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What Effects Silver Prices? Research Team | Posted On Monday, February 09,2009, 03:42 AM

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What Effects Silver Prices?




Silver, like any other precious metals, may be used as an investment. For more than 4,000 years, silver has been regarded as a form of money and store of value. However, since the end of the silver standard, silver has lost its role as legal tender in U.S. ( It continued to be used in coinage until 1964, when the intrinsic value of the silver had gone beyond the coins' face values.)

Silver price:

The price of silver has been disreputably volatile as it can vary between industrial and store of value demands. Sometimes this can cause wide ranging valuations in the market, creating volatility. Silver often tracks the gold price due to store of value demands, although the ratio can change. The gold/silver ratio is frequently analyzed by traders and investors and buyers. Over most of the 19th century, the gold/silver ratio was fixed by law in Europe and the US at 1:15.5, which meant that one troy ounce of gold, would buy 15.5 ounces of silver. The average gold or silver ratio during the 20th century, however, was 1:47.0.

Factors Affecting Silver Prices:

Private and institutional investors:

1.  From 1973 the Hunt brothers started cornering the market in silver, helping to cause a spike in 1980 of $49.45 per ounce and a reduction of the gold or silver ratio down to 1:17.0 (gold also peaked in 1980, at $850 per ounce). Though, a combination of changed trading rules on the New York Mercantile Exchange (NYMEX) and the intervention of the Federal Reserve put an end to the game.
2.  In 1997, Warren Buffett bought 130 million ounces (4,000 metric tons) of silver at $4.41 per ounce (total value $572 million). Same like gold, the silver price has more than doubled in value against the US dollar since December 2001. On May 6, 2006, Buffett announced to shareholders that his company no longer held any silver. In April 2006 iShares launched a silver exchange-traded fund, referred as iShares Silver Trust (NYSE: SLV), which as of April 2008 held 180 million ounces of silver as reserves.

The large concentrated short position:

The CFTC publishes a weekly Commitment of Traders Report which reveals that the four or fewer largest traders are holding 90% of all short silver contracts. In addition, these four or fewer traders are short a total of 245 million ounces (as of April 2007), which is equivalent to 140 days of production.
On 2008-09-25 The CFTC finally relents and probes the Silver Market after constant complaints of foul play draw the still-skeptical Agency to investigate

Industrial demand:

The use of silver in items like electrical appliances and medical products has increased since 2001. New applications for silver are being explored in batteries, superconductors and microcircuits, which may further boost up non-investment demand. The growth of the middle classes in emerging economies aspiring to Western lifestyles and products may also contribute to a long-term rise in industrial usage. Even so, due to the beginning of digital cameras the enormous reduction in the use of silver halide-based photographic film has tended to offset this. 

Methods of investing in silver:


A conventional way of investing in silver is by buying actual bullion bars. In some nations, like Switzerland and Liechtenstein, bullion bars can be bought or sold over the counter at major banks. Physical silver, like bars or coins, may be stored in a home safe, a safe deposit box at a bank, or placed in allocated (also known as non-fungible) or unallocated (fungible or pooled) storage with a bank or dealer.

Various sizes of silver bars:

  • 1000 oz troy bars – These bars weigh about 68 pounds avoirdupois (31 kg) and change about 10% as to weight, as bars range from 900 oz to about 1100 oz (28 to 34 kg). These are COMEX good delivery bars.
  • 100 oz bars – These bars weigh 6.8 pounds (3.11 kg) and are among the most well-liked with retail investors. Popular brands are Engelhard and Johnson Matthey. Those brands cost little bit more, usually about 40-80 cents per ounce above the spot price, but that price may vary with market conditions.
  • Odd weight retail bars – These bars cost less and usually have a wider spread, due to the extra work it takes to calculate their value and the extra risk due to the lack of a good brand name.
  • 1 kilogram bars (32.15 oz)
  • 10 oz bars and 1 oz bars (311 and 31.1 g)


American Silver Eagle bullion coin.

Silver coin:

Buying silver coins is another well known method of physically holding silver. One example is the 99.99% pure Canadian Silver Maple Leaf. Coins may be minted as either pure silver or junk silver, the latter being older coins with a smaller percentage of silver. U.S. coins 1964 and older (half dollars, dimes, and quarters) are 25 grams per dollar of face value and 90% silver (22½ g silver per dollar). (All 1965-1970 and one half of the 1975-1976 Bicentennial San Francisco proof and mint set Kennedy half dollars are "clad" in a silver alloy and contain just under one half of the silver in the pre-1965 issues.)

Junk silver coins are also available as sterling silver coins, which were officially minted until 1919 in U.K. and Canada and 1945 in Australia. These coins are 92.5% silver and are in the form of (in decreasing weight) Crowns, Half-crowns, Florins, Shillings, Sixpences, and threepence. The tiny threepence weighs 1.41 grams, and the Crowns are 28.27 grams (1.54 grams heavier than a US $1). Canada produced silver coins with 80% silver content from 1920 to 1967.


Some hard money fans use .999 fine silver rounds as a store of value. A cross between bars and coins, silver rounds are produced by a huge array of mints, usually contain an ounce of silver in the shape of a coin, but have no status as legal tender. Rounds can be ordered with a custom design stamped on the faces/in assorted batches.


U.S. $5 Silver Certificate.

Silver certificate:

A certificate of ownership can be held by silver investors as an alternative of storing the actual silver bullion. Silver certificates allow investors to trade the security without the difficulties associated with the transfer of actual physical silver. The Perth Mint Certificate Program (PMCP) is the only government-guaranteed silver-certificate program in the world.
The U.S. dollar has been issued as silver certificates in the past, each one represented 1 silver dollar payable to the bearer on demand. The notes were issued in denominations of $10, $5, and $1 and can no longer be redeemed for silver.


Most Swiss banks offer silver accounts where silver can be immediately bought or sold just like any foreign currency. Unlike physical silver, the customer does not own the real metal but rather has a claim against the bank for a certain quantity of metal. Many digital gold currency providers, such as  e-gold and GoldMoney, offer silver as an alternative to gold and work on a related principle. Other electronic silver accounts include the eLibertyDollar and Phoenix Silver. Silver accounts are backed through unallocated or allocated silver storage.

Exchange-traded funds:

Exchange-traded funds ETFs represent a quick and easy way for an investor to gain exposure to the silver price, without the inconvenience of storing physical bars. The silver ETFs are:

  • Shares Silver Trust (NYSE: SLV), launched in 2006 April by iShares.

  • Central Fund of Canada (TSX: CEF.NV.A, NYSE: CEF), which has 45% of its reserves invested in silver with the remainder invested in gold.
  • In September 2006 ETF Securities introduced ETFS Silver (LSE: SLVR), which tracks the DJ-AIG Silver Sub-Index, and later in April 2007 ETFS Physical Silver (LSE: PHAG), which is backed by allocated silver bullion.
  • PowerShares DB Silver (AMEX: DBS), holds its worth in futures contracts for physical delivery, which are then sold to silver consumers in order to roll over expiring contracts to contracts further from expiration.

Spread betting:

Firms such as Cantor Index, CMC Markets and IG Index, all from the UK, offer the ability to take a bet on the price of silver through what is called as a spread bet.


Derivatives, such as silver futures and options, currently trade on various exchanges around the globe. In the U.S., silver futures are mainly traded on COMEX (Commodity Exchange), which is a subsidiary of the New York Mercantile Exchange. In November 2006, the National Commodity and Derivatives Exchange (NCDEX) in India launched 5 kg silver futures.

Silver Mining companies:

These do not symbolize silver at all, but rather are shares in companies that mine silver. Companies hardly ever mine silver alone, as usually silver is found within, or alongside, ore containing other metals, such as tin, lead, zinc or copper. Therefore shares are also a base metal investment, rather than exclusively a silver investment. As with all mining shares, there are many other factors to take into account when evaluating the share price, other than just the commodity price. Instead of personally selecting individual corporate, some investors prefer spreading their risk by investing in precious metal mining mutual funds.

Taxation/Taxation of precious metals:

In many tax regimes, silver does not hold the special position that is frequently afforded to gold. For e.g., in the European Union the trading of recognized gold coins and bullion products is VAT exempt, but no such allowance is given to silver. This makes investment in silver coins or bullion less attractive for the private investor, due to the extra premium on purchases stands for the irrecoverable VAT. Other taxes like capital gains tax may apply for individuals depending on country of residence (tax status) and whether the asset is sold at increased value.


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