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If you’ve chosen to invest in precious metals, you’ve no doubt researched and discovered the silver price. After all, this precious metal offers many of the benefits of purchasing gold without the necessity of spending thousands of dollars per ounce.
When you watch the silver spot price fluctuate, though, you may wonder what’s causing the variation in price. How could a $3,000 silver investment in March 2020 suddenly be worth nearly $7,000 in May 2021? The answer to this question is complex, but it’s easier to understand than you may think.
This guide will provide you with everything you need to know about the silver price, value determinants, external factors that can affect it, and how you can safely invest in the precious metal. Knowledge is power in the investing world, so make sure you’re always fully informed.
How is Silver Price Determined?
To determine the current spot price, it’s necessary to look into the future. Futures contracts are a promise to sell a certain amount of a commodity on a specific future date. The spot price gets determined by the futures contract that has the most volume.
In some cases, this could be the current month. The highest volume futures contract could also be several months into the future. Price speculators, end-users, and commodity producers use these contracts to manage their risk, bet on silver price changes, and purchase the metal.
There are many silver futures exchanges around the globe, but the two largest are:
- COMEX in New York.
- Shanghai Futures Exchange in Shanghai.
In addition to these major players, there are also exchanges in Chicago, Zurich, Hong Kong, and London. COMEX is currently the largest exchange, and this means it has the most influence over the global silver price.
While COMEX and exchanges like it trade large quantities of silver futures daily, it’s rare that actual silver changes hands. For every ounce of the physical commodity that changes hands, hundreds of ounces of digital futures get bought and sold digitally.
Even when the futures contracts come due, they’re typically only swapped out for other futures contracts. This means the silver price per ounce relies nearly entirely on guarantees to purchase the metal in the future.
What Affects the Value of Silver?
While COMEX and other exchanges may play a major role in setting the price of silver, it’s not as if they pluck these numbers out of thin air. They base the price of silver you see on a multitude of factors that are taken into consideration before anyone agrees to futures contracts.
Recognizing these potential effects can put you in a better place to invest. If you understand the factors that major investors scrutinize before making purchase decisions, it can give you an advantage over retail consumers who simply want to buy silver in the hopes it will immediately rise in value.
Each of the following issues has a direct effect on the silver price, so it’s imperative that you understand them.
Supply and Demand
Silver and gold have a lot in common when it comes to supply and demand, but the former certainly has a more complex relationship with this foundational economic tenet. That’s because most silver finds its way into the industrial process.
This means demand for silver has been on a consistent rise thanks to the precious metal’s use in cellphones and other consumer electronics. And while experts expect silver production to rise continually at least until 2034, unexpected issues like mining strikes could drive up prices even higher.
Silver has long traded roughly in line with gold for value store purposes. It’s seen as a hedge against bad economic times, so market trends can have a significant effect on its price. Because of its continued use in consumer electronics, though, it can perform well even in different circumstances.
The silver price could easily inflate during recessionary downturns due to economic fears. Of course, a booming economy means people are spending more money on things like consumer electronics. This can drive up the demand – and thus the value – of silver investments as well.
To put it simply, silver and the overall market have a complex relationship.
The biggest banks in the world recognize the value of silver, so they obviously invest in the commodity like any other. Due to the large amounts of the precious metal they can buy and sell, they can play a significant role in the perceived value of silver at any moment.
Government policies can also greatly affect the silver price. Stimulus packages, changes in interest rates, laws directed at central banks, and countless other federal actions can drastically alter the market and investor perception. This can have a direct effect on the price of all precious metals.
Silver Spot Price vs. Bullion Price
When you type “what is the price of silver” into a search engine, you’ll find a live silver price guide like the up-to-date chart at Silver Gold Bull. This will tell you the silver price per gram, ounce, and even kilogram. When you go to purchase this precious metal, though, you will see a difference.
No matter how deep you dive into online research, you’ll never find silver available at the spot price. Why is this? Essentially, providing precious metals costs money. Consider the following costs:
- Storage and warehousing.
- Manufacturing and refining.
- Dealer expenses.
None of these things are free. So even if the silver price is at $25 per ounce, dealers will not sell it at that price. Doing so would cause an immediate monetary loss for them. If you had the capital and met the requirements to buy directly from mints, this would be a different story, but even then, you would still not be able to buy at spot price. Dealers always pay a premium over spot to supply their inventory.
The U.S. Mint and other production organizations typically have direct relationships with dealers. They sell coinage and other silver products directly to these dealers – at a premium above the spot price and for large quantities. Consumers simply don’t have the ability to do this.
When you look at the silver price history, remember that these weren’t the prices that investors typically paid. There’s a premium involved when you purchase precious metals, so it shouldn’t surprise you when you can’t purchase at spot.
This shouldn’t drive you away from investing in silver. When you consider the value store and industrial applications, it’s clear that silver will always have worth.
Considerations Outside of Silver Price
When you’re purchasing precious metals of any kind, it’s important to consider factors other than price. This will ensure you’re making an informed investment decision. Imagine you purchase a 100-ounce silver bar only to discover that it’s an alloy – meaning it’s silver mixed with other metals.
If the bar weighed 100 ounces but was only 95 percent silver, you’d immediately lose money if you paid the spot price for 100 ounces of silver. This is why you need to buy recognized items from reputable dealers – such as the 100-ounce silver bar from Silver Gold Bull – and understand the following factors:
Knowing the silver price means nothing if you don’t understand fineness. A piece of silver with a purity of 99.9 percent (i.e. pure) is more valuable than an exact copy that’s only 92.5 percent (i.e. sterling). The weight of silver will dictate its price, and purity is the only way to know the true weight.
Silver coins are very popular right now due to their beauty and guaranteed face value. There are many other types of silver, though, to consider investing in. Rounds, jewelry, bars, and collectible items barely scratch the surface. You can even buy silver bullets.
Precious metal charts can help you keep up with the current silver spot price. You’ll typically pay more than spot due to premiums, but knowing the prevailing price will help you make better investment decisions.
As touched upon in our discussion on what affects the silver price, trends can play a significant role in the value of this precious metal. The massive growth in the global middle class, for instance, is increasing the demand for electronics and other products that require silver. This higher demand results in higher value.
The important lesson here is that the silver price should only be one consideration when you’re investing. Prices change throughout the day, so making an informed decision is paramount. Once you understand trends, charts, weights, and the types of silver you can buy, you’re in a far better position to purchase this precious metal. It’s also important to keep in mind that precious metals are a long term investment, and day-to-day price fluctuations have little effect on your long-term holdings.
Start Investing in Silver Today!
While silver investments very often get viewed under the same light as gold purchases, you now understand that there are key differences between these two precious metals. While gold mainly serves as a store of wealth, silver has real-world uses that can help maintain its value throughout the years.
This guide focused on helping you understand what affects the current silver price and how to prepare yourself for investing. With this knowledge in hand, there’s nothing standing between you and purchasing your first or thousandth silver item. In fact, you can get started right now.
Review all the silver investment options we offer at Silver Gold Bull and find the items that work best for you. If you’ve still got questions regarding investing, the live silver price, or anything else related to precious metal investing, contact us today!