Low silver prices have been the story of the month, with prices hitting four year lows this week. During Thursday’s trading, the spot price of silver per troy ounce hit $17.50, a level not seen since 2010. Many investors who buy physical precious metals have been wondering what is happening, speculating that perhaps the abandonment of the London silver price fix is pushing down prices. The true reasons, however, are much more simple.
Investors who buy silver electronically (usually as part of ETFs and other financial instruments) have lately been dumping precious metals, including silver and gold. The big sell-off is not because of worries of a silver price collapse, but mainly due to opportunity cost — with a strong dollar and an improving economy, investments like stocks and bonds are performing well, so money tied up in metals is being freed to fund these other types of profitable investments.
This phenomenon happens frequently, as the price of gold and silver often inversely follows the strength of currencies and economies. During times of inflation or economic trouble, investors move billions of dollars into precious metals as a hedge against inflation and asset collapse. This causes metals prices to soar during times when other investments, like stocks, often see their value plummet.
What do low silver prices mean for bullion investors?
Investors who buy physical silver differ from investors who invest in silver as a hedge and who, coincidentally, never take possession of the actual metal. People who buy physical gold and silver generally do so for long term wealth-storage and investment. Therefore, times of sinking gold and silver prices are great times to buy precious metals, in effect stocking up while the price is great. Despite the ups and downs of our cyclical economy, all precious metals have shown long-term price growth, and metals prices shall certainly skyrocket once the next economic or currency crises arrive.