Deciphering Silver: Value and Significance

To trade silver, a deep understanding of the factors influencing its supply and demand is crucial. This entails knowing what silver is, where it comes from, the costs and challenges involved in extracting it, and the main uses of silver that drive demand and, therefore, the price.

This Plus500 guide covers the fundamentals of silver for traders, beginning with what silver is and its role as both a precious metal and a commodity. It will then explore the origin of silver, its extraction and processing methods, and how understanding these aspects can contribute to informed silver trading decisions.

What Is Silver? A Precious Metal & Commodity

Considered both a precious metal and a commodity, silver is a chemical element represented by the symbol “Ag,” referencing its Latin name, Argentum. It has a face-centered cubic crystal structure and an atomic weight of 107.868 amu (atomic mass units) and is represented by the atomic number 47. In the financial markets, silver is represented by the ticker symbol XAG.

Silver is a soft, white, lustrous transition metal resistant to corrosion and oxidation. It is highly malleable but not quite as soft as gold, which allows silver to be flattened into sheets or drawn into flexible wire for various uses, such as jewelry, electronics, and even photography.

Is Silver a Precious Metal?

Silver has been valued by humankind for millennia in part for its lustrous sheen. In this way, it’s similar to gold, though gold has generally been considered more valuable. Silver is used to make jewelry and high-status objects such as formal utensils, ornamental pieces, and art. It’s also been used for currency since at least the 7th century BC.

Silver, due to its scarcity, economic worth, and its potential to serve as a safeguard against inflation, is classified as a precious metal, joining the ranks of other well-known precious metals like gold and platinum.

Is Silver a Commodity?

In addition to being a precious metal, silver is also a commodity because it’s highly sought after for industrial applications. Its malleability, conductivity, and other qualities mean silver has found a place in many technologies over the centuries. For example, it’s photosensitive, so it once played an important role in film photography.

In more recent centuries, silver found a wide variety of industrial uses. It’s used as a solder and brazing alloy, as well as in batteries, dentistry, LED chips, nuclear reactors, solar technology, RFID chips, semiconductors, touchscreens, water purification, and more. Silver is also antimicrobial and nontoxic, making it useful for medical products.

Dissolving pure silver in nitric acid creates silver nitrate, which can be used as a powder, flakes, or silver paste. Nanosilver, or silver with a tiny particle size, is used in emerging nanotechnologies.

In January 2023, Nicky Shiels, head of metals strategy at MKS PAMP, stated, "The largest segment of silver demand is industrial, [which equates] to almost 50% of total demand." This means that it is much more of an industrial commodity than gold. In 2022, less than 10% of gold demand was for technology largely because it is so expensive, and cheaper alternatives, like silver, are available.

The fact that gold is traded principally as a precious metal with intrinsic value, while silver is traded as both a precious metal and an industrial commodity, may be a primary reason for the difference in the way the two move and respond to market forces.

Silver Supply: How To Obtain Silver

Extracted through mining, silver is an element found in the earth’s crust in a pure form called “native silver.” Today, silver comes from three primary sources: dedicated silver mines, silver obtained as a byproduct of mining other metals, and silver recycled from previous uses, such as old jewelry and photographic films.

Based on data published in October 2023, in 2022, lead and zinc mining by-products comprised roughly 30.2 percent of the total global silver production, making it the primary source of silver output worldwide for that year. Coming in a close second, primary silver mining contributed to nearly 28 percent of the global production for that year.

Knowing where silver comes from and how it is brought to market is essential for understanding the supply side of the silver market and how it affects prices.

Where Is Silver Found?

Silver is found naturally across the globe and is generally concentrated around hydrothermal activity.

Based on data published October 2023, as of 2022, Mexico, Peru, and China are among the top producers of silver, with Peru, Australia, and China having the largest silver reserves, according to Statista.

How Is Silver Mined?

Silver is extracted using both open-pit and underground mining methods. Open-pit mining employs heavy machinery to extract deposits near the earth’s surface. Underground mining involves tunneling deep shafts into the ground to extract ores.

Once extracted, the raw ore is crushed and ground to separate the silver particles from the surrounding metals and minerals through a process of flotation and chemical treatment, isolating the silver for further refinement.

The cost of mining is a major influence in setting silver prices and is affected by multiple factors, including the cost of labor, power, and environmental compliance, all of which will depend on where the mine is based.

However, the price of silver also affects mining practices. As silver becomes more expensive, mines often become profitable by selling lower grades. Since 2005, the overall ore grade of silver has decreased by more than 50%.

How Is Silver Manufactured?

Once the silver is refined, it can then be melted and cast into various forms, such as bars and ingots, depending on the intended use. This silver is then purchased and fashioned into finished products.

The sale of silver depends on its purity and fineness. Purity is the percentage of silver in the final mix. For example, sterling silver used in jewelry has 92.5% purity, the equivalent of 925 fineness. But mints, which are manufacturing facilities that produces coins, only buy fine silver at 99.9% purity, so when traders buy silver bullion or trade silver contracts for difference (CFDs), they are trading prices on fine silver.

Silver Pricing

Silver is frequently utilized for portfolio diversification and as a likely safeguard against economic downturns and inflation. Gold and silver are commonly regarded as "safe haven" assets, maintaining their value amidst currency and stock market declines. The availability of supply and industrial demand heavily influence the price of silver.

The market value of silver has stayed more or less between US$20 and US$25 per troy ounce (31.1035 grams) for the last year. Traders enter and leave silver contracts to take advantage of these fluctuations in value.

How to Trade Silver

If you want to start trading silver, it’s helpful to understand the supply and demand factors that influence silver prices.

Understanding the supply chain of silver entails recognizing its geological sources, evaluating its abundance, and tracing its path from the earth's crust to its final applications.

Meanwhile, understanding the demand aspect requires grasping the fundamental characteristics of silver that render it valuable, serving both as a precious metal and a commodity.

With this information, you can follow supply and demand trends and make more informed decisions about what these mean for trading silver.

You must always conduct your own research or seek professional advice.

Silver FAQs

How is silver used in technology?

Silver has been used for technological applications for centuries. In ancient times, it was used as currency and also for wine and food containers because silver fights bacteria. In the 1800s, silver was found to have a variety of medical uses, including silver sutures to reduce post-operative inflammation and silver leaf dressings to fight infections. In the 1880s, it also became a key element in photography.

Silver can be found in almost all electronic devices. Jet engines use silver bearings; solar panels contain as much as 20 grams of silver, and electric vehicles contain between 25 and 50 grams of silver.

New applications are constantly emerging, and silver is predicted to play a vital role in nanotechnology and enhance the storage capacity of batteries and supercapacitors.

What are the trading options for silver?

There are several trading options for silver. You can trade stocks in mining companies and silver manufacturers or trade exchange-traded funds (ETFs) that track the price of silver. You can buy and sell silver bullion, either by taking physical possession of it, paying a bullion bank to hold the silver, or by gaining exposure to silver prices without physically owning it by trading CFDs with Plus500.