Most investors wish they could gaze into a crystal ball to view the future performance of their stocks. Alas, even with recent strides in predictive technology, that reality is not in the near future for any of us. However, we can buy some “insurance” against a market downturn in the form of physical silver. According to MoneyMorning.com, silver prices have rallied this year, outperforming the Dow Jones Industrial Average by 24.4% and the Standard & Poor’s 500 by 25.4%. Indeed, the price of silver per ounce has also beaten gold growth by 7%. What accounts for these amazing accomplishments and how can owning silver provide a buffer during a down market?
What Influences the Price for an Ounce of Silver?
Currently there are a number of factors affecting how much an ounce of silver is worth. Some of these factors seem fairly obvious, such as the availability of silver from mining and scrap sources, demand for products such as coins or jewelry, and fluctuating U.S. interest rates. But other dynamics are also at play here, including silver’s role in renewable energy technology and its position as a “safe haven” investment.
The US Mint reports that the popular one ounce American Silver Eagle coin scored record high sales of 47 million units during 2015. That’s a 370% increase in sales since 2007. Silver sales are also increasing worldwide. The Perth Mint reported that during the first half of this year Australia’s silver market recorded gains of 165% over 2015. Consumer desire for silver products, especially jewelry, accounts for much of the reported gains. According to The Silver Institute, sales of silver jewelry in the US increased for the seventh straight year in 2015. Many jewelry retailers saw as much as a 15% increase in silver sales, and also experienced a rapid turnover in their inventory.
While silver has traditionally played a small role in the manufacture of electronics and related technologies, it is rapidly gaining ground in the area of renewable energy. Due to the superconductive qualities of silicon within the metal, silver plays a key role in the manufacture of photovoltaic cells, commonly used in solar panels. When sunlight reacts with the silicon it creates electricity. Manufacturers use 15 – 20 grams of silver per solar panel. In fact, The Silver Institute is predicting that almost 70 million ounces of silver will be utilized in this market alone in 2016, thus creating both a high market demand and an increase in the price of silver per ounce.
The metals market uses the Gold/Silver Ratio as one of the primary metrics to calculate the relative values of these metals against one another. The formula for this ratio is simple: divide the current gold price per ounce by the current price of silver per ounce. As noted in Money Morning last June, the ratio hit a high of 83 in March 2016, which meant that 83 ounces of silver was required to purchase one ounce of gold. That excessive ratio caused investors to wonder how much is silver worth? Fortunately, market history shows that when the price of silver per ounce reaches a multi-year extreme, it is usually followed by a market correction that provides an opportunity to make a tidy profit. Indeed, since the ratio reached its peak in March, it has tumbled about ten points, while at the same time the price of silver has swelled by nearly 13%. Money Morning Resource Specialist Peter Krauth, a precious metals specialist, predicts that the Gold/Silver Ratio will continue to fall throughout 2016, returning to a level not seen within the last eight years. A low Gold/Silver Ratio continues to be one of the most reliable gauges of silver’s continued positive performance this year.
The Federal Reserve
Commodities such as silver that are priced in US dollars profit from low interest rates. Why? Because high rates increase the dollar’s value, which makes dollar-valued metals more costly. Silver bullion becomes less affordable to investors using other currencies, thus lowering its desirability, reducing demand, and ultimately shrinking silver prices. The Fed’s failure to significantly increase interest rates at its recent quarterly meeting practically ensure that silver value will hold steady through 2016.
Silver as a Safe Haven
How much is an ounce of silver worth? That question can be answered from two different perspectives. We can calculate its monetary worth as discussed above, but we can also evaluate its effectiveness as a sort of “insurance policy” that smart investors include in their portfolios to protect against unforeseen declines in the Dow Jones or S&P 500. Physical silver is often categorized as a safe haven investment, which means that its value either increases or remains steady during periods when market performance is volatile. For example, during the period January/February 2016, the Dow Jones was down 6.2%, but silver’s worth climbed 7.8% during that same period.
Money Morning Tech Specialist Michael A. Robinson puts it this way: “I won’t sell my physical silver because it’s in my portfolio for a reason. Just like I insure my car, I insure my portfolio in case disaster hits.”
So How Much is Silver Worth?
Silver as an investment is worth its weight in…silver. And that means it is a solid, reliable investment, and a smart addition to your portfolio. The value of silver is on the rise as a component in the consumer realm, both in technology and luxury goods. In the global realm, silver remains a boon for US investors while the Fed keeps interest rates low. And from the perspective of a safe haven, silver can provide a protective hedge during periods of market volatility. Your investment advisor can provide you with the appropriate strategy for making silver work as “insurance” in your portfolio.