The popularity of silver has risen significantly over the last few years, based on investor sentiment. A couple of years ago, the spot price of silver was approximately $16 per Troy ounce. At the time, market experts had been putting out their forecasts and there was an expectation that silver would rise to $21 per ounce.
The white metal started enjoying considerable interest from investors who were hoping to buy silver at a lower price point and book profits when the prices rose. The expected rise of silver was also dependent on several market factors that included the dynamics of supply and demand, and rising industrial requirements for silver. Before we move on to exploring the factors that influence the silver market, let’s take a step back and understand the most important concept – the silver spot price.
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The silver spot price is essentially a current market price that needs to be paid by a buyer at a particular point in time. So, the first important consideration is that the spot price of a precious metal changes continuously. It is a dynamic price value that rises and falls throughout the day when markets are open.
While we may think of gold and silver as precious metals, it is important to note that the market trades it as a commodity. The spot price is also different from a future price. A future price denotes a contract value for a particular commodity for a given date in the future. For example, if an investor were to invest in a futures contract for silver, that person agrees to purchase a certain quantity of the precious metal at a pre-determined price, at a point of time in the future.
The investor, therefore, agrees to pay this price, irrespective of a rise or fall in the price of the commodity at that point in time. So, it’s all about protecting the buyer’s risk. Investors often use futures contracts to protect their price point. However, immediate purchases need to be bought and sold at the spot price.
Market pundits had predicted back in 2018 that the silver spot price could reach $21 per Troy ounce. Silver has outperformed this prediction and today, the spot price of silver stands at $ 25.71 per ounce. However, this is not even close to the point where the highest price of silver has reached. The all-time high silver spot price was reached on 18th January 1980 when the precious metal was traded at $49.45 per ounce.
While spot prices are often determined by speculation, they are also fixed by studying futures contracts and the dynamics and volumes of trade in the precious metal across the global exchanges for the current months and the months ahead. Futures contracts that have been agreed upon on a month-to-month basis are often studied.
The volumes of trading over a given period of time are also taken into consideration. However, we must understand that apart from these factors, other macroeconomic factors may also play a role in the determination of the silver spot price. For example, political events around the world, financial decisions made by governments and the performance of the global stock markets, may all have a significant impact on the silver spot price. Another factor that has had an impact on the silver spot price in recent years has been rising industrial demand.
Industrial demand for silver has been continuously on the rise over the last decade. The automobile industry requires 36 million ounces of silver each year. According to the Silver Institute, the global automotive sector will soon require 90 million ounces of silver by 2025.
This number is expected to rise exponentially as the world moves towards e-mobility. Electric vehicles will require more volumes of silver when compared to current car models. Additionally, the global thirst for green energy has skyrocketed the solar panels industry. The photovoltaic cells used in the solar panels use a lot of silver and has resulted in the spot price of silver rising due to this industry.
When you buy silver from a dealer, the silver spot price is used as a guide price for the trade. In reality, you can neither sell nor buy at the exact spot price of silver. A premium needs to be paid over and above the silver spot price when purchasing. Similarly, you would always sell at a price below the prevailing silver spot price. The price you pay would also depend on whether you are buying bars or coins. Silver bars or bullion coins can be traded quite close to the spot price. However, if you decide to purchase older coins with a rarity value, you will need to pay a substantial premium.
Most reputable dealers will publish the current silver spot price on their websites. This will usually be visible as a dynamic ticker near the header or footer bar of the website. Many dealers may charge you an additional cost to cover logistics like shipping and insurance for your purchase. Once you have considered all these costs, you can decide to purchase the quantity of silver that you want.
The global pandemic has been one of the contributors to the mercurial rise of silver. Governments across the world are taking steps to battle the economic impact of the pandemic. The US Federal Reserve has set the US short-term interest rates at 0% and it is likely to remain so until 2023. In a lower interest rate regime, precious metals will always thrive and so, there is an expectation that silver will continue to rise beyond 2021.
Physical Gold is one of the nation’s most reputable online dealers of precious metals. Our team of advisors continually study the trends in the silver market and are best placed to guide you on making your investments. Call us on (020) 7060 9992 or reach out to us online and talk to our advisors to make the right silver purchases.
Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.