Precious Metals
Every investor wants to make money. And the way to make money on investments is to buy low and sell high. But with the future being uncertain, no one knows whether prices will rise or fall. The best we can do is to make our decisions and work with the prices markets give us.
While we all hope that prices will rise over the long term, price movements in the short and medium term can give us no small amount of worry. But understanding why prices move the way they do can go a long way to lessening that worry.
Investors in precious metals like silver are no different. While precious metals prices tend to trend upward over the long term, you may not always have 30-40 years to benefit from your investment in silver. So you want to know what influences the silver price and will cause the silver price to go up during your expected period of investment.
Silver is an interesting metal, and not at all one that’s straightforward to understand. But by learning a little more about what influences silver prices, you can be more informed about silver and can begin to answer the question every silver investor or potential silver investor has, which is, will the price of silver go up.
Like any other good, the silver price is subject to the laws of supply and demand. And it’s that interplay between silver supply and silver demand that helps to determine which way the silver price moves. Let’s look at a few of the factors behind silver demand.
Like gold, silver is a precious metal that isn’t exclusively used for coinage or monetary purposes. It has long been used in various industries, and the size of industrial demand normally plays a major role in the price of silver.
Right now, however, investment demand for silver is really driving the silver market. Demand for physical metal has become so massive that warehouse stocks of silver are quickly being depleted. The US Mint earlier this year had to suspend production of some silver coins due to being unable to acquire enough silver to mint them, and various other mints are having a tough time keeping up with the growing demand for physical silver coins and bars.
Silver coins and bars are probably the most popular and well known method of investing in silver. Silver coins used to circulate as currency in the US until the mid-1960s, and into the mid-1970s in Europe.
Silver is also cheaper than gold, which makes it more attractive to buyers who are just starting out in precious metals, or who want to make smaller purchases of precious metals. But it’s important to remember that the spot price of silver isn’t necessarily the market price you’re going to pay for silver.
Because of growing silver demand, premiums on silver products have grown significantly. Twenty years ago you might have expected to pay a 5-10% premium for junk silver coins, for instance. Today those premiums have grown to 100% or more. And premiums on other silver coin products can often be even higher.
On the one hand, that’s good news for those who want to sell their silver, as they should be able to get prices well above spot. But for silver buyers, it can be frustrating to look at a market in which most products are trading at a significant premium to spot.
That’s the nature of the silver market today, however, and as the economy continues to move towards recession, not only could the spot price of silver increase, but so could its market price.
Exchange-traded funds are another popular method that some investors use to gain exposure to the silver market. But the disadvantages of ETFs are many. Most importantly, owning shares in an ETF doesn’t give you ownership of any physical silver, nor can you convert your shares into silver.
It’s also been questioned whether or not ETFs actually hold the amount of silver they claim they do, or whether the silver they claim to hold is otherwise encumbered. Regardless, the moves made by ETFs in buying and selling silver have an impact on the silver price.
In normal times roughly half of silver demand comes from industry. Traditionally one of the major uses of silver in industry was in photographic film. With the demise of film cameras, however, industrial silver demand fell on hard times, leading to a slump in silver prices.
But new uses for silver have revived industrial demand, and new technologies such as solar cells and electric car batteries could be a source of growing silver demand in the future. As this demand increases, so could the silver price.
Jewelry demand is often overlooked, but it too is a driver of silver demand and the silver price. In any given year roughly 20% of silver demand comes from the jewelry industry, a figure that stays relatively stable over time.
Silverware is a small but stable source of silver demand, making up roughly 5-6% of silver demand each year.
There are two primary sources of silver supply, silver mining and silver recycling.
Silver mining is the dominant source of silver supply, making up 80% or more of silver supply in any given year. Silver is very often not a primary mined metal, but is instead found as a secondary metal at copper, nickel, or lead mines. That means that if demand for those base metals falls, and mining activity drops, the production of silver could be negatively affected.
Silver recycling makes up the other 20% of silver supply. At this point there are no indications that silver recycling will increase significantly in any way.
One growing use of silver is in photovoltaic cells in solar panels. As some of these panels end their lifespans, they are able to be recycled but very few are. If recycling of solar panels were to begin on a larger scale, that could contribute to greater silver supply from recycling.
Overall silver demand for 2022 is expected to be greater than any year for the past decade. And silver demand is expected to exceed silver supply for the second consecutive year. If that trend continues into the future, silver demand and the silver price could both grow. But there are two areas of silver demand in particular that could see strong growth.
Silver is vital to the production of photovoltaic cells in solar panels. As green energy becomes more popular, and in many areas even becomes mandatory, silver demand from the photovoltaic industry should continue to grow.
Silver demand from photovoltaics has more than doubled since 2015, and has grown over 25% over the past two years. If that kind of growth continues over the next decade, silver demand from the solar industry could end up becoming one of the most important, if not the most important, source of industrial silver demand.
Right now demand for solar panels is expected to triple over the next five years, which should provide a boost to silver demand and a corresponding upward pressure on the silver price.
The other major growth area for silver is in the production of electric vehicles. While silver is already used in various parts of internal combustion engine cars, electric cars use far more silver, up to 1-2 ounces per car. While that may not sound like a lot, when you consider how many cars are produced each year, that adds up.
As electric vehicles become adopted in greater numbers, and especially as governments force their adoption through various policies, silver demand from the automotive industry should increase significantly.
Long-term silver supply is difficult to forecast and it has a tendency to be cyclical. Right now we’re facing a potential recession, with the prospect of reduced demand for base metals like copper, lead, nickel, and others.
Since a lot of silver production comes as a secondary effect of mining for these base metals, reduced mining of these base metals could lead to reduced mine production of silver. The longer the next recession lasts, the more likely it is that silver production from these sources will fall.
Silver recycling is unlikely to make up for this, as one of the main uses for silver today is photovoltaic cells, which are unlikely to be recycled. While solar panels can be recycled, because they are often required to be handled like hazardous waste, the cost of recycling them isn’t worth the effort.
So every ounce of silver that goes into the production of solar panels, which is nearly 130 million ounces every year right now, is an ounce of silver that will likely no longer be available for future use. It’s as good as lost, and will require either increased production from mines or increased recycling from other sources to meet demand.
Forecasting the future price of any asset, let alone precious metals, is difficult. Given the long history of silver as a monetary metal, a safe haven asset, and an inflation hedge, however, it seems safe to say that the silver price in the future will likely be higher than it is today.
Will the silver price be higher 100 years from now? Probably. Will the silver price be higher 50 years from now? Very likely. But will it be higher 5, 10, or 20 years from now? Or will it be higher whenever you decide to divest yourself of your silver holdings? That’s a tougher question to answer.
Certainly everything is lining up right now to drive the silver price higher in the near term. If silver performs during the coming recession as it did during the 2008 recession, there’s certainly reason to believe that silver could make great gains over the next 2-5 years. And if demand for silver from the photovoltaic industry continues to rise, that could provide steady industrial demand for silver that could push the silver price higher for some time to come.
All of this is ultimately conjecture, however. No one knows what the future holds. For all we know, solar panels may fall out of favor within the next decade, thus suppressing industrial demand. Or the next recession may be milder than expected, or silver prices may not rise as much, as more people invest in gold rather than silver.
That’s why your decision to buy silver has to be based on your assessment of whether or not the price of silver will go up. If you feel that the next recession will be a bad one on par with 2008, then you might want to buy silver. If if you feel that the economy is doing just fine and that the government will swoop in to the rescue and make everything better, then maybe you’ll want to spend your money elsewhere.
But while we may not know with certainty if the price of silver will go up, we do know that if you’re in the market to buy silver, Goldco is the place to do it. With over $1 billion in gold and silver placements, Goldco has helped thousands of customers benefit from investing in precious metals.
Our experts can help you navigate the silver purchase process, whether you’re looking to start a silver IRA or just looking to buy silver coins to store at home. With our years of experience and dedication to customer service, you’ll be hard pressed to find another company that treats you as well as Goldco.
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Free Precious Metals Guide
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DISCLAIMER: This site is general in nature and not tailored to the specific goals of any individual. All investments carry risk. Some of those risks associated with precious metals include the following: prices may rise and fall, which means the value of your metals may go up or down over time and you may sell for more or less than you paid. Past performance does not guarantee future results. Goldco cannot guarantee, assure, or promise future market movement, prices, or profits. Even though Goldco and its representatives are precious metals specialists, we are not licensed financial advisors and do not give financial advice. Additionally, Goldco cannot provide tax or legal advice and will not advise as to the tax or legal consequences of purchasing or selling precious metals or opening a Precious Metals IRA. Individuals should consult with their investment, legal or tax professionals for such services.
