Silver is often accorded the position of a second-class metal, and thanks to its use in sports medals, is seen as a symbol of coming in second. Students and employees are advised to ‘go for gold’. You don’t ever hear the metal mentioned in the context of winning. As a natural resource, it is a byproduct of gold or copper mining and has very few natural mines around the world. However, the metal is also known to have more patents than any other metal and is in great demand for its industrial and commercial applications.
Industrial Uses and Applications
Known for its reflectivity and hardness, silver is used extensively in the automobile, jewelry, tableware, reflector, pharmaceutical, aerospace, and photography industries. It mirrors gold in several properties but is much harder, more reflective and possesses the best thermal and electrical conductivity among all known elements.
The combination of affordability and superlative electrical conductivity make this metal the conductor of choice for switches, contacts and fuses in precision electronics for domestic and specialized industries. It is an ideal substitute for gold in almost all industrial applications and is an essential component of thick-film pastes used in the manufacture of integrated circuits and surface mount devices. The metal is also used in RFID chips and solar panels. The automobile industry uses this metal in silver-ceramic lines for heating rear windows and in most electrical contacts where the use of gold inflates the cost of production. Silver halide crystals are essential to the use and development of photographic film while the metal in elemental form is used in the manufacture of high quality mirrors.
The manufacture of jewelry and cutlery uses the metal in its elemental form as well as its alloys and continues to be an area of great demand for this precious metal. This metal also finds extensive use in the areas of water purification for its antimicrobial properties. The metal and its compounds can be found in adhesive bandages and medical instruments.
High electrical and thermal conductivities, reflectivity and biocide properties make this metal one of the most valuable metals on the planet and consequently, the most traded. Its prices are among the most volatile in the global commodity market and yet, the metal remains in great demand. Today, the global reserves for this precious metal total over 540,000 tonnes with an annual supply of nearly 1,050 million troy ounces.
Factors the Influence Price
The annual production of silver is driven by a complex industry that supplies the world’s fluctuating demand for the metal. Mining is responsible for over 65% of the world’s supply of this precious white metal. It is mined primarily as a byproduct of copper, lead, gold and zinc mining and is rarely found in the form of nuggets. It is also found in ores such as the sulfide ore Argentite, the lead-based ore, Galena and the chloride ore Chlorargyrite. The sources that make this metal available to the world market are popularly known as ‘second-hand’ sources. Scrap that has been reclaimed from manufactured goods contributes an additional 20% to the world’s supply. The return of bullion and coins from investors and governments and other miscellaneous sources make up the remaining 15% of the global supply. The significant dependence on mining and the sizable influence of investors are just two of the factors that influence the metal’s price indices. Mexico, China, Peru, Australia, Russia and Poland are the largest producers of silver today, accounting for about 70% of the world’s supply.
Industrial demand and fluctuating metal indices also have a far greater impact on the market. The worldwide demand for the white metal is primarily fueled by the industrial sector. Jewelry, coinage and photography form next three sources of demand. Over the last seven years, the increased use of digital imaging devices has resulted in a sharp drop in the demand for silver in photography. While it is an important part of the pharmaceutical and medical industries, the rising demand in these niche industries is not enough to stem the dwindling global demand. Consequently, larger supplies of coins and bullion have been made available to government and private investors. While the metal has not been a standard medium of exchange since the 19th century, it continues to gain importance as a tradable commodity.
Silver Price and Trading
The white metal is often likened to real estate in terms of its global availability. Compared to gold, it is a scarce resource. For every 27 ounces of gold from all known mining locations, there is only 1 ounce of this precious metal. This does not mean the metal cannot be found; it is merely indicative of the large untapped mining resources for this precious white metal. The metal is generally traded in troy ounces as coins or bullion bars around the world.
a) The London Bullion market handles Over-The-Counter trades for the metal. This involves the physical exchange of bullion and cash.
b) Commodity Exchange, Inc. (COMEX) in New York handles the trading of futures and options. It is here that the speculation about the metal is at its peak.
The high number of futures contracts on the metal exerts a great deal of pressure on its price. The price of silver in mid-2013 has hovered at around $20 per troy ounce. This price represents a fall from 2012 and 2011 when the metal was traded at about $31 and $35 respectively. Some of the factors that have influenced this fall in price include an increase in mining production and an almost concurrent decrease in industrial demand. One of the results of this fall in price has been an unprecedented increase of over 20% in its purchase by private and institutional investors. Bill Gates and Warren Buffet head a list of investors who have recently made market-changing investments in this precious metal.
The global price of this metal tracks, or follows the price of gold fairly steadily. This tracking is often expressed as a ratio of the price of the metal to the corresponding price of gold. From a historical ratio of 15:1, its price stands at a ratio of 54:1 to the price of gold. This metal has become cheaper and more accessible to buyers and investors around the world, leading to large purchases that create further volatility in the market.
The Sparkling Lining
The outlook for gold and silver continues to show signs of weakness, but improving production and resurgent industrial production and demand on both sides of the Atlantic could see the rise of this white precious metal as one of the most powerful commodities in the global market.
Author: David Kennedy Google+