The markets have been incredibly volatile in 2020, so it’s no surprise that we’ve seen the price of metals drop this year. However, while other commodities have tanked, silver prices shocked everyone by dramatically outperforming expectations. After hitting a low in March when the markets crashed, silver rebounded, increasing in price by over 140 percent.
Silver prices were at their lowest on March 18th, when they hit $11.64 per ounce. By July, prices were averaging around $15 per ounce. Now, prices are averaging around $24 per ounce, and have been as high as $28 per ounce in recent months. So what’s behind this incredible jump in silver prices, even as the rest of the market continues to flounder? Let’s take a look at what’s causing it.
Huge Physical Demand
There has been a massive increase in demand for silver globally. Silver has a broad range of uses, which makes it a versatile investment for manufacturers. You probably already know that silver is used in jewelry and tableware, but did you know that it’s also used in things like dental fillings, batteries, and other electronic devices.
It’s silver’s use in electronic devices that has pushed it into such high demand this year. Silver conducts electricity very effectively, which makes it great for batteries and circuits. There are so many essential industries that rely on silver for their applications, including healthcare, transportation, and more. Even the jewelry market has seen increased demand recently - silver jewelry exports from India increased by more than 100 percent this year. Much of this jewelry demand is coming from China, although there’s been increased silver demand throughout the world this year.
This increased demand has led to a boom in contracts for silver mining contracts. Not only have thousands of contracts been put in place, but these companies are also delivering the silver at a much higher rate in an attempt to keep up with demand. This demand shows no signs of slowing down, as many innovative new technologies are relying on silver for their construction.
For example, silver has anti-microbial properties, which means that it can kill and prevent bacterial growth. This makes it very useful in developing healthcare technologies, which need to be able to stay clean. Silver is also used in many personal electronic devices, which are becoming increasingly essential for both professional and social communication. It’s even used in solar panels, which are in very high demand as countries around the world are switching to natural energy sources. Scientists in Singapore have been working on a silver-based material that will increase a solar panels’ ability to absorb light.
Another reason why silver’s price has jumped up so quickly is because it is very volatile when compared to other metals, such as gold. This is because the global supply of silver is far smaller than the global supply of gold and many other metals. Silver is typically sourced as a byproduct of copper mining or other metal operations. Even with increased demand and an increase in dedicated silver mining operations, it’s unlikely that the global supply of silver would ever increase to the point that it drives prices back down.
This volatility means that when demand for silver increases, its price jumps much higher than the price of other metals. However, this also means that silver prices have the potential to crash harder when the market does crash, as it provides investors with more liquidity. For example, silver prices dropped much more dramatically than gold prices in March, when the entire market crashed.
Low Interest Rates and Economic Instability
As a result of the pandemic, the Fed lowered interest rates on silver and other commodities to zero percent. This was a strategy to boost the economy and keep the market from crashing further. These incredibly low interest rates attracted investors and boosted the price of silver.
It wasn’t just in the US that investors were looking at silver, either. Governments all over the world started taking steps to save their economy, which usually included some kind of stimulus. This economic instability made investors nervous, and many started taking steps to adjust their portfolio.
Silver and other precious metals have long been viewed as safer than other forms of investment. This is because silver is a real and tangible asset that is sought after throughout the world, and is even used as a form of currency in many places. It’s also highly liquid, which is more appealing to investors during times of economic crisis. Because of this, the value of silver or other precious metals are unlikely to ever completely tank the way that stocks can. When the global economic crisis hit in full force during the spring, investors saw silver as a safe way to protect their portfolios financially.
All of the economic instability over the past several months has resulted in a weakening of the US dollar. Although silver is traded globally, it is almost always traded using the dollar. When the dollar’s value weakens, prices of silver and other commodities go up slightly as a result. Investors use a unique strategy when working with silver and other precious metals, and that unique investment strategy has worked well during the challenges of the pandemic.
How To Invest in Silver
With the price of silver rapidly increasing, it’s no surprise that many people are looking to invest in this exciting precious metal. With demand at an all-time high, many experts are speculating that silver’s prices could continue to go up. People all over the world have experienced financial struggles as a result of the COVID-19 pandemic and resulting economic crash, which makes this prospect of a lucrative investment even more exciting.
There are a few different approaches you can use to invest in silver. Traditionally, precious metals investors would purchase coins and bars of silver, and this is still an investment option today. Investors that take this route will need to find a safe way to store and eventually redistribute their silver. This means that if you opt for this investment strategy, it might require you to spend slightly more money up front.
Those who invest in silver bullion coins or bars should buy and sell them through reputable dealers. In order to make sure a dealer is offering legitimate pricing strategies, you’ll need to closely monitor the silver prices on exchanges in New York, London, and Hong Kong. Prices that are much higher or lower than the ones on these exchanges could be cause for concern.
If you don’t want to purchase bars or other forms of physical silver, you could consider investing in a silver ETF, or exchange traded fund. An ETF is a security that is tied to a group of other securities, and is traded on exchanges in the same manner as stocks. Silver ETFs, such as iShares Silver Trust and ProShares Ultra Silver, are tied to the value of silver on global exchanges. When the price of silver goes up, the ETF’s value will go up as well. The advantage of investing in silver this way is that it’s accessible for beginner investors. ETFs are also generally considered slightly less risky than investing in individual stocks, because the price isn’t tied to one commodity.
Particularly savvy investors may also want to consider investing in the stocks of companies that mine for silver. For this strategy to be successful, investors will need to look at each mining company’s individual business strategy. Since mining companies produce other types of metals in addition to silver, you’ll also need to keep in mind that your investment will be tied to other commodities as well.
Looking Forward: Will Silver Prices Keep Increasing?
Since the markets are so volatile right now, it is incredibly difficult to predict what will happen with silver or the precious metals market as a whole. However, the increased demand that silver is seeing this year is unlikely to slow down. This means that prices will likely continue to be at a historic high, and could potentially go up in the future.
The broader global economy will also likely continue to struggle as a result of the ongoing COVID-19 pandemic. This economic crisis is driven further by factors like an increased rate of natural disasters and civil unrest. During an economic crisis, silver is going to be increasingly appealing to investors who want to protect their portfolio. It’s highly unlikely that silver would ever experience a complete crash in value.
Although silver’s price jump this year was historic, it makes sense considering the increased demand for this precious metal. Since demand for silver isn’t slowing down anytime soon, we can expect to see silver prices continue to stay at these high levels, and they could potentially increase.
This is a huge boon to those who already have silver as part of their portfolio, and it also bodes well for those who want to invest in silver in the future.
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