Silver

Silver sits between two worlds. Like gold, it is a precious metal held as an investment and a store of value. Unlike gold, more than half of its demand comes from industry: electronics, solar panels, electrical contacts and other uses. This dual role means silver responds to both financial conditions and economic growth, and it typically moves more sharply than gold in both directions. Silver's smaller market size has also made it prone to dramatic squeezes.

How silver is traded#

Supply and demand#

According to the Silver Institute, total silver demand is roughly 1.1 to 1.2 billion ounces a year. Industrial uses make up about half or more, with photovoltaic (solar panel) demand growing rapidly in recent years. Most silver is produced as a by product of mining for lead, zinc, copper and gold, so supply does not respond quickly to silver prices. The market has run deficits in recent years, drawing down above ground stocks.

What drives silver prices#

The gold silver ratio#

gold silver ratio = gold price per ounce / silver price per ounce

The ratio has ranged from below 40 (1980 and 2011 peaks) to above 120 (March 2020).

Volatility#

Silver's daily volatility has often been one and a half to two times that of gold. Smaller market size and industrial sensitivity mean big rallies and big crashes. In 2011, silver nearly hit $50 an ounce in April before falling by roughly a third within weeks after exchanges raised margin requirements.

Famous squeezes#

• The Hunt brothers (1979 to 1980): Nelson Bunker Hunt and William Herbert Hunt accumulated vast silver holdings, driving prices from about $6 to nearly $50 an ounce. After COMEX restricted leveraged buying, prices collapsed on "Silver Thursday", 27 March 1980. See Market Manipulation.
• January and February 2021: online retail investors briefly targeted silver after the GameStop episode, pushing prices up sharply for a few days before they faded.

How traders approach silver#

• Macro and gold linked trading, with extra volatility.
• Ratio trading against gold.
• Industrial cycle trading with copper and other base metals. See Copper.
• Trend following, with smaller position sizes because of volatility. See Volatility and ATR-Based Sizing.

Risks#

• High volatility and sharp reversals.
• Margin increases during spikes, forcing leveraged traders out.
• Physical premiums can rise sharply in shortages.
• Industrial demand shocks in recessions.

Frequently asked questions#

Why is silver more volatile than gold?#

Its market is smaller, it has large industrial demand tied to the economic cycle, and investment flows can move prices more easily.

What is the gold silver ratio?#

The number of ounces of silver needed to buy one ounce of gold, used to compare their relative value.

What is silver used for?#

Electronics, solar panels, electrical contacts, brazing, medical uses, jewellery, silverware, coins and bars.

Next, learn about the industrial metal that tracks the economy in Copper.

Sources#

• The Silver Institute, World Silver Survey