Silver as an investment

The price of silver is influenced by a variety of factors.

• The silver market is considerably smaller than the gold market, with the London gold bullion market turns over 18 times more monetary value than silver.[17] This allows a large trader or investor to influence the silver price either positively or negatively.
• Due to the properties of silver, it has a major role in the manufacturing of photovoltaics, RoHS compliant solder, clothing, and medical uses. Other new applications for silver include RFID tags, wood preservatives, water purification and food hygiene.[18] Data from 2010 reveals that a majority of silver is being used for industry (487.4 million ounces), jewelry (167.0 million ounces), and investments (101.3 million ounces).[19]
• Silver, like all precious metals, may be used as a hedge against inflation, deflation or devaluation.[20]
• Public sentiment regarding silver as a hedge against inflation may be influenced by marketing campaigns from silver producers and affiliates.

The highest recorded silver prices were:

In part due to the actions of the Hunt brothers (Nelson Bunker Hunt, William Herbert Hunt, and Lamar Hunt), the price for silver Good Delivery bars jumped from about $6 per troy ounce to a record high of $49.45 per troy ounce on January 18, 1980,[21] representing an increase of 724%. The highest price of physical silver is hard to determine, but based on the price of common silver coins, it peaked at about $40/oz.[22]

On January 7, 1980, in response to the Hunts' accumulation, the Commodity Exchange (COMEX) suddenly adopted "Silver Rule 7", placing heavy restrictions on the purchase of the commodity on margin, causing massive liquidations and enormous downward pressure on the price. The Hunt brothers had borrowed heavily to finance their purchases, and as the price began to fall again, dropping over 50% in just four days due to the sudden forced liquidation of margin positions, they became unable to meet their obligations, causing further panic in the precious metal markets.

The Hunts were never found guilty of any criminal wrongdoing, although they lost a civil suit in connection to the event. The event also cause the Hunts' fortune to dwindle, culminating in them filing for bankruptcy. In 1989, they agreed to a civil settlement with the Commodity Futures Trading Commission, paying out fines, and agreeing to a ban from trading commodities.

There was such immense risk to the world economy that investors drove the prices up by buying defensive commodities (e.g. silver or gold). When the short-term risks were believed to have subsided, many investors reallocated their assets back into yielding (dividend or interest) investments such as stocks or bonds.

The 2011 United States debt ceiling crisis was a major factor in the rise of silver prices. The 2010, U.S., midterm elections highlighted policy differences between President Obama vs. the Tea Party movement. The price of silver concurrently rose from $17 to $30 as the elections approached. In late 2010 and 2011, silver found a "new normal" between $25 and $30.

In 2011, Republicans in Congress demanded deficit reduction be part of legislation raising the nation's debt-ceiling. The resulting contention was resolved on 2 August 2011 by the Budget Control Act of 2011.

During the first few months of 2011, Moody's and S&P both downgraded the outlook on US finances; this was a major shock to the financial world and resulted in silver's climb to $50.

• On April 18, 2011, U.S.-based rating agency S&P issued a "negative" outlook on the U.S.'s "AAA" (highest quality) sovereign-debt rating for the first time since the rating agency began in 1860, indicating there was a one-in-three chance of an outright reduction in the rating over the next two years.
• On April 25, 2011, silver traded $49.80 per ounce in the New York spot market.

On August 5, 2011, S&P issued the first ever downgrade in the federal government's credit rating, citing their April warnings, the difficulty of bridging the parties and that the resulting agreement fell well short of the hoped-for comprehensive 'grand bargain'.[23] The credit downgrade and debt ceiling debacle contributed to the Dow Jones Industrial Average falling nearly 2,000 points in late July and August. Following the downgrade itself, the DJIA had one of its worst days in history and fell 635 points on August 8.[24]

Then as it became likely that U.S. Secretary of Treasury Timothy Geithner would order the treasury to use extraordinary measures to delay the crisis, silver settled back at $35. As the debacle continued during the summer, silver moved in the range of $33 to $43.

As it became clear that the "financial apocalypse" would be delayed by late summer, many investors dumped silver and commodities and moved back into U.S. equities. The price of silver quickly went back to $30 and declined below 2010 levels in the next few years.

Whether classifying silver's movement as a 'bubble' (seen when comparing silver with gold) has been debatable, with Peter Schiff denying that a bubble ever existed and asserting that the factors that led to the increase in the silver price have not yet been resolved.

1,000 ozt (31.1 kg) silver bar

A traditional way of investing in silver is by buying actual bullion bars. In some countries, like Switzerland and Liechtenstein, bullion bars can be bought or sold over the counter at major banks.

The flat, rectangular shape of silver bars makes them ideal for storage 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.

Silver bars can either be cast or poured, or minted; both categories often involve the production of bars with intricate decorative designs that are attractive to collectors, often referred to as "art bars".

Various sizes of silver bars are 1, 10, 100 and 1000 troy ounces, 100 gram (3.215 troy ounces) and one kilogram (32.15 troy ounces), as well as other sizes. There are various silver refiners with their own unique stamp or "hallmark" that is used to provide information about the bar and ensure quality.[25]

American Silver Eagle bullion proof coin

The term "coin" typically refers to a metallic piece minted by a sovereign government and holds the status of legal tender within its country of origin. Coins are distinguished by their official recognition and carry a minimum face value, which represents the denomination assigned to them.[26] This means that they can be used as a medium of exchange for goods and services.

Silver coins may be minted as either fine silver or junk silver. Fine silver coins minted by governments include the one-ounce, 99.99% Canadian Silver Maple Leaf and the 99.93% American Silver Eagle. Government-minted silver coins being legal tender, often enjoy special taxation treatments.

The term junk silver signifies silver coins without a numismatic premium. In the United States, this is taken to mean pre-1964 90% silver dimes, quarters, and half-dollars; $1 face value of those circulated coins contains 0.715 troy ounce (22.2 grams) of fine silver.[27] All 1965-1970 and some 1976 Kennedy half dollars are minted with a 40% silver composition. "War nickel" is the name given to certain 1942-1945 nickels minted with a 35% silver composition.

Other countries, such as Australia, Canada, Mexico, Switzerland, and the United Kingdom also minted junk silver coins in the past. All these countries (except Mexico and Switzerland) initially minted sterling silver coins for circulation, before the coins' silver content was reduced: Australia to 50% in 1946, Canada to 80% in 1920, and the United Kingdom to 50% near 1920. Mexico's case was rather unique in that while 1 peso coins had its silver content reduced to 50% in 1947, those with higher denominations (e.g. 5 pesos, 10 pesos) continued to be minted with 72-90% silver composition until the last silver coins were minted in 1979.

Unlike coins, rounds are privately minted bullion that look similar to coins, but do not have a face value and are not legal tender.

Silver exchange-traded products represent a quick and easy way for an investor to gain exposure to the silver price, without the inconvenience of storing physical bars. Silver ETPs include:

• iShares Silver Trust launched by iShares is the largest silver ETF on the market with over 340 million troy ounces of silver in storage.[28]
• ETFS Physical Silver and ETFS Silver Trust launched by ETF Securities.
• Sprott Physical Silver Trust is a closed-end fund created by Sprott Asset Management. The initial public offering was completed on November 3, 2010.[29]

Most Swiss banks offer silver accounts where silver can be instantly bought or sold just like any foreign currency. Unlike holding physical silver, the customer has a claim against the bank for a certain quantity of metal. Digital gold currency providers and internet bullion exchanges, such as OneGold, BullionVault or GoldMoney, offer silver as an alternative to gold. Some of these companies allow investors to redeem their investment through the delivery of physical silver.[30]

Derivatives, such as silver futures and options, currently trade on various exchanges around the world. In the U.S., silver futures are primarily 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 introduced 5 kg silver futures.

These do not represent silver at all, but rather are shares in silver mining companies. Companies rarely mine silver alone, as normally 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 solely a silver investment. As with all mining shares, there are many other factors to take into account when evaluating the share price, other than simply the commodity price. Instead of personally selecting individual companies, some investors prefer spreading their risk by investing in precious metal mining mutual funds.