The role of silver on commodities markets

Silver, chemical symbol Ag, is the most reflective of all metals and the most conductive element on the planet. It has been valued as a precious metal for thousands of years and served as a currency standard in Europe for several centuries, preceding the adoption of gold in its place in the 19th century.

Today, the use of silver as a form of money - like that of gold - has long since passed into the pages of history. Nonetheless, the metal continues to play an important role on commodities markets, in part because it is so versatile - it can act as a hard asset and a store of value, but also has a multitude of industrial uses.

The amount of silver in existence

According to a United States Geological Survey, around 43 billion ounces of silver have been mined since prehistory to the present day, of which half was produced within the past seven or so decades. In the period up to the end of the 15th century, when major deposits were discovered in the Americas, the amount of silver mined worldwide is estimated at 7.6 billion ounces, while a further 15 billion ounces entered circulation between then and 1930.

Silver as a currency

Silver assumed a fixed value in Europe for around four hundred years before the adoption of gold standards, and later fiat currencies, in the 19th and 20th centuries. This has left its mark - according to Investopedia, no fewer than 14 languages worldwide still use synonymous terms for silver and money, while the British pound derives its name from the fact that it was originally worth a pound of silver.

In the early 18th century, however, Isaac Newton - then master of the Royal Mint - introduced a new ratio between silver and gold that effectively moved Britain onto its first, albeit de facto, gold standard. Formal adoption came in 1821 and other nations were to follow.

In the US, a bimetallic economic system - in which both gold and silver were legal tender - was used from the signing of the constitution up until the Civil War, when a fiat currency was temporarily introduced before the country moved onto a gold standard for the first time.

Major movements in value

After the US embraced a fiat currency in 1971, the values of both gold and silver increased as markets accepted the precious metals as commodities. Not long afterwards, silver saw its most significant movement in value when the Hunt brothers - the sons of a Texas oil tycoon - attempted to leverage their personal fortune to corner the market.

By 1979, the price of the metal per ounce had skyrocketed to $48.70, the majority of which it added in the second half of that year. However, this would prove to be short-lived: on March 27th 1980, a day that soon earned itself the moniker 'Silver Thursday', the brothers missed a margin call and the metal wiped most of its value, falling to under $11.

Factors that affect silver's performance

Today, silver's performance on commodities markets is governed by a range of factors, partially due to its unique nature as both a store of value and an industrial metal.

As a result of the former circumstance, silver tends to track the price of gold, rising and falling in tandem with that asset. However, the performance of the electronics industry - which relies on the metal for its high conductivity - also weighs on demand.

Finally, it is important to remember that much of the silver produced today is a byproduct of copper mining. As such, movements in the price of that commodity - which often come about as a result of peaks and troughs in construction activity - have an indirect bearing on the value of the precious metal.