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How Have Global Silver Prices Changed Historically From 2009 To 2018?
Silver price per ounce
Silver prices have seen a lot of volatility over the last 10 years, with price sharply rising from 2009 to 2011, mainly driven by rising investment demand for the metal in the wake of the global financial crisis, which was followed by lower interest rates due to quantitative easing (QE).Price even reached $50/ounce in April 2011 (though annual average was $35 for the year), when S&P issued a "negative" outlook on the U.S.'s "AAA" (highest quality) sovereign-debt rating for the first time.However, with positive steps from the government to avoid a major debt-crisis, silver prices started to decline from 2012.Strong recovery in the US economy and tapering of the QE program led to a continuous drop in silver prices as an almost complete lack of inflationary pressure led to the rise in financial asset prices creating big opportunity cost for those who had looked to silver as a store of value instead.Silver prices have remained subdued from 2015-2018, with average annual price/ounce ranging from $15.68 to $17.14 during this period.Prices saw an uptick to reach close to $20 in mid-2019 due to reduction in interest rates in the US, however, with the global economic growth slowing down, lower industrial demand for silver is likely to keep prices close to its recent levels.
Break-up of Total World Silver Production
% Distribution of Total World Silver Production
Silver Demand-Supply Dynamics
Mine production constitutes over 85% of total silver supply in the market, followed by scrap supply.Unlike gold, silver has a much larger industrial application, with the metal being used for soldering and brazing alloys, batteries, dentistry, glass coatings, LED chips, medicine, nuclear reactors, photography, photovoltaic (or solar) energy, RFID chips (for tracking parcels or shipments worldwide), semiconductors, touch screens, water purification, etc.Industrial application accounts for about 56% of total silver demand.Silver supply has witnessed volatility over the last 10 years, in line with demand conditions.Supply decreased from 2010 to 2013, mainly due to reduction in the supply of scrap. However, during this period, mine supply was continuously rising as companies tried to supply larger quantity to meet the booming demand from photovoltaic, and take advantage of higher prices.Mine production dropped for the first time in 2016 driven by lower by-product output from the lead/zinc and gold sectors, as well as a sharp decline of scrap supply to the market.Mine supply further reduced in 2017 and 2018, as the Guatemala high court suspended the license of its largest, Escobal, mine and operational and maintenance disruptions in Canada.However, higher scrap supply and production in China and India did not lead to a sharp drop in total supply.At the same time, the investment demand for the metal decreased from 2016 with pick up in the economy and expectations of higher interest rates. Though increased industrial demand led to almost stable demand levels in the last three years.
Total Silver Supply (ounces)
Total Silver Demand (ounces)
Silver Surplus/(Deficit) And Price Movement
Based on the supply-demand dynamics above, silver has been in deficit for 6 of the last 10 years.Prices have largely followed an inverse relation to surplus/deficit over most of the years.However, during the 2012-2015 period, silver prices declined in spite of supply deficit during these years.This was mainly due to most of the supply drop being driven by reduction in lower quality scrap sales, whereas, higher quality silver bars were enough to meet rising demand from the industrial sector.Additionally, silver futures also took a hit with a recovery in the global economy and tapering of the excess liquidity injected in the system earlier.Thus, this was a period during which price trend looks decoupled from the silver supply-demand movement.
World-GDP Growth Rate And Silver Price Trend
Silver prices have largely maintained an inverse relation with the world GDP growth rate.Though growth shot up in 2010, prices also increased mainly due to investment demand on the back of lower interest rates across the globe.However, in 2011 and 2012, prices remained elevated with a drop in world GDP due to the Eurozone crisis.Since 2014, as the global GDP growth stabilized around 3.4% to 3.6%, silver prices also remained range bound between $15 to $20 per ounce.The case of GDP-silver price dynamics has been slightly complicated, as a drop in growth rate fuels investment demand for silver, whereas a pick up in growth drives higher industrial demand for the metal.Thus, we see a couple of years when silver does not maintain a clear inverse relation with GDP, unlike gold.
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