Silver: A Roller Coaster Ride – Rising in Crisis, Falling on Policy 

Summary: Silver occupies a unique position in the commodity market because it functions both as a precious metal like gold and as an industrial metal like copper. Its prices can react sharply to currency movements, speculative activity, technological demand, interest rates and central-bank policy. The article traces major episodes in silver’s price history, including the 1980 silver bubble, when prices surged towards $50 per ounce before collapsing by more than 70%, and the 2008 global financial crisis, followed by the recovery and sharp rally of 2009–2011. It explains that silver’s dual character makes it particularly unpredictable, while its increasing use in solar panels, automobiles, electronics, semiconductors and other technologies has strengthened industrial demand. India is described as one of the largest consumers of silver, with demand arising from jewellery, religious and cultural practices, investment and industrial applications. The article identifies ten forces behind the recent rise in silver prices: falling interest rates, a weak US dollar, inflation and economic fear, soaring industrial demand, China’s stockpiling, central-bank investment, retail investors, festivals and marriages, the difficulty of mining silver and the relationship between gold and silver prices. It also identifies factors contributing to price correction, including profit booking, de-dollarization, economic slowdown, speculative trading, technological changes, policy expectations surrounding Kevin Warsh’s nomination, reduced Chinese buying and India-specific seasonal and investment factors. The article concludes that the current correction reflects global monetary developments, changing investor sentiment and evolving industrial dynamics, and that silver may remain under pressure unless macroeconomic indicators improve or demand from key markets revives.

Silver Price Volatility: History, Industrial Demand and Forces Driving the Market

Introduction

Silver is a unique metal of its kind as it lives in two worlds: –

• Precious metal world: like gold

• Industrial metal world: like copper

Silver reacts faster than any other major commodity whether to inferiority of currency weakening, to anticipating speculative profits, to use in technology, to interest rates or to tweets from central banks. It behaves like

• a precious metal one day and

• An Industrial commodity next.

The dual personality of silver makes it enormously provocative, unpredictable and speculative in the world. It shines like a jewellery or ornaments in a household and on the other hand it powers the solar panels, automobiles, electronics across the world. Subsequently it rises in fear and shine like gold yet falls rapidly when interest rates climb. Few commodities or assets reacts unpredictable in global markets and as emotionally as silver. The demand for silver suddenly raised because the world starts moving towards the green energy.

Though this is not any first instance that it has been so happening with silver. Alike this time silver has been a commodity which faced high ends and low ends in earlier years too. Let’s travel through history of silver price cycle when silver shocked the world.

The 1980 silver bubble:

The 1980 silver bubble was one of the most dramatic events in history of commodity market During 1979 and early 1980, the price of silver rose at an extraordinary speed. In early 1979 silver price was around $6 and by January 1980 silver touched almost $ 50 per ounce (1 ounce is approximately 28.35 grams) within a short span of time. This sharp rise was created by the Hunt brothers of the United States, who attempted to buy massive quantities of physical silver and silver futures in a way to hedge inflation and devaluation of US dollar and due to these investors started moving towards assets like gold & silver. At one point of time, they controlled or influenced nearly 1/3^rd of the world’s private silver supply. This aggressive purchasing created an artificial shortage in the market. However, in early 1980, regulatory authorities tightened trading rules and increased margin requirements, which triggered panic selling. As a result, silver prices collapsed rapidly, falling by more than 70% within weeks. This episode, popularly known as “Silver Thursday,” became a classic example of market manipulation and speculative excess, leaving a lasting impact on global commodity trading regulations.

Financial crisis of 2008

Before the financial crisis of 2008, silver was considered as a major asset for investing. The price of silver in 2001 was around $4 and jumped to around $14 in 2007. The main attraction for investors in commodity was gold, whereas silver was considered as secondary commodity as it is cheaper and more volatile. However, the future was built bullish for silver through high investment in ETF and increased use of silver in industrial sector.

2008- Global Financial crisis:

During year 2008 the world faced market crises which begun from collapsing of US bank Lehman Brothers and globally the stock markets were crashed. During this crisis, Investors rushed to sell risky assets and move into cash. Due to this, silver prices faced a high fall, crashing from $21 to $9 in early 2008.

2009- Beginning of Recovery: 

Post-financial crisis of 2008 central bank of US, started printing money in massive quantity. Due to this interest rate were scaled down to approximately as much as ZERO and in parallel dollars were supplied in huge quantity into the economy.  Due to this, an inferiority was created among investors that US dollars might get weaken and consequentially silver began to rally, from late 2008 to early 2009 and its prices recovered around $ 16- $18 per ounce.

 2010- Silver Prices started soaring:

 The US dollar remained weaken, money printing continued as 2009. The demand of silver increased, from technology sector to energy sector. At that time, silver became the “poor man’s gold” due to gold was already expensive for small buyers. During this time, silver prices jumped from around $17 to nearly $30.

 2011: Big Collapse of Silver:

 After all the boom in 2009 & 2010, the real outburst happened, commodities as whole were in a strong market. In April 2011, silver touched a historic high of around $49–50 per ounce creating a bullish market. However, many investors started booking heavy profits. The rise in silver prices, now increased the speculative trading in silver and commodity exchange increased their margin requirements. Later on, when US dollar began to stabilize, investment demand of silver declined. By the end of 2011, silver prices decline further around $26-$ 27 per ounce. Thus, the rally that started after the financial crisis of 2008 came to an end.

“This episode taught investors an important lesson: silver can deliver extraordinary returns in bull markets, but it can fall just as fast when the tide turns.”  

India- A giant in the silver story

India is one of the largest consumers of silver. India’s silver demand majorly comes from diverse sources, including jewellery and ornaments, religious and cultural practices, investment avenues like coins, and industrial applications such as solar plants, automobiles, electronics, and semiconductors. Consequently, a worldwide decline in silver prices would likely spur surplus consumption among Indian retail and industrial buyers, boosting overall usage.

 Let’s understand the Rise and Fall of silver in past months

Silver’s steep surge in prices: 10 Forces fuelling the current price soaring.

1. Falling interest rates: When interest rates fall, returns from bank deposits and other fixed-income investments become less attractive. Since, silver does not pay any interest, it becomes more attractive. Consequentially, investors shift their money from bank deposits to commodities market which results in pushing silver price to higher levels.

2. Weak US dollar: Global silver prices are determined in the international market “in USD”. When the price of dollar decreased in global market, silver becomes cheaper for buying as compared in other currencies. This currency advantage boosts international demand and thus results in higher demand and higher silver prices.

3. Inflation and Economic Fear: During the period of high economic uncertainty, public look for assets which provide or can give great future value in terms of appreciation and returns. Silver & Gold is a hedge against the inflation and economic fears, wherein it leads to increased purchasing of silver and high prices.

4. Soaring Industrial demand: The major demand of silver comes from industrial sector which is around 60%, where the silver used majorly in Solar panels, AI hardware, circuit boards, semiconductors, 5G technologies, Medical, Chemical applications and Electronic Vehicles (15-28gms silver for ICE) (25-50 gms silver for BEV).  As the world is moving towards green energy, consumption of silver is also spiking. Because the global industries, given above, grows the demand of silver automatically increases, leading to hike in silver prices.

5. China’s Stockpiling: It has been an unhidden fact that China is 2^nd largest producer of silver in the world and China itself is stockpiling or buying the silver on a large scale to reduce the supply globally and resulting into soaring prices of silver.

6. Central Banks investing in silver: Central banks around the world have begun diversifying their funds into commodities like silver and quitting from US dollar. Such diversification of funds by central banks in silver results into upward trend in its prices and its high demands.

7. Retail Investors: Anticipating the upward market volatility, retails investors had been wither diversifying their funds into silver or begun investing into it through buying of  silver coins, bars and ETFs resulting into a parallel demand-supply algorithms.

8. Festivals and Marriages: – (Especially in India): In countries like India, silver is just not using as an industrial product, but silver is also heavily purchase during the time of weddings, festival or for special occasions. This culture creates the high demand of silver which support in hike in prices of silver.

9. Silver is harder to mine: – Nearly 70% of silver is produced as a by-product of copper, lead and zinc while mining. Production of pure silver is limited worldwide which creates hinderance in sufficing and maturing the market demands. Mining companies cannot match the increasing demands of silver as 70% of the mines are focused on other metals.

10. Gold Vs Silver Prices: Gold and silver often move together and in same direction too. When gold prices increase rapidly, the investors also look at silver as cheaper alternative either for investments or for other purposes resulting into spikes in silver increase prices.

Correction in prices and downward movement.

1. Profit Booking: After a consistent high rally in silver, traders started selling their holdings to records gains because of an unanticipated behaviour of silver and unaccepted high end prices of silver.

2. China–Russia Angle: De-Dollarization Impact: A joint effort was triggered by China and Russia to reduce the dominance of dollar in the global market, thereby promoting and increasing trade in their own currencies and building alternative payment systems. Because of such aggressive actions by the duo nations, it weakened the dollar ‘s global demand. Since silver is priced internationally in US dollars, any fall in the dollar makes the silver cheaper for buyers using other currencies.

3. Economic Slowdown: Over half demand of silver comes from industries such as EV’s, solar panels etc. During economic slowdown industrial activities were dropped, resulting into reduced demand of silver and dropping prices of silver.   

4. Speculative Trading: A large portion of trading of silver is done through speculative trading (like F&O) rather than in physical from. High selling of hedge funds triggers bearish behaviour in the market reducing the prices of silver, even when the market or demand of commodity is high.

5. Technological Changes: If industries develop new changes or technologies, wherein the usage of silver reduces or finds some cheaper alternative in replacement of silver. Overall demand and prices of silver will scale down.

6. Policy Expectations: Kevin Warsh’s Nomination: Market speculation around Kevin Warsh’s potential nomination as US Federal Reserve Chair is generally seen as negative for silver prices. He is considered as a policy maker who makes higher interest rates and tighten monetary policy. Higher interest rates attract investors to invest in assets other than commodities and pulling out their monies from silver and deploying them in other financial assets.

7. Reduced Buying of Silver by China: As we all know China is one of the largest producer and consumer and stockpilers of silver. If China cuts down its buying of silver or reduces its imports, this will globally weak down the demand of silver leading to decrease in its prices.

8. India’s specific factors: In India the major demand of silver occurs during the season of festival or weddings. When there are no such occasions or festival, the demand of silver significantly declines. Another reason can be shift of investors from silver to gold, as gold is a traditional manner of savings in Indian culture.

Overall, the current correction in silver prices reflects a mix of global monetary developments, shifting investor sentiment, and evolving industrial dynamics. Unless macroeconomic indicators improve or demand from key markets revives, silver may remain under pressure in the near term.

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 Views expressed in this article are solely of the author and do not constitute any financial advice. Silver prices are volatile and influenced by multiple unpredictable and unanticipated factors. 

Author: Sneha Jain, Jaipur, Student-ACCA