For new silver investors, it can feel like silver prices move as if by magic. To be fair, silver can surprise even the most experienced investors. Why aren’t silver prices moving upward even as demand outstrips supply? Why have silver prices stayed stubbornly low even as global silver reserves are shrinking? Why does silver go through years of appreciation followed by years of relatively low activity? These are questions that don’t have simple answers, but the logic of silver prices is easier to explain.
What Is the Spot Silver Price?
The spot silver price is the average price you would get for an ounce of silver right now. The actual cost of an ounce of silver from a silver dealer tracks the spot price, but a one ounce silver bar or silver coin would cost you more than the spot price. That’s because it costs money for silver to be mined, refined, and struck as bars or coins. As much as 20% of the cost of a Silver Eagle from the US Mint might be premiums over spot, but silver dealers like Silver Gold Bull offer a number of ways to save on premiums and pay closer to spot. Silver bars and silver rounds also have much smaller premiums as a percentage.
Silver is widely traded and you can quickly get the silver spot price before you buy silver bullion. Expect silver from a silver dealer to be a little more expensive than spot.
How Is the Spot Silver Price Determined?
The spot silver price is driven by futures prices. The highest volume front month will determine the price of silver. Often the current month will have lower volumes than months ahead, as most silver futures traders do not actually want delivery of silver bullion and move out of their positions. You may be looking at a futures contracts expiring two or three months ahead. It’s all reflected in the spot price of silver you find at silver dealers like Silver Gold Bull.
What Changes Spot Silver Prices?
Many factors influence silver prices, from basics like supply and demand to geopolitical news, interest rates, inflation, and stock markets. There are even working theories that for the most part, the silver price now follows gold, trailing behind by several days.
The fundamentals of silver largely come from industrial demand, mining supply, and national reserves. For the past several years, a number of countries have been selling off their silver reserves as bullion and to industry. Peru, Australia, Poland, Chile, and China have the world’s largest silver reserves and if they start selling large quantities, silver prices would dramatically drop. However, many countries appear to be holding back silver reserves and many central banks are now buying silver. Meanwhile, silver supply is drying up as mining companies either struggle to find new sources or aren’t interested in investing in new silver production. It’s a recipe for mounting silver prices at a time when the precious metal is very undervalued.
Now that you understand the basics of silver prices, you can start investing with a clear picture.