The silver price surged last year, buoyed by worldwide political concerns such as Brexit and proposed policies from US Donald President Trump. Since then, the white metal has continued to trend upward — during Q1 2017 it rose roughly 9 percent.
Because of that positive price activity, many silver-focused investors believe that the precious metal‘s price could rise even higher this year. Experts are also optimistic, and as a result some market watchers are beginning to ask themselves, “what was the highest price for silver?”
The answer to that question reveals how much potential there is for the silver price to rise. Read on for a brief overview of how the silver price has moved in the past, and what that could mean for the future.
How is silver traded?
Before answering the question “what was the highest price for silver?” it’s worth looking at how silver is traded. Knowing the mechanics behind how the metal changes hands can be useful in understanding why and how its price changes.
Put simply, silver is traded in dollars and cents per ounce, with market activity taking place worldwide at all hours of the day. Key commodities markets like New York, London and Hong Kong are just a few locations where investors trade the metal. London is the center of physical silver trade, while the COMEX division of the New York Mercantile Exchange, or NYMEX, is where most paper trading is done.
Physical silver is sold on the spot market, meaning that buyers pay a specific price for the metal and then have it delivered immediately. Paper trading is done via the futures market, with participants agreeing for the delivery of silver in the future at an agreed-upon price. In such contracts, two positions can be taken: a long position to accept delivery of the metal, or a short position to provide delivery of the metal.
Paper trading might sound like a strange route to take, but it can provide investors with flexibility that they wouldn’t get from buying and selling physical silver. The most obvious advantage is perhaps the fact that trading in the paper markets means market participants can benefit from holding silver without needing to store it. Furthermore, futures trading can offer more financial leverage in that it requires less capital than trading in the physical market.
Historical silver price action
In terms of historical price action, silver hit $48.70 per ounce, its highest price ever, towards the end of the 1970s. However, it didn’t exactly reach that level by honest means — as Investopedia explains, the metal’s rise was driven by the Hunt brothers, two wealthy traders who attempted to corner the market by buying not only physical silver, but also silver futures; they then took delivery of that silver instead of taking cash settlements. Their exploits ultimately in disaster: on March 27, 1980, they missed a margin call and the silver price plunged to $11.
Interestingly, despite that price action, silver’s highest average annual price didn’t come until 2011, when it hit $35.12. The rise came on the back of very strong silver investment demand, and was more than double the 2009 average silver price of $14.67. 2011 was also the year that silver hit its highest price in recent years. The below chart from Kitco spans from the start of January 2011 to mid-March 2017, and shows that the silver price reached $47.94 in April 2011.
Chart via Kitco.
Like other commodities, silver’s price is most heavily influenced by supply and demand dynamics. However, as the stats above illustrate, the silver price can be very volatile. That is partially due to the fact that the metal is subject to both investment and industrial demand. In other words, it’s bought by investors interested in using it as a store of wealth as well as by manufacturers looking to use it for different applications. Those applications are incredibly varied — silver has diverse technological applications and is used in devices like batteries and catalysts, but it’s also used in medicine and in the automotive industry.
Looking at supply, in 2016, the world’s three top producers of the metal were Mexico, Peru and China. Interestingly, even in those countries the white metal is usually produced as a by-product — for instance, a mine producing primarily gold might also have silver output.
Beware silver price manipulation
As a final note on the silver price, it’s important for investors to be aware that price manipulation is a major issue in the space. JPMorgan Chase (NYSE:JPM) was long at the center of such claims, though the case against it was dismissed in 2014.
More recently, after 10 banks were hit in a US probe on precious metals manipulation in 2015, evidence provided by Deutsche Bank (NYSE:DB), showed “smoking gun” proof that UBS Group (NYSE:UBS), HSBC Holdings (NYSE:HSBC), the Bank of Nova Scotia (NYSE:BNS) and other firms were involved in rigging the silver market from 2007 to 2013.
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While that might sound disheartening, key industry figures like silver guru David Morgan have emphasized that in reality the silver market is no more manipulated than any other market. Furthermore, in 2014, the London Silver Market Fixing stopped administering the London silver fix, which had been used for over a century to fix the price of silver. It was replaced by the LBMA Silver Price, which is run by the LBMA, CME Group (NASDAQ:CME) and Thomson Reuters (TSX:TRI,NYSE:TRI), in a bid to increase market transparency.
While there’s a concrete answer to the question “what was the highest price for silver,” it’s anyone’s guess whether it will reach those heights once again. Investors will no doubt be watching to see how the metal fares for the rest of 2017 and beyond.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.