Silver Prices have become a stomach churning roller coaster ride over the past few years. For the first 20 years I was in business, silver hovered predictably between $4-6 an ounce. The price was so stable, I didn’t even think about it. In 2003 prices began to rise. In 2006, with the opening of the first Exchange Traded Fund or ETF, we entered a new era of price inflation and volatility that has wrecked havoc on all of us in the silver business. As the ETFs grow, they buy up silver that is henceforth unavailable for use in industry or jewelry production. The ETFs also allow speculators to easily buy and sell silver, causing extreme volatility as they alternately bid up or sell off shares. In addition, investors flock to silver ETFs when they fear inflation or think the US dollar is going to loose value. All of these scenarios put upward pressure on silver prices.
When the economy starts to improve, jewelry and industrial demand for silver booms, putting upward pressure on silver prices. Traditionally, photography was the primary industrial use for silver. As digital photography replaces film, this segment is shrinking. However, silver has become widely used in some of the most cutting edge technology including bandages, batteries, catalytic converters in automobiles, odor resistant clothing, water purification, and wood treatment to resist mold.
The combined appeal of silver as a safe haven for investors in bad times, and demand for silver as a natural resource in good times, creates a situation where prices seem to just go up and up. If you look at a 600 year chart of silver values, you can see that it was historically under-priced for a long time. A partial explanation for this in recent decades is that many countries were selling off silver reserves, keeping prices artificially low. Once the reserves were gone, prices began to rise. Where will it end? There are people (especially websites pushing silver as an investment) that see silver over $100 in the near future. Personally, I don’t think it will be that extreme but the evidence does seem to point to higher prices in the long term, even if we see prices fall back in short term dips.
10 Year Silver Price Chart
