A useful guide for those looking to invest in silver
Almost every commodity on earth adheres to a relatively simple rule: supply and demand determine price. Shortages (when demand outpaces supply) drive prices up, while surpluses bring them down.
Silver is no exception. Of course, there’s a lot of nuance and speculation involved in determining silver prices in Australia. Investing is hardly black and white.
So if you’re considering investing in silver, it’s essential to know what can affect the price. This guide to investing in silver is designed to give you a head start on what might be one of the best investments in 2023.
First things first, though. What “price” of silver are we talking about?
The three different silver prices in Australia and why they matter
- Spot price
Most of the time, when anyone refers to the price of silver, they’re referring to the spot price. This is the current price for immediate silver purchases. It’s quoted in USD and fluctuates throughout the day depending on factors we’ll discuss shortly.
The remainder of this guide will refer to the spot price of silver unless otherwise stated.
- Futures price
Buying silver futures is like betting on the future price of the precious metal. Essentially, investors lock in a price today for silver they’ll receive in the future. If the price rises, they’ve made a good investment.
- Share price
This one is a little more complicated. Silver itself isn’t listed on the ASX, but silver mining companies and ETFs are. Buying ASX silver stocks involves more considerations than the price of silver in Australia. You’re investing in a company, not a commodity – due diligence is essential.
The ‘big 3’ influences on silver prices in Australia
1. Supply and demand
Not surprisingly, supply and demand forces are the biggest influence on silver prices. The price typically rises when demand exceeds supply and falls when the balance tips the other way.
However, supply and demand interactions are complex. They play out on local, international, and global scales. For example, Boab Metals (ASX: BML) is nearing production on Australia’s largest undeveloped silver-lead deposit at Sorby Hills. Our reserves could theoretically swell global supply, easing price pressure.
But against a backdrop of increasing silver demand worldwide, rising inflation, and the rate we plan to extract ore, our contribution won’t tip the scales towards a surplus.
On top of that, unforeseen factors can all affect the price of silver in Australia:
- Local and global economic stability
- Mining disruptions
- Industrial demand spikes
- Geopolitical events
- Emerging industrial uses
For a final twist, the silver market is smaller than gold. If a single large investor believes silver will be the best investment in 2023, prices could feasibly rise.
2. Global economy
According to Geoscience Australia, we have “the largest share of the world’s economic silver resources, outstripping Mexico, Canada and the USA”. In 2021, Australia tied with Poland and Russia as the world’s fifth-largest silver-producing country.
Domestic production is stable. That makes ASX silver stocks an attractive investment. However, a global outlook is essential when investing in silver. International events can and do impact silver prices in Australia.
- Silver is used as an inflation hedge in periods of economic uncertainty, such as a pandemic or when international conflicts are simmering
- Most of Australia’s silver is exported for refining and production
- Increased production of solar panels, EVs and circuit boards will demand more silver
- Foreign exchange rates (especially AUD-USD) can impact silver prices in Australia
We expect global forces like the renewable energy market and increasing reliance on technology to steadily increase silver demand. At the same time, these could decouple silver prices in Australia from traditional influences, flattening the fluctuations provided we maintain production levels.
Silver prices have fluctuated over time, often with greater volatility than gold. Speculation plays a pretty significant role in those movements. Positive sentiment among investors, caused by economic stability or expectations of future demand, can push spot and futures prices higher. Negative sentiment can do the opposite.
Sentiment is tied to a broad array of factors, including:
- Global economic and political events
- Mining company performance
- Future demand expectations
- Other metals, gold in particular
Silver valuations in the last centuries tended to be wide-ranging, creating volatility in spot prices. However, globalisation and “technologisation” are changing all that. Silver’s use in industrial applications and consumer products is expected to standardise the playing field somewhat.
Like all precious metals, silver will still be used as an inflation hedge and currency. Public sentiment will still be a factor. Whether it has the same influence as bygone eras remains to be seen.
What does the future hold for silver prices in Australia?
Silver has played two roles for the last ~6,000 years, both as a currency and versatile industrial metal. It seems like the future will have more of the same in store for silver.
Silver will continue to be used as a currency store, in particular to insulate investors against nasty inflation cycles. And the “white metal” is expected to show up in more – and growing – sectors, especially renewable energy, battery-powered vehicles, and electronics.
All signs point to silver prices stabilising as demand steadily increases in the coming years. Both in Australia and worldwide, silver producers are likely to focus on the expanding renewables energy sector (including the EV market), with limited leftover stock for silver bullion.
What does this mean for Boab Metals?
Silver miners tend to look long-term. Spot and futures prices are more relevant for day traders, investors and currency exchanges.
We aim to extract silver and lead for industrial uses, insulating the BML share price from short-term fluctuations. In addition, we expect to ink offtake agreements that will create stability and reinforce investor confidence.
That said, we’re keeping a close eye on silver prices in Australia and worldwide. We hope to watch them rise steadily in the coming years as increasing industrial demand generates positive sentiment.