Volatile: the one word most associated with any discussion about the price of silver. Because silver is both an industrial metal and a store of value in times of economic uncertainty, its price often fluctuates between these two market valuations.
Silver is traded twenty-four hours a day across the globe in Chicago, Hong Kong, Zurich, New York and London. For the majority of the world, the London Metal Exchange (LME) is the center of the physical silver trade and caters to those looking to trade in physical silver on a spot or forward basis. The LME offers traders a “fix”: an opportunity to buy or sell silver at a single price.
In the U.S., the COMEX division of the New York Mercantile Exchange is the most important trading market for silver paper contracts and it is here that spot prices for silver around the world are determined.
Although the ratio has varied over the years, the price of silver often tracks gold. The gold/silver ration was fixed by law at 1:15.5 across Europe and the U.S. during much of the 19th century. The average gold/silver ratio widened substantially to 1:47 in the 20th century and currently has been hovering around 1:55.
In the last few years, the price of silver has risen dramatically. Between September 2005 and April 2006, silver rose from $7/oz to $14/oz. In March of 2008, the price of silver rose to $21/oz.
The price of silver, like that of most commodities, suffered a huge decline due to increased volatility in insecure markets across the globe in 2008, falling into the $8 an ounce range in October 2008.
Many analysts and silver bugs also place blame on institutional heavies who they feel have had a hand in manipulating the price down in the paper markets. In late September, the Commodity Futures Trading Commission (CFTC) gave in to the cries of manipulation and decided to launch a probe into the Silver Market.
Also, much can be said about the widening disconnect between the paper and physical markets. Investors are paying higher and higher premiums on physical silver as demand outstrips supply.
In 2009, silver prices averaged around $17 an ounce as optimism and risk-taking returned to the markets.
For 2010, prices have ranged between the $15 an ounce and $19 an ounce. Bullish sentiment for the white metal’s performance is based on improving industrial and jewelry demand and growing investment demand.
The most influential factors that may affect the price of silver at any one time are:
- Available supply and mine production versus fabrication demand
- Varying values of paper currencies
- Fluctuations in deficits and interest rates
- Private and institutional investors
- Industrial demand and trends in economic growth
- The large concentrated short position
- The Commitment of Traders Report published weekly by the CTFC has revealed that four or fewer large traders hold 90% of all short silver contracts.