In this guide to understanding silver as a commodity, we’ll discuss why it’s valuable, explain how it’s produced, list the largest silver producing countries, and explain what drives this precious metal’s price.
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Contents
Why is Silver Valuable?
Silver is a shiny white metal with several extraordinary characteristics.
It is malleable, pliable, and beautifully lustrous. Silver is also highly reflective and conducts electricity extremely well. It even kills bacteria.
All of these features make silver a valuable metal in a diverse array of industries including jewelry, electronics, energy, and medicine.
Yet these characteristics only scratch the surface of why silver is important in the global economy.
Silver is very rare and, along with gold and six platinum group metals, belongs to a group known as precious metals. For thousands of years, people have acquired silver as a store of value.
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What Is Silver Used For?
| Use of Silver | Description |
|---|---|
Jewelry | Silver is beautiful, lustrous, and workable. It is, therefore, a popular choice in earrings, necklaces, bracelets and rings. Most jewelry manufacturers use sterling silver, which is 92.5% silver and 7.5% copper. |
Technology | Silver is used in a variety of technologies:
|
Private Investors | Individuals and investment funds purchase silver to protect their portfolios against losses from inflation and market crises. Individuals can purchase silver bars, coins, or funds that invest in the metal. |
How Is Silver Produced?
Silver mining began when ancient civilizations in Asia Minor first mined the metal over 5,000 years ago.
Almost 1,800 years later, the Greek Empire began mining silver as a currency, and during the height of the Roman Empire, silver became an essential trading commodity along the Asian spice routes.
The Spanish conquest of the New World in the 15th century, however, proved to be the most pivotal moment in the history of the commodity. Dramatic increases in silver mining in Bolivia, Peru, and Mexico occurred between 1500 and 1800 AD. These three nations accounted for 85% of the world’s production as the Spanish gained a foothold in the Americas.
Silver mining started in the United States around 1850. New discoveries there and in Australia, Central America, and Europe have bolstered recent production worldwide.
How Much Silver Has Ever Been Mined?
Production and reserves of silver are surprisingly limited, despite its long history of mining.
According to a report by the US Geological Survey, the estimated total amount of silver mined from antiquity through to 2001 at 1.26 million metric tons. Half of that was mined during the last 62 years.
More recent estimates place the total quantity mined in history at 1.5 million metric tons, which equates to only a 52 meter cube of the metal.
Silver is rarely found in the Earth’s crust as a native element. Instead, miners usually find the element as a byproduct of mining for lead, zinc, copper, or gold.
Top Silver Producing Countries
Recent production of silver has declined as a result of a drop off in lead, zinc, and gold production.
| Rank | Flag | Country | Annual Production (millions of ounces) |
|---|---|---|---|
| #1 |  | Mexico | 186.2 |
| #2 |  | Peru | 147.7 |
| #3 |  | China | 112.4 |
| #4 |  | Chile | 48.1 |
| #5 |  | Russia | 46.6 |
| #6 |  | Australia | 43.6 |
| #7 |  | Bolivia | 43.5 |
| #8 |  | Poland | 38.5 |
| #9 |  | United States of America | 35.4 |
| #10 |  | Argentina | 30.0 |
Which Countries Have the Largest Silver Reserves?
Silver reserves are a measure of economically minable silver that’s in the ground. However, mining is an expensive endeavor, so the price of a metal determines whether it is feasible to mine it.
| Rank | Country | Reserves (in Thousands of Metric Tons) |
|---|---|---|
| #1 | Peru | 120 |
| #2 | Australia | 89 |
| #3 | Poland | 85 |
| #4 | Chile | 77 |
| #5 | China | 39 |
What Drives the Price of Silver?
Silver is a volatile commodity that reacts to both industrial and economic data. These factors are the most important drivers of silver prices:
- Supply and demand
- Silver scrap metal
- Industrial demand
- Inflation and the us dollar
- Gold prices
Supply and Demand
The supply and demand equilibrium for silver is an important factor that drives its price.
Silver supply is limited, and production has been declining in recent years. Industry experts expect further declines in the years ahead due to higher mining costs.
At the same time, demand for silver, 50% of which comes from industry, remains stable.
Traders should pay attention to events that impact the supply/demand equilibrium. For example, mining strikes could constrain supply, while discoveries of new silver deposits could increase it.
On the demand side of the equation, changes in traders’ appetite for silver, which is much more volatile than industry demand, could move prices.
Silver Scrap Metal
Silver scrap metal can play an important role in determining the supply of silver in the market and, therefore, its price.
Historically, one source of scrap metal was the photography industry. However, with the advent of digital photography, silver now plays a minor role in the industry. Scrap dealers recycle large quantities of photographic film for their silver content.
Similarly, jewelry and silverware can be a source of silver scrap. As silver prices rise, more scrap supply comes on to the market, which can put a cap on prices.
Industrial Demand
The demand for silver from industry can have a big effect on the price of the metal.
As previously mentioned, the photography industry no longer consumes as much silver as it did a generation ago. Stainless steel has largely replaced silver in items such as flatware, while many mirrors now contain aluminum alloys instead of silver.
On the other hand, industries such as water purification, circuit boards, and solar may continue to require silver due to its unique physical and chemical properties.
Inflation and the US Dollar
Trading or purchasing silver can be a way to protect against the loss of purchasing power from inflation and a weak US dollar.
Commodities such as silver are priced in US dollar and often have strong inverse correlations with the dollar. In other words, as the dollar weakens, silver prices tend to rise. Buyers purchasing silver in other currencies have more purchasing power when the dollar is weak and less when the dollar is strong.
Silver is also different from most other commodities (the exceptions being gold and perhaps platinum) in that many traders view it as an alternative currency. In times of currency devaluation and inflation, traders often turn to silver as a more reliable store of value.
Gold Prices
Historically silver and gold prices exhibit a strong positive relationship. Many traders pay close attention to the gold-silver ratio and use movements in this ratio as a signal to buy or sell one commodity or the other.
Where Can I Trade Silver?
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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 53.00%-83.00% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.
