Silver - a smart guide on what you need to know about it
Silver is one of the four precious metals you can trade in the financial market. The other three are gold, palladium, and platinum. As a financial instrument, it has an interesting past. In the 1970s, when President Nixon removed the gold standard, the price of gold rose sharply. As this price rose, speculations rose that silver will be the next big thing.
At the same time, a wealthy Texan Nelson Hunt was dying and so, he left his entire estate to his children. Two of them decided to invest their fortune in the silver market. They believed that the price of the metal would continue to rise. So, they used their entire fortune on the metal. They also used their name to borrow heavily, with the goal of investing in the metal. At the time, they had the biggest silver holdings in the world.
Fearing that the brothers were manipulating the silver industry, the government decided to introduce limits which an individual or individuals would own. This led to a sharp decline in his price and the two brothers suffered huge losses. Because of the massive leverage they had used, they were forced to declare bankruptcy.
The difference with gold
Silver is similar to gold in a number of ways. First, the two are precious metals that are valued a lot. Second, they are all found deep inside the earth’s crust, which makes them expensive to mine. Third, are important metals in the jewellery industry. The main differences is that silver has an industrial use compared to gold, which is mostly used for investment purposes. Another difference is that silver is mostly bought by companies while gold is bought by central banks and investment firms. Another difference is that gold is often viewed as a hedge against inflation.
As a precious metal, silver has a number of characteristics. These are: its resistance to oxidation and corrosion, better heat and electricity corrosion, non-toxicity, photosensitivity, and inexpensive. The latter point has led to many in the metal industry to call it the poor cousin of gold.
This year, his price has declined by 2% while gold has moved up by about 1% as shown in the chart below.
How to trade it
To become a good silver trader, it is important for you to understand the demand and supply dynamics. Most of the world’s silver is mined in countries like Mexico, China, Peru, and Australia. The biggest mining companies are Fresnillo, Glencore, Goldcorp, and Pan American Silver Corp. On the other hand, the biggest demand for the metal is in companies like China, Japan, India, United Kingdom, US, Canada, and Germany among others.
As the middle class has risen around the world, the amount of silver demand and supply has risen. The supply has risen from 20K metric tons in 2005 to a high of 27K in 2018. The demand too has continued to rise, fueled by the fabrication industry, the jewelry industry, and the photovoltaic industry. However, the price will depend on the Fed’s monetary policy outlook. If the Fed continues its dovish stance, there is a likelihood that the dollar will weaken, which will lead to higher silver prices.
You can find here a more specific in-depth analysis on this topic.