Silver – How Today's Market Differs from the Past
Silver is an interesting commodity that has in the past been used as both a precious metal and a key component for industrial use. While it sometimes comes in the shadow of gold, silver is more relevant than ever, due to the factors explored in this article.
First, Some Background
In the 1970s, two brothers from the US, Nelson and William Hunt managed to acquire one-third of the available silver not owned by the government, which caused a spike in silver prices. When the brothers ran out of money to continue buying physical silver, they turned to the futures market, which enabled them to further increase prices. In two years, they managed to drive the silver market from 6 USD/oz to 48 USD/oz—a historical price movement that would not last long. When new restrictions came into place, limiting the brothers’ ability to continue purchasing futures contracts due to margin limits, it put a stop to the increase in demand and led to falling prices. As a result, the brothers received margin calls on their futures investments, which essentially meant that they needed to replenish the balances for the incurred losses. Due to their heavy investments in both physical silver and futures contracts, they were unable to pay the margin calls, which ultimately led to their bankruptcy. The collapse of the silver market on January 18, 1980, is referred to as Silver Thursday, and from that moment, it would take multiple decades before prices returned to the inflated highs—though for different reasons.
The second time around, the silver market saw a price spike in 2011. Due to the Quantitative Easing programs implemented by the U.S. in both 2008 and 2010, the U.S. dollar was weakening, and investors feared that excessive money printing would lead to higher inflation, driving the demand for silver and gold as inflation hedges. Moreover, markets saw an increasing industrial demand for silver and a solar industry boom in China that caused prices to increase. In combination with this, supply was tight in comparison to the rising demand. However, similar to the crash in the 1980s, margin requirements increased, which caused many investors to be forced into liquidations, leading to a crash in the silver market.
Returning to the Present Day
Today, even more than in 2011, silver plays a crucial role in industrial applications. It is used in solid-state batteries, solar panels, and medical instruments, with robotics emerging as a new driver of demand. As automation expands across industries—from home cleaning devices to autonomous mining equipment—the need for advanced batteries will grow. Silver, a key component in solid-state battery technology, is set to benefit from this trend, making its market dynamics increasingly relevant.
Compared to the silver price spikes of the 1970s and 2011, today’s market faces new challenges. Global inventories have been declining, while strict environmental regulations delay new mining projects. In combination with supply constraint the rising demand puts greater pressure on the limited availability. Unlike the previous spikes in price, today’s silver market is shaped by structural demand from key industries, further intensifying pressure on limited supply.
With constrained supply and rising industrial demand, silver is more vulnerable to price volatility than before. A sudden request for large physical delivery could trigger a short squeeze, sending prices higher. Without significant central reserves to intervene and stabilize the market, silver’s price movements could become increasingly unpredictable, creating opportunities in both the short and long term.
Risks
Investors in the products are exposed to the risk that the Issuer or the Guarantor may not be able to meet its obligations under the products. A total loss of the invested capital is possible. The products are not subject to any deposit protection.
If the product currency differs from the currency of the underlying asset, the value of a product will also depend on the exchange rate between the respective currencies. As a result, the value of a product can fluctuate significantly.
The value of the products can fall significantly below the purchase price due to changes in market factors, especially if the value of the underlying asset falls. The products are not capital-protected
Product and possible financing costs reduce the value of the products.