What Factors Determine the Price of Silver?

The price of silver is calculated by weight. This price is the dollar price per ounce of silver. There are several methods of weighing in the precious metals and gemstone markets. The most commonly used in the world is the Troy Scale (TROY). An troy ounce is approximately 31.10 grams; a constant troy ounce is approximately 28.35 grams. Silver in the domestic market is denominated in grams per RMB.

Silver price

The historical value of silver has experienced four major historical periods: the period of high prices in ancient times, the period of turbulence in modern times, the period of modern hype, and the period of steady growth in modern times.
1. Ancient high price period <br /> Natural silver is mostly alloyed with gold, tribute, antimony, copper or platinum. Natural gold is almost always alloyed with a small amount of silver. The amber gold known in ancient China, called ELECTROM in English, is a natural gold and silver alloy containing about 20% silver. At first, the amount of silver that people got was small, making it more valuable than gold. The code of the Egyptian dynasty, approximately 1780-1580 BC, stipulated that silver was twice as valuable as gold. Marx said in the Critique of Political Economy: "... and the mining of silver is based on the premise of mining labor and generally high technological development. Therefore, although silver is not so scarce, its original value Greater than the value of gold. "

What is the value of silver in ancient times? When Su Shi was demoted to Huangzhou, although he felt that "there is no way out, there is a lot of people, and he is very worried about personal matters", but after "paining frugality", the family of 810 people can still have a balance of 4,500 yuan a month , Basic life can still be guaranteed. (Su Shi: "Answering the Qin Taixu Book") But for the Su Shi family, the monthly living expenses are only worth three or two silver. In the Ming Dynasty, a civilian's life was only one or two and a half silver. Yuan Chonghuan killed Mao Wenlong and got 28,000 soldiers. The emperor wrote: "The year-old silver is 420,000, and the rice is 136,000." That is to say, an army of 10,000 people needs 150,000 troops each year. Each soldier costs 15 two silvers a year, which is 37.8 grams according to the Ming Dynasty. Then 567 grams of silver is the cost of living for a soldier throughout the year. Another example is Qi Jiguang's recruitment of troops on the southeast coast, which stipulates that each person's annual silver consumption is 10 two. After arriving at Jizhen in the north, the year of recruiting soldiers guarding the side wall has increased to 18 two. This is the price of recruiting in strategic locations. If it is not to participate in important battles, or in important areas, the price of recruiting is lower: Mingxiu "Wujin County Chronicle" states that the local "recipients have one cent of Japanese silver" Less than two.

2. The turbulent period in modern times. <br /> The silver prices of China and Japan during the Ming and Qing Dynasties were significantly more expensive than the world market. Before the middle of the 19th century, China had a huge surplus in its trade with the West (except with the British opium trade). And China adopted silver settlement, so a large amount of silver from Europe and the United States flowed into China. Even when China no longer has a huge surplus, trade with China has led to instability in world silver value.

In the 20th century, after the establishment of the international gold standard, bumps and turns, and silver seemed to have become a forgotten corner. With the increasing role of gold in international reserves and trade, the price of silver is also falling. In 1910, the price of gold per ounce was about 38 times the price of silver per ounce, by 1930 it had increased to nearly 63 times, and in 1940 it had increased to nearly 100 times! That is to say, in 1910, those who choose to hold silver as a reserve instrument will have 30% of their wealth after 30 years.

3.Modern Hype

Since the 1960s, the situation has clearly changed, because the gold standard is obviously difficult to maintain, and it is only a matter of time before the currency floats freely. The shadow of inflation is becoming increasingly apparent. Because governments of various countries prohibit individuals from holding gold, investors who want to buy precious metals to preserve their value can only choose silver, which has maintained the price of gold to a certain extent. By 1970, the price of gold had fallen to 23 times that of silver, the lowest point since the 20th century. In the context of the big bull market in the commodity market, many traders and bankers have invested large amounts of capital in commodity futures and spot speculation, which in turn have affected the spot. In the 1970s when the production of gold and silver was greatly increased and the international market was highly liquid, futures traders in the United States almost monopolized the world silver market and caused the price of silver to soar.

In the early 1970s, the price of silver hovered around $ 2 an ounce-a number that seemed low, but it had risen by about 80% from its lowest point, mainly because the US Treasury had relaxed its controls on silver. At the same time, the price of gold is also very low, and the price ratio with silver is only about 23 times, which indicates that the entire precious metal market is at a low point. In December 1973, futures speculators bought silver in large quantities for $ 2-3 per ounce, making them one of the world's largest silver holders. There was a severe shortage of silver in the market soon-many silver mines have been closed for the past few decades because of unprofitability, and people are not enthusiastic about mining new silver mines. The supply elasticity of silver is relatively small. When prices suddenly rise, silver producers cannot immediately increase output, which in turn leads to further price increases. In just two months, the price of silver rose to $ 6.7 per ounce, an increase of nearly 130%!

In the summer of 1979, huge buying orders continued to appear in the market, and the price of silver soon rose from $ 6 to $ 11. With the continuous influx of speculators, the price of silver is going crazy-rising from $ 11 to $ 20, then $ 30, and reaching $ 40 by the end of 1979! The price of gold and silver fell to about 12 times, a record low. The futures market has completely lost control of silver. Silver producers around the world are excited about this. They quickly launched plans to find new silver mines, and many of the long-closed silver mines were re-mined. The ordinary residents of the United States and Europe were also pleasantly surprised by the rise in the price of silver. They turned over the boxes to find the ancestral silver tea wares and decorations. Any utensil with silver as the raw material was sent without hesitation to smelt to make standard silver Blocks are sold on the market.

On January 21, 1980, silver rose to its all-time high: $ 50.35 per ounce. In just 12 months, the price of silver has risen 8 times; since 1970, the price of silver has increased 25 times. No commodity in human history has had such a long and horrifying bull market! But shortly after the silver price reached $ 50, the New York Mercantile Exchange issued a temporary rule: From now on, the establishment of new silver futures contracts is prohibited, and only the old contracts are allowed to be closed. This means that monopolists can no longer buy any silver from the futures market, and the total number of silver futures contracts will only continue to decrease, and no one can manipulate the price by buying or selling in large quantities. On March 25, 1980, the price of silver fell sharply, and the price of silver collapsed.
March 27, 1980 was called "Silver Thursday" in the futures industry. Silver futures, which were operating at a high level just a few days ago, actually fell to a low of $ 10 on March 27. The Federal Reserve and major US businesses The bank went to great lengths to bring the price of silver to a temporary halt after falling to $ 10.82 an ounce, and the violent silver crisis came to an end. After 1981, with the expansion of silver output, silver futures and spot prices continued to fall, and did not rise again until the beginning of this century.

4. The period of contemporary steady growth. <br /> Since 1990, the world's total silver inventory has fallen by 74%, and silver inventory has reached a historical low. Although silver consumption is still generally low, silver consumption has generally increased over the past 10 years. In general, the total output of global mineral silver may increase at some time in the future, but this will have to wait for some large new minerals to fully reach production or new silver mines to be put into use. As global mineral silver production will not increase for the time being, and the demand for silver in various industries in the world is still steadily increasing, this provides fundamental support for the continued bullishness of the silver market in the future. With the development of the economy, the demand for silver manufacturing is slowly increasing, and the amount of silver used in electrical, electronics, welding alloys and solders, jewelry and silver products, silver coins and medals will increase.

In 2002, the price of silver rose again and started a new round of bull market. The flood of liquidity in the financial market and the need for risk aversion triggered by the financial crisis have increased the market's demand for precious metals, the price of gold has soared, and silver has also risen rapidly. Because the price of silver is much cheaper than that of gold? Its price fluctuations are also more severe. On April 28, 2011, under the influence of the European debt crisis, the price of silver quickly climbed to a 30-year high of $ 49.44 per ounce? It was close to the historical high of the last bull market and almost doubled in 5 months. This is a 9-fold increase from 1902.

Historically, commodity prices have fluctuated for a large period of about 30 years. Silver basically went through a cycle from the previous bull market high of $ 49.45 in 1980 to $ 48.44 in 2011. At present, silver prices are mainly supported by two aspects. First, with the development of the world economy, silver has become more and more widely used in the industrial field. Second, with the increase of silver investment products, in the context of the overall turbulence of the financial market, silver Investment demand has become an important factor affecting prices.

Silver has always been the "shadow" of gold, but it is different from gold. Although silver has the properties of precious metals, its main use is still reflected in industry. The international silver market has been in oversupply since 2007. World Silver Association data show that the total global silver supply in 2012 was 1.048 billion ounces, an increase of 8.9 million ounces from 2011. Among them, the output of ore increased to 787 million ounces, an increase of 3.8% over 2011, mainly from the output of lead and zinc ore by-products. The supply of major silver mines increased by 1% year-on-year, accounting for 28% of global silver mine output. Among them, China's total silver output has ranked first in the world. Over the past decade, China

Silver has the triple attributes of currency attributes, investment attributes, and commodity attributes. This also determines that the driving factors for silver prices will be complex and diverse. In addition to the two major factors of supply and demand, the price of silver is also affected by the four major drivers of geopolitics, economy, finance, and physical silver supply.

The influence of geopolitical factors on silver prices is the most direct and obvious. It is the factors that silver short-term investors must pay attention to and analyze. Major political events in the world, wars in important countries, major emergencies, and adjustments in core national security strategies will all have a great impact on the price of gold, which will largely affect the operation of silver prices.

Geopolitical instability will affect the attractiveness of credit currencies, and thus the price of gold and silver. In times of economic and political turmoil, the creditworthiness of credit currencies will be affected to varying degrees, which will change the attractiveness of credit currencies, and market funds will flow into commodity markets and safe-haven markets in large quantities. Function, as a limited commodity resource, is the ideal destination for capital flow in this case.

The monetary attributes of silver make silver follow the price fluctuations of gold in terms of hedging attributes, while the commodity attributes of silver make silver often follow the price fluctuations of crude oil, which is the representative of commodities. Oil is the blood of the modern economy, and turbulence in oil prices will cause hyperinflation and economic stagnation. The geopolitical factor is the most powerful promoter of crude oil prices, because it directly affects the supply and demand of crude oil, and it has a more significant impact on the original supply and demand than natural climate or other human factors. Every time the international political situation fluctuates and the price of oil soars, it is an opportunity for silver prices to rise sharply, and it is also a rare "turbulent world" speculation opportunity for silver investors.

The price of silver is affected by economic factors, in fact, it is the effect of economic stability on the price of silver. Economic factors affect the price of silver second only to geopolitical factors, and are also factors that silver investors need to pay attention to every day. Economic stability and geopolitics are two opposing factors. The foundation of economic growth is geopolitical stability. Geopolitics are derived from the economy and harness the power of economic growth. The economy provides momentum, and politics provides stability.

Most people will simply think that the economy is booming, silver will rise, otherwise the economy will be depressed, and silver will fall. This is one-sided. This view only sees the commodity attributes of silver and completely ignores the monetary attributes of silver. When the economic development is overheating, investors are worried about inflation at this time, and the large amount of buying gold and silver to hedge against the risk of inflation has greatly increased the capital stock and inflow of the silver market, and also caused the price of gold and silver to rise. momentum.

When the economy is in recession, the government will gradually lower interest rates in order to stimulate the economy, and then inflation will occur. If inflation is severe, the inherent stability and anti-inflation capacity of silver will be prominent. As a good means of value preservation, investment People have been buying silver, so there will be a rise or even a surge. Among them , the quality of the US economic data has an important impact on the changes in gold and silver prices. As the world currency, the US dollar is directly related to the economic structure of the world, and gold and silver are no exception. The economic data of the United States is a cyclical factor that foreign exchange and gold and silver markets focus on daily. It has a short-term impact on foreign exchange and gold and silver prices. When some important data (employment data, double deficits) are abnormal, they may even Continue to affect the price trend of gold and silver in a certain period of time.

Global financial factors are important factors influencing the price of silver. The priority of influence is only economic factors, but the impact is more sustainable. It is a factor that mid-line investors must grasp and analyze thoroughly. Among them, the change in fund holdings is a content that investors need to focus on. The silver ETF of IShares Silver Trust (SLV), a subsidiary of Barclays Capital, the largest silver ETF in the world, can be used as a good example of the silver fund's position in the world. The change in its silver holdings often has a good guiding effect on the medium-term trend of silver prices. Investors can judge the reference of the medium-term trend in the market based on the changes in its holdings.

Compared with geopolitical factors, economic factors, and financial factors, the use of silver supply and demand factors has the lowest priority on the price of silver, but the long-term impact is high. It is a factor that silver long-term investors must grasp. The investment attribute determines the short-term and medium-term trend of silver price, while the commodity attribute of silver, that is, the supply of silver in the world, determines the long-term trend of silver price.

As we all know, commodity prices are determined by market supply and demand. When the supply exceeds the demand, the price will rise; if the supply exceeds the demand, the price will fall. As a precious metal commodity, silver's long-term trend is also determined by supply and demand. If the output of silver increases sharply, there will be downside risks to silver prices; conversely, if demand for silver increases or is expected to increase, silver prices will be supported by long-term upwards.

Summary of important economic indicators affecting spot silver prices

Fundamental factors affecting spot silver prices include international economic, political, military and other aspects. Among them, the influencing factors of the international economy are particularly important, and the US economic indicators are generally used as a reference. Today, I compiled a summary of important economic indicators that affect the price of spot silver for you.

Non-agricultural employment. The decrease in non-agricultural values indicates that the economy has entered a depression. Enterprises reduce production. A bearish dollar is good for spot silver; otherwise it is good for blank silver.

US Current Account. The current account deficit widened and the country's currency depreciated. Bearish on the dollar. Good for spot silver; vice versa.

US trade deficit. If the trade deficit widens and imports exceed exports, it will be negative for the US dollar, which will benefit spot silver; otherwise, it will be negative for spot silver.

CPI (Consumer Price Index). CPI rises, but economic growth is slow. When inflation rises and the need for market preservation increases, spot silver will rise sharply because of anti-inflation and appreciation.

unemployment rate. The decline in the unemployment rate represents the healthy development of the overall economy, which is positive for the US dollar and negative for spot silver; otherwise, it is more silver.

New home sales. If the increase in sales volume is lower than expected, it will be positive for the US dollar and negative for spot silver; and vice versa.

Durable goods orders. If the data increases, it means that the manufacturing situation has improved, which is positive for the US dollar and negative for spot silver; and vice versa.

Michigan Consumer Confidence Index. Consumer confidence is rising, and consumption is expected to increase. The Federal Reserve will raise interest rates, which will be positive for the US dollar and negative for spot silver; otherwise, it will be positive for silver.

Gross domestic product (GDP). Generally, higher GDP means better economic development, interest rates tend to rise, exchange rates will become stronger, and silver prices will become weaker.

Industrial Production Index. If the index rises, it means that the economy is improving, and interest rates may increase. It should be bullish for the US dollar and bearish for spot silver; otherwise, it is bullish.

Purchasing Manager Index (PMI). PMI often uses 50% as the demarcation point of economic strength: above 50%, it is interpreted as a signal of economic expansion. The US dollar is bullish on spot silver; if it is less than 50%, it is bullish on silver.

Durable goods orders. If the data increases, it indicates that the manufacturing situation has improved, which is positive for the US dollar and negative for spot silver; otherwise, it is bullish silver.

Employment report. The lower unemployment rate or the increase in non-agricultural employment indicates that the economy is improving and interest rates may rise, which is good for the US dollar and bears on silver; otherwise it is bullish on silver.

Producer Price Index (PPI). For the US dollar, the rise in PPI is mostly biased toward the US dollar, which is bearish on silver and vice versa.

Retail sales index. If the index rises, it represents an increase in personal consumption expenditure, and the economic situation improves. If the expected interest rate rises, it will be good for the US dollar, and will be negative for spot silver;

Energy inventory and utilization. If the energy inventory decreases, the price will rise, which will be bullish for spot silver; if the energy utilization rate in the United States is good, the dollar will be bullish for bearish silver. ^[1]

At present, domestic silver prices are basically based on silver in the US market and converted into RMB.

Suppose the international spot silver price is $ 30 / ounce. That is to divide 30 by 31.1 (conversion of ounces to grams), multiply by 6.2 (the exchange rate of the US dollar to the yuan) to get yuan / gram, and then multiply by 1,000 to obtain the domestic spot silver price.

The price of silver T + D products traded on the Shanghai Gold Exchange is higher than domestic spot silver because the price of silver T + D is tax-included, which is higher than the spot price of silver, so the issue of price difference must be considered. And the spread is different at different stages. This spread brings arbitrage opportunities for silver T + D and spot silver.