Case Study: Should You Invest in Silver?

Silver prices drop more than 1.50% in the week and remain below the $20.00 mark.

The pressure for gold and silver to the downside should remain for the first half of this week. This is because of the high inflation print means expectations have now risen for the number of Fed rate hikes. This has pressured both the USD and real yields higher which are both natural headwinds for gold and silver. The usual reaction is that as yields and the USD rise then gold and silver fall.

Before we start investing in silver, it is good to delve a little bit more to have a better understanding of silver.


Commodity Currencies

Gold and silver are often referred to as “commodity currencies” because of their high value relative to other currencies and their status as a store of value during uncertain economic times. Although there is some debate as to whether gold or silver should be regarded as a true currency, they both provide a degree of stability and safety for investors during the early stages of any economic recovery.

The price of silver has historically been more volatile than gold. Due to industrial uses, gold has been used as a hedge against inflation for many decades. As an investor, it is important to carefully evaluate these two precious metals before making investment decisions. Below is an overview of the historical relationship between gold and silver prices and some of their key drivers.

In 2015, Silver prices experienced a significant decline after gold prices began to rise. Many investors assumed that the relationship between the two metals would eventually break down. Silver would lose its appeal as a popular investment asset.

However, as the price of gold has dropped in recent months, the price of silver has also rebounded strongly. This suggests that there is still a great deal of interest in silver as an investment.Recent price movements suggest that this trend is likely to continue in the months ahead.

What is the Silver market?

The silver market is the market in which silver is bought and sold. This market includes all aspects of transactions involving the buying and selling of silver. This includes wholesale and retail sales, futures and options contracts, investments and other types of financial instruments.

There are several factors that help determine the price of silver. They include supply, demand, inflation and interest rates.

The price of silver is also affected by its industrial, commercial, and consumer demand, hedge against inflation and economic cycles, and government taxation policies. The price of silver is typically higher when investors believe these factors will result in an increase in the price of silver in the future. Conversely, the price of silver is lower when investors believe these factors will result in a decrease in the silver price in the future.

Silver is also affected by the US dollar exchange rate. Typically, as the value of the US dollar increases, so does the price of silver and vice versa. This is because silver is often priced in US dollars. Therefore, when the value of the US dollar increases, so does the cost of silver.

Gold-to-Silver Ratio

One popular investment strategy used by investors in silver markets is the “gold-to-silver ratio”. This ratio is designed to reflect the relative supply and demand of these two precious metals. It can be used to predict the direction that the price of silver will take in the future. By comparing the two ratios over time, it is possible to gain a better understanding of the relationship between gold and the silver market as a whole.

The gold-silver ratio is a measure of the relative value of silver compared to gold. In other words, it determines how much it would cost to buy one ounce of gold in terms of ounces of silver. For example, if the gold-silver ratio is currently set at 60 to 1, it means that it would take 60 ounces of silver to buy a single ounce of gold.

The gold-silver ratio tends to rally during periods of market crisis, disruption and instability and peaks generally during recessionary periods. Traders will monitor this ratio for spread trading opportunities. They enter into simultaneous positions that include buying at spot or a futures contract in one metal and selling at spot or a futures contract in the other metal.

The gold-silver ratio became famous in 1980 after silver began trading at $50 per ounce and gold topped out at over $850 per ounce. When compared on a per ounce basis, the gold-silver ratio reached an all-time high of almost 87 to 1 during this period of time. Since hitting this extreme high point, the gold-silver ratio has declined steadily and is now sitting at around 62 to 1.

On March 18, 2011, the gold-silver ratio reached an extreme high of 126.43. The ratio has since declined to around 115.00 due to recent weakness in silver prices. Over the last several weeks, we have seen significant declines in the price of silver due to uncertainty regarding future demand in China and the falling price of crude oil. With both of these factors negatively impacting demand for silver, it appears that we may see a continuation of the decline in the ratio in the near future.

The 20-year average is 60:1, which means silver is currently trading at a historically wide discount to the gold price.

How has the price of silver changed over time?

The price of silver has changed significantly over its history. Historically, the price of silver has closely tracked the price of gold.

The price of silver has also been closely correlated with the US dollar exchange rate. For example, during periods of strength in the US dollar, the price of silver tends to fall and vice versa. However, more recently the price of silver has fallen even faster than the dollar during periods of strength. This may be because investors are increasingly turning to other precious metals such as gold and platinum.

We can see that this year silver prices have moved largely in opposition to dollar strength. With the inverse relationship to the dollar, buying pressure for silver and other precious metals has fallen across the board.

Despite the continuing price weakness of silver this year, physical demand is extremely strong. At June’s end, inventories of silver in London vaults reached a six-year low, driven by relentless investor appetite. This in turn reflects the ongoing strength of physical silver demand


What is the future of the Silver market?

Silver has seen a surge in demand in recent years due to its industrial applications and as a store of value. This has led to increasing demand for silver which has led to higher prices. Demand for silver is set to increase over the coming years driven by growing demand for jewelry and industrial use. These trends are expected to continue over the coming decades as the global economy continues to expand.

Silver Demand By Category

On the other hand, the supply of silver is unlikely to change significantly due to geological constraints in the mineable resource. Over the longer term, output will begin to decline unless sufficient investments are made to bring earlier stage projects on-line. This is likely to lead to increasing silver prices in the long term.

Demand for silver is likely to remain strong due to the growth in industrial use in electronics. This is primarily driven by the increase in demand for smartphones and other consumer electronics devices. It also underpins the increasing popularity of cryptocurrencies which are increasingly used for transactions. The growing use of the Internet of Things is also expected to drive the demand for silver in the future.


Silver squeeze is a term used to describe an increase in the price of silver resulting from a decrease in supply or a squeeze on available supplies of silver. These factors can lead to shortages of silver which can cause the price of silver to increase dramatically in a short period of time.

A decrease in supply of silver can cause the price of silver to increase dramatically in a short period of time. The silver squeeze of 2009 was one such event. The silver price increased to more than $50 per ounce in just a few months after the spot price of silver fell by over 30% from its 2008 high. Demand for silver also increased during this time due to the growth of the health care sector in emerging markets such as China and India.


In 2021, a Reddit group spurred on many retail investors to short squeeze stocks that hedge funds have big short positions in. The idea is to drive prices of the stock high enough to force the hand of these hedge funds to buy back the stocks they have borrowed to sell, at a loss. It was reported that silver was also the target of a short squeeze after the success they had with GameStop and AMC shares.

Silver went from USD 25.26 / ozt on January 27 2021, then up 15% to USD 29.05 / ozt on February 1 2021, only to drop 8% a week later on February 8, to USD 27.48 / ozt.

Fundamentally, silver has been in a deficit since 2019, largely due to the increase in physical demand. This comes from retail investors and exchange traded products (ETP) investments. Year-on-year increase in physical investment was 12% and the increase in ETP investments was 47%.

The Silver Institute forecasts total silver supply in 2022 will reach 32,045 tons, not enough to match the 34,270 tons of silver demanded, leaving a market deficit of 2,224 tons.

I expect this to continue well into 2021, especially with the recent spotlight on silver brought about by the silver squeeze.

Silver Supply and Demand
Silver Supply Diminishing

How To Start Investing In Silver

There are a number of ways to invest in silver. You can own it outright to having shares in companies who produce it. Here are four ways to invest in silver.

Silver ETFs

The Silver ETF (SLV) is the second-largest silver-backed exchange-traded fund in the world. The silver ETF tracks the price of silver very closely. It is one of the most liquid silver products in the market. It currently trades at a slight premium to the price of physical silver.

Physical Silver ETFs

Physical silver ETFs include: Sprott Physical Silver Trust and Sprott Physical Platinum & Palladium Trust. These ETFs hold the physical silver or platinum/palladium bullion. They can track live prices online at any time. One advantage of these ETFs is that you are able to gain exposure to the price of silver without having to take the time and hassle to store physical silver in your home.

Physical Silver

Owning physical silver, either as coins or bullion, is a psychologically and emotionally satisfying way to invest in silver. You have possession of it and can use it, if necessary.

Silver Miners

Investing in silver miners can be a great way to gain exposure to the long-term performance of silver prices without having to buy actual physical silver. There are a number of silver mining companies currently listed on the Toronto Stock Exchange that trade as ADRs. Investors can buy shares in the silver mining companies and benefit from the rising price of silver.

You can also turn to an ETF like Global X Silver Miners ETF (SIL) or ETFMG Prime Junior Silver Miners ETF (SILJ) that owns silver miners.


Should You Be Investing In Silver?

The price of silver tends to follow the price of gold over the long term. In the short term, the price of silver tends to be more volatile than the price of gold. This has mainly been driven by fluctuations in supply and demand for silver. As such, the price of silver tends to rise and fall sharply in response to changes in these underlying factors.

The price of silver fluctuates widely in response to changes in supply and demand for silver. Most of this fluctuation is cyclical in nature and is related to the ebb and flow of the business cycle. Gold and silver have been used as a store of value for centuries. It is expected to continue to be used as such going forward.

In my opinion, it’s only a matter of time before the Federal Reserve fail to control inflation. This is done through a hawkish interest rate policy that kills economic growth and lead rapidly to a recession. This results in a “Fed pivot” where interest rates start heading down again.

It could happen as early as next month.

Referring to the Gold and silver ratio, silver is deeply oversold and they could move forcefully to the upside. This could be a chance to invest in silver while they are on sale. Silver’s charts may look bad at the moment, but the opportunity for buyers to obtain the “poor man’s gold” at an extreme discount may be too good to ignore.


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