The spot price of silver per ounce as of the beginning of February is around $27/oz. The metal retracted from a fluctuation up to $30 as a result of what many investors claim is the next GameStop. GameStop's share price reached an all-time high following investing advice by r/WallStreetBets, a group on the social media platform Reddit. There has been increased interest and talk about investing in the metal by accumulating it in physical form, i.e. buying silver coins and silver bars. Many experts believe the same group of Reddit users are responsible for the #silversqueeze trend on Twitter that is encouraging the public to invest in silver. But is this trend here to stay?
Silver prices have remained static for most of history, with the exception of a surge in spot prices during the economic difficulties in the 1970s and the Financial Crisis of 2007-2008. The recent increase in price per ounce of silver definitely made heads turn out of sheer surprise. Rest assured, many experts have deemed this to be a continuous trend after extensive analysis of the demand for silver.
Keeping in mind the global challenges COVID-19 has brought, it is predicted that the demand for silver will increase to cater to the medical industry. Silver is key for sanitation purposes because of its powerful antibacterial properties. Moreover, silver biocides are used in hospital water systems, furniture, and to protect against bacteria and other illnesses. In addition, it is still used with surgical sutures and to cure ulcers. This is particularly important during the coronavirus pandemic, where hospitals are being used now more than ever. So, it’s fair to assume increased demand, especially with more innovations in the industry will be a force that could push the price of silver upwards.
In classic economic jargon, the Federal Reserve has implemented average inflation targeting while allowing inflation rates to flutter above target for some time. This decreases real interest rates and, due to the negative correlation between silver and real interest rates, the price of silver should increase accordingly.
Following this, basic market supply and demand come into play as well. An increase in price generally leads to increased demand for the said product. In the case of silver, with ever-increasing demand, cuts in supply have also occurred. This is because mines were shut down and production delayed due to the coronavirus lockdowns. This too accounts for why the silver price should continue to go up.
Finally, further technological advancement requiring silver is predicted to push the demand further up. For example, an increase in demand for smart homes that use silver bonding wires in China, production of stainless steel household items, and a steady rise in the use of solar panels is observed globally.
Thus, the above-mentioned reasons should be considered when investing in physical silver bars and coins.