Silver is a unique metal wherein it is equally loved by industries for its use and investors for its store of wealth properties. This also creates a dilemma with regards to silver prices. Industries want the silver prices to be as low as possible whereas the investors want the price appreciation.
There are several other factors that impact the ultimate price of silver.
- The USA is the second largest importer of silver, second only to India with imports of 5,935 metric ton ($3.9 billion in 2015) - an increase of 20.2% from previous years. This constituted roughly 72% of total silver consumption in the USA. This is the reason, that the prices of silver in US$ terms are very sensitive to the strength of the US dollar.
- Silver is produced either directly from silver mines or as a byproduct of mining of other metals such as copper. In 2016 about 80% of silver produced came as a byproduct of mining of other industrial metals. Silver mining has been on a decline for last several decades as the suppressed prices of silver prohibit investments in new mine exploration and development of mines. This creates a downward pressure on silver prices during the economic downturn as mining operations for other industrial products is reduced.
- Historically the gold to silver mining ratio has been around 9:1. This leads to an incorrect assumption by many silver stackers that the gold to silver price ratio should also be 9:1. This is a fallacy and historically the ratio fluctuates between 45 and 90. I like to use the ratio of 63:1. Price ratio is different from production ratio due to perceived value attached to the store of wealth.
Finally, there is of course price manipulation. Anything of value will have this kind of behavior exhibited. It is prevalent in almost all the entities such as oil, LIBOR interest rates etc. but are not noticed or talked about.
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