Investing in the Silver Market
Silver Futures Trading
Silver has often been called the poor man’s gold, taking a back seat to gold when traders looked for a safe-haven investment. Silver is considered a precious metal but not as rare as gold. While silver prices have always been far below the value placed on gold, prices of the two metals have generally tracked together as the factors that affect gold also tend to affect silver. Silver, however, has a wider range of uses and is priced for its industrial uses in electronics, photography, jewelry and elsewhere in addition to its financial role, increasing its significance for an investment portfolio.
Like gold, there are a number of vehicles for investing in silver in addition to silver futures and options. Those who choose to invest in physical silver can buy silver bullion, silver coins, silver medallions or silver certificates backed by silver in vaults.
Silver traders who prefer to express their interest in silver prices through stocks can invest in mining companies including penny stocks or in silver exchange-traded funds.
Silver Trading Information
Like gold, silver is traded at a number of exchanges around the world, including Sydney, Tokyo, Dubai and the worlds major silver futures exchange, the Comex division of the New York Mercantile Exchange (NYMEX).
- The full-size NYMEX silver futures contract is 5,000 troy ounces of refined silver, not less than .999 fineness, in cast bars weighing 1,000 or 1,100 troy ounces each.
- Contract months are the next two calendar months, any January, March, May and September within a 23-month period and any July and December falling within a 60-month period beginning with the current month.
- Silver Prices are quoted in dollars per ounce, with the minimum price fluctuation one-half cent per ounce or $25 per contract.
- Straddles or spreads are traded in tenths of a cent, equivalent to $5 per contract.
NYMEX also trades a half-size miNY silver futures contract. However, activity has been limited and may not be liquid enough for active traders.
A report on silver warehouse stocks provides a daily amount of silver inventory on hand for possible delivery on futures contracts. A decrease in inventories can provide support for silver prices to move higher.
Another venue for trading silver futures is NYSE Euronext, which purchased the metals complex including mini- and full-size silver futures contracts that were traded at the Chicago Board of Trade prior to the CBOTs merger into CME Group.
Silver Trading Signals
Newly mined metal provides most of the needed supply of silver, with much of it coming as a byproduct from mining for other metals. About 75 percent of the worlds annual supply of silver comes from mining production, with the remainder coming from government sales of silver stocks and from recycled scrap, including what is termed dishoarding as silver coins, jewelry and other silver products are melted down.
The top silver producing countries are Peru, Mexico, China, Chile and Australia.
On the demand side, about 54 percent of the world’s supply of silver is used in industrial applications, including a variety of uses in the electrical and electronic sector. Photographic demand continues to decrease, mostly due to lower consumer demand for color film because of further inroads from digital photography.
Jewelry fabrication continues to hold up well despite higher and more volatile silver prices, with noteworthy increases in silver demand for jewelry and silverware in China. See how VantagePoint Software can predict the silver market with up to 86% accuracy* – Free Silver Forecasts now.
Trading Tips for Silver Traders
If you trade silver, you want to watch gold and anything that influences gold prices as the two markets tend to move together. Particularly important for the prices of both precious metals are the government economic reports such as quarterly gross domestic product, monthly Consumer Price Index and Producer Price Index figures that measure the inflation rate and any other reports that reflect the country’s economic growth. Economic reports from other nations can also provide clues about silver demand.
Watch the spread between the gold and silver prices to move to one extreme or the other and expect it to come back to normal, buying silver and selling gold at the high end of the spread, for example.
Silver is an excellent commodity to have on hand if you are expecting high inflation and/or chaotic economic conditions because silvers lower values provide more flexibility for purchasing smaller items. For that reason, some people prefer to hold silver coins.
Be careful when holding silver futures overnight. In the volatile market conditions that have marked silver trading in recent years, the price of silver can make big moves from one day to the next. An unexpected crisis can occur at any time anywhere in the world, causing traders to look to the gold or silver markets to preserve their wealth. It is not uncommon for silver prices to open 20 or 30 cents higher or lower than the previous days close $1,000-$1,500 per contract and silver futures have been known to move $1 or even $2 intraday $5,000 to $10,000 per contract. That’s hardly a poor man’s contract.
Silver Trading Resources
There are multiple sources for finding news and information about purchasing silver as an investment or trading silver for profit opportunities. Most major newspapers and other financial news sources that cover metals report the pricing and sales of silver. Government sources, exchanges and brokerage firms all offer many resources for silver traders.
One of the major sources of information is The Silver Institute, an international association of miners, refiners, fabricators, and wholesalers of silver and silver products established in 1971 to promote the interests of silver worldwide
Silver Trading History
Civilizations have been using silver going back 6,000 years, as silver deposits were on or near the earth’s surface, and the durable, malleable metal was used for jewelry and other artifacts that have been recovered. Mesopotamian merchants used silver as a form of exchange as early as 700 B.C., and the ancient Greek drachma and Roman denarius coins were made from silver. And then there is the English shilling “sterling,” originally denoting a specific weight of silver, which has come to mean excellence.
Silver played an important role in the early days of the United States when Congress based the currency on the silver dollar and its fixed relationship to gold. Silver was used in U.S. coinage until being discontinued in 1965.
Silver gained a more important economic function as an industrial raw material at the beginning of the 20th century as new processes for photography, jewelry and electronics began to develop.
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