Since antiquity, silver has been revered for its beauty and usefulness. In modern times, it is still prized for these qualities, but it is also increasingly valued as an investment. The rare metal is now seen as a stable store of value and a hedge against inflation, as well as a vital commodity. However, before investing, it’s always wise to consider the long- and short-term outlook of its value.
Although the World Bank has yet to release its 2022 commodity price forecast, silver is expected to increase by roughly 2% to $18.62/oz. However, this increase may drop again by the end of 2023 to $17.52/oz, equating to a net 2% loss. Nevertheless, this makes silver a more viable investment option than stocks given the current volatility of inflation and interest rates.
Understanding Fluctuations in the Value of Silver
Compared to stocks, rare earth metals, such as silver, platinum, and gold, are seen as a safe haven by many investors. Since they are used in a number of industries, including electronics, jewelry, and photography, they’re seen as stable even during economic downturns. However, because they are physical commodities, their prices are subject to the same forces as other commodities, such as oil or corn.
When economic conditions are good, the demand for silver increases, but when times are tough, the demand decreases. This is because, unlike stocks or bonds, there’s no way to earn a return on your investment in silver other than to sell it at a higher value than the initial listing price. However, by holding onto the metal, investors can protect themselves from inflation.
Current Economic Trends Affecting the Value of Silver
2022 was a good year for silver mining, with production up nearly 2% to reach a height of 843.2 million ounces. This was due in large part to higher output from lead-zinc mines in China and Poland, as well as primary silver mines in Mexico and Peru. This growth is expected to continue in 2023, with some analysts predicting an increase to 1029 million ounces.
Others are a bit more skeptical, though, given the current sanctions against Russia—one of the largest silver producers in the world. Mining companies are currently struggling to export their production so, even though their output has increased, the silver remains stuck within Russia, unable to reach a global market.
However, China’s rapid increase in production may be able to bolster the silver market, making up for the loss in Russian exports. These factors are expected to help stabilize the price of silver in the coming years although it remains unseen whether the sanctions against Russian companies will stay in place in the long term.
Given the Current State of Inflation, Silver is a Smart Investment
Globally, markets and consumers are struggling with the rampant inflation caused by the COVID-19 pandemic and instability in fuel prices. The prices of basic goods and services have increased, while wages have remained stagnant. This has led to a decrease in purchasing power and a rise in the cost of living.
In order to protect themselves from inflation, many investors are turning to commodities such as silver. The rare metal is seen as a safe haven asset, due to its historic role as a store of value. In addition, silver is used in a number of industries, so it is seen as a hedge against economic downturns.
For these reasons, now may be a good time to invest in silver. The metal offers stability in an uncertain world and, although its price may fluctuate, it is expected to maintain its value in the long run and is far more stable than stocks, which have trended downward over the last year.
To invest, we recommend contacting a commodities broker to discuss your options and find the best way to get started.
The Bottom Line
With so much uncertainty in the market right now, it’s more important than ever to diversify your portfolio. Precious metals, such as silver, offer investors a way to protect themselves from inflation and economic downturns. Although the price of silver may fluctuate in the short term, it is expected to maintain its value over the long term, making it a smart investment for the future.
