Are you looking to invest in precious metals? Gold and silver are the two most popular precious metals, but have you noticed the price difference?
The price of silver is a far cry from the price of gold. For example, in 2020, an ounce of gold was 100 times more expensive than silver. Today, an ounce of gold will cost you around $1,859, while an ounce of silver costs around $27.68, depending on where you’re buying and selling.
So, why is silver so cheap?
There are several reasons for this price difference. Although many factors affect the price of silver, one thing’s for sure – its current price doesn’t match how valuable it once was.
Silver has been used since the dawn of time, and it was once far more valuable than today. For this reason alone, it’s hard to understand why it’s so cheap today.
The price first collapsed around the 1870s before the situation escalated in the 20th century. As a result, the price dropped even more in the 1990s and early 2000s when you could buy it for $5 an ounce.
It now costs more than that, but it’s still ridiculously cheap. So, what went wrong?
Most likely, it was the demonetization that got things moving in the wrong direction for silver. Until the 1860s, many countries around the globe used silver or bimetallic gold-silver standards.
This meant free coinage of silver where you could take any quantity of silver bullion to your mint, where they’d turn it into legal tender coins.
It all ended after the Franco-Prussian War when Prussia asked for 5 billion gold francs from beaten France. France paid the bribe, and Prussia used it to switch from German Thaler (silver) to German Mark (gold).
As a result, all silver-backed currencies were no longer being accepted as much. This caused the price of silver to collapse, and many countries had to switch to gold by the 1870s.
Around the same time, the United States was going through some significant silver mining discoveries. Then, Comstock Lode in Virginia City, Nevada, produced massive quantities of silver until the middle of the 1880s.
Mining then continued in Leadville, Colorado, as well as the Coeur d’Alene region of Idaho. This is where most silver was mined in the mid-1880s and is where we’re still getting it from some 135 years after it was initially discovered.
These factors alone already lead to a significant drop in price.
Why is Silver so Cheap
Now that we’re done with our little history class, let’s get into why silver remains cheap. Unfortunately, many factors influence its price, so it’s hard to tell the main reason.
However, many things have changed since the 1880s. Today, silver isn’t used in the ways it once was, but the demand still exists.
Several other things affect the price of silver to this day, so let’s get into it.
1. The demand
Although we no longer use silver like we used to, we still need this precious metal for many things. Many cultures continue to use it for coins, decorative and ritual items, and other valuable things.
Archaeologists have found traces of silver from the Greek Empire era. But, even today, most nations use it to create different forms of currency, valuing it as a primary metal.
It’s still used, but not like before, which means there’s demand, but it’s not as great as it once was. So this does explain the drop in price to some extent, but it’s definitely not the only reason affecting it.
2. Endless Supply
Think about it – the price would be much higher if the demand were so big that the supply couldn’t match it. Sadly, that’s not the case.
One of the main reasons why the price is so low is that the supply is huge. It’s estimated that there’s around 20 times more silver on the earth than gold.
It’s easier for companies to mine it, and that’s not even all the silver in the world. There’s also scrap metal and stored silver.
We can even say that the supply is much larger than demand, so much so it could flood the market if we were to stop using it for a particular technology.
3. Purpose and Use
Although it might seem we don’t use silver anymore, that’s not true. You might not see people use silverware nowadays, but as we said, the demand exists.
Silver is used for all kinds of things in modern technology. For example, you can easily find it in electrical applications because it’s a great conductor.
So far, manufacturers don’t have a cheaper alternative to use, so silver is still in demand. So where else can you find silver?
It’s commonly found in long-life batteries used for electronic devices and watches. However, you can also find it in solar panels that are now more popular than ever due to their energy efficiency.
Silver is commonly used for soldering and brazing pipes on industrial buildings and construction sites. And, it’s still used in many homes as fine-dining cutlery, tea sets, and more.
Inflation has a massive impact on the price of all precious metals. When we compare the price of silver against how much the U.S. dollar is worth, inflation sees the price of silver rising against the U.S. dollar.
When inflation causes the dollar to weaken, it also causes the cost of metals to increase. This is much more complexed, but traders usually use precious metals to limit the inflation risk.
Inflation can also increase the demand for silver and other precious metals. Investors are sometimes scared that a currency might inflate rapidly, leading to a rush of investments towards precious metals.
Gold, silver, and other precious metals are often safer to invest in when thinking about hyperinflation. However, you should also keep in mind the value of currencies around the world.
5. Government-owned Silver
It’s well-known that many nations have gold reserves, but did you know they also have deposits of silver? The United States is one of the most significant countries that buys and sells this precious metal.
Many governments keep retaining bullion while also using it to mint coins. So naturally, this affects the price and would affect it even more if mints decided to create coins with a larger quantity of silver.
6. Savings (Interest) Rates
Interest rates have a huge impact on all investments, including silver. When investors access significant returns through high-interest rates, they’re unlikely to make other investments.
Savvy investors know that money loses value over time if the rates are too low. This usually happens due to the inflation rate being higher than the interest rate.
Recently, banks have been offering low-interest rates to avoid debt crises and encourage investments. This actually had a positive impact on the cost of silver because investors moved their money from savings accounts into other assets.
7. The Value of Gold
Gold keeps being the people’s favorite for obvious reasons. Many professional traders always consider the gold-to-silver ratio when trading.
Bullion investors spread their money across many precious metals, so you can see why the prices change. But, although many people think that the value of silver should increase along with the value of gold, that’s not true.
The gold-to-silver ratio keeps fluctuating, so it’s not impossible to see silver prices rising. If the demand for gold, silver, and other metals increases, the price will increase just as well.
Sometimes, it’s hard to tell why something happens in the market of precious metals. And it can be even harder to predict what’s going to happen next.
Tomorrow could be the day when another metal is discovered or proven to be more useful than silver. We might also see a sudden surge in supply.
People tend to lose faith in markets which then causes the prices of gold and silver to increase. But still, the market is unpredictable, and it changes together with the circumstances worldwide.
As said, it’s hard to tell if things will ever change for silver. The supply is huge while the demand isn’t as big as it once was. Although we still use silver for many things, it’s just not that difficult to find and mine.
The price remains low because it’s not a rare metal, and most people are fonder of gold. So, it might be best to think long and hard if you’re looking to invest in silver.
It now costs more than it did this time last year, but you can never know how things will turn tomorrow. The fact is that it’s cheap and will remain like that unless something significant happens in supply or demand.
Wednesday 22nd of February 2023
What bs..the true reason silver is low..is the derivitives .and the fact that there was a massive supply when coinage exited the money system.the world used silver for money,that all stopped in the 60's the price went very low when that happened.the hunt bros.proved the supply was low .they were destroyed by government intervention.
Donald W Fry
Sunday 14th of August 2022
So, at a ratio of 20-1, that would mean silver should be $90 an ounce right now (gold is $1800). So, once again, why is silver so cheap???
Tuesday 26th of July 2022
Silver should be one to one with gold or even higher. Silver is more valuable than gold. Think about the use cases.
Tuesday 10th of May 2022
Your Excellency is absolutely right. The world, or rather the financial markets, are not able to compete with any other precious metal other than gold, so the price of silver is kept low in order to show the strength of this strategic metal is low and the biggest policy of this practice The government of the United States of America.
Jimmy JJ Walker
Thursday 28th of April 2022
Your article is mis information, the real reason why silver is “so cheap” is because the price is being suppressed in the paper markets. Silver should be traded at a 12:1 ratio to gold.