So, what gives with the silver price?

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So what's the deal with the silver price

Silver has always been regarded as gold’s little brother or sister. Since its first main use in industry as the backing on glass to form mirrors – it has become the “go to” of precious metals for industrial applications.

Historical silver prices have made the metal valuable as a crucial part of industrial components. It’s conductivity, resistance to corrosion, and malleability have made it so.

Silver is used for jewelry and coinage as well though. Silver coins are the most common type of bullion currency used throughout the world – or, rather, they were. Silver was used typically as a unit of currency in every country in the developed world. The US had its 1-ounce silver dollar. The UK had its 1-ounce silver pound coin. France it’s 1-ounce silver franc, and so on.

Unfortunately, there came a point where the amount of money people could get for the silver coins exceeded the face value of them. This made it better to melt down the coins into silver bars, with the silver price valued per ounce, and then sell these bars on as silver bullion.

The historical price of silver is surprising.

Until the Spanish conquistadors conquered South America, in the 15th century, silver was more valuable than gold. This was because there were very few mines producing silver. It was a more difficult metal to extract than gold – which was relatively common for jewelry and used for money and trading at that time.

Silver was, and remains, a by-product of mining for copper. Copper was used for cooking utensils and in foundries and coinage before the industrial revolution of the 18th century.

As science discovered properties of silver, the metal was applied to more and more industrial applications and became less of an attraction as jewelry and decorative metal. For instance, it was used extensively in film after the discovery of photography, and more recently its conductive properties have been used in electronic components, solar panels, and batteries.

These applications tend to use small quantities of silver which are difficult to recover in any recycling process, so the silver is effectively lost.

A look at the price chart of the silver market over the last century shows the marked rise in the price since the advent of computers and mobile phones around the year 2,000. Aside from the spike in 2011, the spot price of silver has seen a steady rise from around $4.50 a per troy ounce to its current price of approximately $15 per ounce.

When compared with gold, spot prices of silver, on any silver price chart, are a fraction of those of gold. At the moment this gold to silver ratio – (which is the number of ounces of silver it would take to buy 1 ounce of gold) is around 85 to one. In the past, this has been around 40 to 1.

So what does this mean for investors?

The gold-silver ratio is important whether you own silver coin, silver bars, or any other kind of silver. To give an example, back in the 1930s a $1 Morgan silver dollar was worth $1. And $20 Liberty gold coin worth $20. The gold-silver ratio of this was 16 to 1. In terms of just their metal value, the Morgan silver dollar is now worth around $11.60, and the Liberty gold coin $1,258.

Matt Johnston of Money Metals Exchange explains, “This ratio was historically normal and didn’t change much until the price of these precious metals was manipulated by big banks and governments. There are legitimate reasons for gold to be more valuable per ounce and silver, but current pricing makes very little sense. Silver is currently being mined about 10 times the amount of gold. But silver gets used in industry and usually cannot be reclaimed, so if mining does not keep up with demand, the effective rarity versus gold will increase over time. Most of the gold ever mined still exists.”

There are two key points to take away from this. Firstly, silver is cheaper to buy than gold per ounce. You get more physical metal for your money. Proportionally, if the silver price increases at the same rate as gold, you will make more money for less investment. The silver price would only have to increase to $30 to double your money. The gold price would have to increase to $2,600.

The second point is taken from the gold-silver ratio. Silver is relatively cheap at the moment. As the price of gold increases, silver usually follows. It follows that now is a good time to invest in silver in any form – but an increase in the silver spot prices can only help the numismatic coin values to increase too.

Charles Thorngren

Charles Thorngren

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The Morgan Silver Dollar is an essential part of American History. The first was released in 1878 and became an immediate success. We have sourced 3 different versions of this iconic coin. These will be an investment as well as a family heirloom for generations to come.

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