancies arise between the two, traders buy in one market and sell in the other to profit from price differences. This activity naturally pushes the spot price closer to the futures price, maintaining market equilibrium. 

Additionally, market sentiment in futures trading can spill over into the physical silver market. If a surge in futures buying signals bullish expectations, it can lead to increased investor demand for physical silver, raising spot prices. Similarly, a downturn in futures contracts can trigger lower spot prices as selling pressure intensifies. 

Overall, silver futures are a major driver of spot price fluctuations, acting as both a predictive indicator and a mechanism for balancing market prices. Traders and investors must monitor futures market trends to understand potential movements in the spot price of silver. 

Why are there Differences Between Silver Spot and Silver Future Prices?

The terms contango and backwardation describe the relationship between future and spot prices. Contango indicates a scenario where futures prices surpass spot prices, suggesting an anticipated rise in demand or a drop in supply influenced by factors like storage costs. Conversely, backwardation points to futures prices falling below spot prices, hinting at expected demand decreases or supply increases. These market conditions offer valuable insights for traders and investors, shaping strategies in the silver market. 

How to Trade the Gold to Silver Ratio

The gold to silver ratio reflects how many ounces of silver are needed to purchase one ounce of gold, offering insights into their relative values. A high ratio suggests silver might be undervalued relative to gold, potentially signaling a good time to invest in silver, whereas a low ratio could indicate a preference for gold. Investors often switch their holdings between gold and silver based on this ratio. For example, an investor who bought 5 ounces (155.52 grams) of gold in January 2019 when the ratio was 82 could have traded it for 560 ounces (17,417.9 grams) of silver by April or May 2020, when the ratio reached 112. If the ratio fell to 70 by September 2020, exchanging the 560 ounces (17,417.9 grams) of silver could net 8 ounces (248.8 grams) of gold. If the initial gold price was $1300/ounce ($41.80/gram) and the subsequent gold price was $1900/ounce ($61.09/gram), this strategy could lead to a profit exceeding 133%, though this example omits trading costs and taxes. Investors generally convert their holdings into a liquid currency for trading and prefer low-premium silver products like 1 oz silver bars or sovereign mint coins. 

Why is Silver Used as a Store of Wealth

Historically, silver has served as a reliable store of value, especially during periods of hyperinflation when traditional currencies falter. Examples from Zimbabwe in the late 2000s and Venezuela in the mid-2010s demonstrate silver's role in preserving wealth amidst currency devaluation. Silver maintained its value in these scenarios, offering a stable alternative for transactions and savings. Hyperinflation episodes in Germany post-WWI, Greece post-WWII, and Yugoslavia in 1994 further underscore silver's importance as a financial safeguard. 

The Green Revolution and Silver’s Industrial Uses

With constrained supply and the ever-growing demand for silver, there is a consensus belief that demand will outstrip supply and prices will rise. At the center of this narrative is the demand for silver in electric vehicles and in photovoltaics – or solar panels. With the massive build back better bill funneling hundreds of billions towards a green revolution that is heavily dependent on silver, many traders are following the money. Silver supply has only increased a very small amount each year. In 2021, the total supply increased by 4.9%, and in 2022, the supply increased by only 1.1%.  Supply in 2023 saw a decrease of -2% due to a four-month labor strike at  Newmont's Penasquito silver mine in Mexico. 2024 is forecasted to see another decline in supply, but the final numbers will be released in the World Silver Survey 2025 in April. The constrained supply can be attributed to regulatory hurdles and the lead time it takes for new mines to become operational. We have seen massive demand between 2020 and 2024, yet supply has not kept pace.

Photovoltaics, or solar, uses a lot of silver. Silver consumption for silver has increased by 7.4% in 2021, and 32.8% in 2022, a staggering 63.8% in 2023. The forecast demand for 2024 is 232 million ounces, and that number is set to only grow. With additional spending set to propel this industry further, silver consumption is expected to outpace supply.

Silver Supply & Solar Use (millions of oz)

In addition to solar, electric vehicles use considerably more silver than ICE (internal combustion engine) vehicles. Although the amount of silver in each EV varies by brand and model, a very rough estimate puts ICE vehicles at about half of a troy ounce and EVs at about one troy ounce. For every EV to replace an ICE vehicle, we expect an additional 0.5 troy ounces to be consumed. This does not include the millions of ounces it will take to completely electrify our grid so electric car chargers are available around the US. Projections are constantly changing, and electric vehicle production has recently hit a slowdown with rising interest rates (2023) and manufacturers pulling back on their manufacturing forecasts. Nonetheless, 20% of all new vehicles sold in 2024 were EVs, marking meaningful progress from the 14%  in 2022 and 4% in 2020. Full electrification could easily consume an additional 100 million ounces by 2030 if EV adoption continues apace.

Silver stackers are watching the green revolution unfold as it has the potential to propel silver prices to much higher trading ranges as supply and demand attempts to balance out. With a Trump administration now in office, we may see solar and EV demand decrease over the next few years, but the silver supply for 2025 is still only forecasted to be 1.05 billion ounces, while demand could be 1.2 billion ounces or more. 

Why You Should Never Attempt to Buy Silver Below Spot

The marketplace is fraught with opportunists, making vigilance essential. Offers to sell silver below its spot price are red flags, often indicating counterfeit products. The spot price represents silver's actual value, with premiums covering operational costs across the supply chain and ensuring market functionality. Encountering below-spot price offers should prompt skepticism, as legitimate transactions typically reflect true market values.