Silver seems to be holding steady at the absurdly high price of around $18.50 per ounce. To give a historical perspective, in the late 1990's, silver was in the $4 range.
The price of silver is dependent on a lot of variables. It is of course dependent on supply and demand, but that is only part of the story. Supply is relatively limited, and new sources are hard to come by. As the price goes up, it becomes more economically tenable to revisit abandoned mines or mines that are less productive per ton of raw material.
Demand is also driven by speculation. When the US Dollar is weak compared to other currencies, like it is right now, investors tend to move their money into commodities like gold, silver and platinum. These are traditionally safe places to store value in times of economic uncertainty.
Another factor that entered the demand equation in the last few years was the creation of Exchange Traded Funds. These investment vehicles allowed investors to own silver without physically taking possession of it. This eliminated a lot of the logistical issues associated with moving silver bullion around from place to place, and it allowed buyers and sellers to come together quickly and easily. The net result is a more volatile market where transactions take place without regard to physical location and can be conducted quickly and efficiently.
Recently, silver prices have been tracking crude oil prices. There is not an exact correlation, but there is a link.
So where do we go from here? Silver prices have jumped 30% in the last six months, but we have seen these price levels in the last few years, albeit briefly. The last price rally to this level was relatively short-lived. In this case, we are looking at higher prices during an economic down-turn.
When the economy recovers and demand for the silver used to make all sorts of electronic, medical and photographic equipment bumps up, will this necessarily will mean higher silver prices? It will depend on the Dollar, speculative demand and who knows what else. If I had the answer, I guess I'd be rich and retired right now instead of writing this blog!
Stay tuned for more silver price updates as they arise.
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