Silver – The shimmering precious metal

Silver is the 47th element in the periodic table. Its chemical symbol, Ag, is derived from the name Argentum. Silver is very soft and the most flexible metal after gold. The use of silver goes back many thousands of years.

Humans began to process silver relatively early. After copper and gold it was the most important metal used by humans. From the Assyrians, the Greeks, up to the Romans and Egyptians, the precious metal was not only used for practical but also decorative functions. The Egyptians, who also called it “moon metal”, decorated the tips of their obelisks with a silver-gold alloy (electrum). Also the Roman emperor Caligula presented a chariot in the circus made of 124,000 pounds of silver in order to demonstrate his fame and power.

Generally, silver occurs as a by-product in copper, zinc and lead mining. Additionally, a certain proportion stems from iron-ore extraction. Using the cyanide process, one can obtain 95% raw silver. This pure silver is mainly traded as bars, sheets and wires.

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Supply and Demand

Due to its corrosion resistance and highly conductive properties, silver’s highest demand stems from the manufacturing industry. However, silver coins are important as a means of payment. According to estimates by the VM group, the supply and demand in the silver market in 2008 was as follows:

With 26% of the demand, the jewellery industry is the most important silver consumer. Close behind is the electronics sector with 22%. Silver is in high demand here due its special characteristics. The photography industry forms 15 per cent of the demand for silver. However, a decline has been registered here, which is due to the progress of digital photography. This reduction has been made up by the increasing demand from the investment sector, in the shape of ETFs. With a 12% share in the total demand, funds traded in the stock market have grown to become significant market participants in recent years. Amongst other applications, new technologies, such as water treatment and solar technology, dominate. With 855 t and 557 t respectively, they don’t belong to the big demanders, however the growth rates in recent years have been considerable. In 2003, the use of silver in water treatment was a mere 529 t, while use in solar cells was only 140 t.

The most important silver producing countries are in Middle and South America. Therefore in 2008, around 118.3 million ounces originated in the Andes state of Peru. In second place, Mexico extracted 104.2 million ounces. The most important producing country in Europe is Poland with 38.9 million ounces. Its eastern neighbouring country, Germany, is ranked sixth globally.

Silver as an investment

Besides all the industrial sectors mentioned above, the investment sector plays an important role. Silver’s reputation as “gold for the common man” is unjust. Big institutional investors have long since recognised this and supplemented their investment strategies by engaging in the silver market. Therefore, its application in industry is a decisive factor which provides a different attraction to gold. Gold has relatively little significance in the industry. In contrast, silver – as there are often no competing substitution metals- is one of the most commonly used metals. This constellation provides a broader basis for demand. In addition, silver coins and medallions are becoming increasingly popular as physical investments. In 2008, this sector experienced a further jump in demand in the wake of the economic and financial crisis and the collapse of the Lehman Brothers investment bank.

Silver as a payment and reserve fund

As early as 475 BC, silver was used in China as a means of payment. What many people don’t know – long before the gold standard was introduced – there was a so-called silver standard. For many centuries, silver was the preferred currency for acquiring daily necessities. Most states backed the bank notes in circulation with silver, and silver was used extensively for minting coins. While copper was too heavy and gold was too rare, this white metal was an excellent means of payment and reserve funds right up to the late 19th century. In Germany, the silver standard existed from 800 to 1871 – for over 1,000 years.

In 1819, the United Kingdom was one of the first countries to introduce the gold standard. As a consequence, silver slowly lost its strategic importance in financial policies.

How is the silver price determined?

The fair value for silver is also created by supply and demand. The prices for precious metals are determined daily on the world’s financial markets. Therefore, in the past, there was evidence of a negative stock-commodity correlation. In times of strong share markets, the price for raw materials would decrease. It was only in troubled times and turbulent markets that investors would invest in real values such as precious metals.

On the free market, the silver price is determined on the London Bullion Market. The so-called silver fixing has taken place there for centuries. The most important trading locations for silver are London, Zurich, Hong Kong und New York. Of equal significance are the COMEX commodity exchange, the largest precious metal stock exchange in the world and the New York Mercantile Exchange (NYMEX).

Numerous factors affect the silver price:

  • The current rate for US dollars (as silver is traded in USD)
  • Price development and mining quotas for metals where silver is extracted as a by-product
  • Supply and demand
  • Global economic cycles
  • Political unrest
  • The price development for gold (as silver also has monetary characteristics and is viewed as an alternative)
  • Global warehouse inventories
Did you know that...
  • Sterling Silver is not pure silver. Pure silver is too soft to use for e.g. cutlery or jewellery, which is why it is mixed with copper. Ratio: 92.5% silver, 7.5% copper.
  • Silver has the highest electrical and thermal conductivity of all elements.
  • The words for silver and gold are the same in at least fourteen languages in the world.
  • A tiny seed of silver is 150 times thinner than paper when hammered flat.
  • A troy ounce of silver can produce a 2,438 m long wire.
  • Silver is mentioned in the Bible.
  • At least one troy ounce of silver is used to manufacture a car.
  • Silver is known, perhaps unjustly, as “gold for the common man”.
  • Milton Friedman wrote: “The most important monetary metal in history is silver, not gold.”
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