Silver is a precious metal that is viewed as a safe investment alternative. Whether you want to hedge your assets against inflation or just want a hard asset to liquidate during hard times, precious silver could be the exact thing you’re looking for.
Like all precious metals, the value of silver fluctuates due to several factors. Currently, one ounce of silver is worth $21.16 (Jun 26, 2022). So 10 pounds of silver, which would be equivalent to 160 ounces, is worth $3382. Please calculate using the current price of silver.
So, what are the factors that affect the prices of precious metals? Should you get silver coins, bars, or jewelry? I’ll answer all of these questions in the following sections.
Why Do Precious Metal Prices Fluctuate?
While doing research on silver as an investment option, you’ve probably read that the value fluctuates. There are at least 5 causes for this, which I will describe below.
1. Supply and Demand
Like all things on the market, the supply and demand of silver will increase or decrease its value. However, the supply and demand formula for silver remains somewhat constant at 60%, while supply is relatively scarce.
So, where does the demand for silver come from, apart from those who wish to sleep with silver bars under their pillow? The short answer to this is technology—when tech companies find a new use for silver that they can mass-produce, demand will spike, and the overall value of silver will increase.
Conversely, when manufacturers find a proper replacement for silver, such as replacing silver in manufacturing household items like platters, then the value per ounce of silver can fall dramatically.
2. Microeconomic Trends
When people have more wealth, they can afford to spend more on desires and wants than they have to. In instances like this, some people may decide to purchase silver jewelry or electronics that are reliant on silver components, which increases supply and drives silver prices.
On the flip side, when times are tough, like during the first few months of the first COVID-90 lockdown, not as many people were interested in harboring precious metals since they needed cold cash to fund their daily needs.
Unlike cash, precious metals are a symbol of wealth and have value in multiple industries. Governments cannot print new silver bars or mint silver coins at will, while governments can issue new money, which will affect the purchasing power of each dollar. All the while, electronics and automotive companies will continue purchasing silver and gold for their products at higher costs due to the increased availability of cash. This is why precious metals are viewed as investment options to hedge inflation.
4. Gold-to-Silver Ratio
Historically, the gold-to-silver ratio—i.e., the amount of available gold in comparison to the amount of available silver—has been between 10 and 15 to 1, though some estimates put the figure at around 55 to 1. The scarcity of gold in comparison to silver is what makes gold exponentially more expensive
However, when gold becomes scarcer and more valuable, people might decide to purchase silver as a cheaper alternative, which drives its demand and value. There is still immense debate regarding the effects of the gold-to-silver ratio, but historically speaking, there seems to be at least a small correlative relationship.
5. Strength of the Dollar
During economic recessions, the buying power of the US dollar will also heavily influence how pricey or inexpensive precious metals become. Typically, the stronger the dollar grows, the less valuable precious metals become, and vice versa.
When silver and gold become cheaper by the ounce, investors will flock toward the precious metals in the hopes of purchasing more for every dollar they spend. Conversely, when the USD weakens, precious metal prices usually go up, and investors stay away from silver and gold like the plague.
How to Invest in Silver
Now, you might be wondering: Should I buy silver coins, bars, jewelry, or dishes? To be frank, all of them would be fine investments. However, the less effort that goes into making the silver product, the lower its cost and the better the investment becomes.
By far, purchasing silver bullion coins is the best option since it takes less time and effort to shape and stamp. Bars, which are another popular choice, require more energy to melt, shape, stamp, grade, and seal. The same applies to jewelry and dishes but at a higher scale.