Trading silver: Headwinds or Tailwinds Ahead?

February 02, 2023 13:43

Silver is one of the most popular commodities in the world of trading. Silver tends to hold its long-term value, and just like gold, it is likely to draw strength from a low-interest rate environment. While gold remains the number one commodity when it comes to traders’ preferences, silver could be an alternative for people who’d like to explore the commodities’ trading world.

In this blog, we will share with you some valuable information regarding trading silver and help you strengthen your knowledge of this commodity.

Some fun facts about silver

Few traders might know that the world’s first currency was made of silver more than forty centuries ago. According to archives found, thanks to archaeological research, ancient Egyptians described it as “white metal”. Some historians suggest that silver was even more expensive than gold in the Old Kingdom era. However, there are different opinions on the matter so silver’s price supremacy against gold back then should not be taken for granted.

Silver has been used in minting coins and bullion. However, silver can be used in many things, such as manufacturing solar panels and semiconductors as well as making jewellery and ornaments, to name a few.

Silver is found in nature combined with other metals. The largest silver mines in the world can be found in Mexico, China and Peru. Mexico is the top producing country, with experts expecting it to ramp up its mining activities in 2023, while Peru holds the largest reserves.

Silver spot prices and fluctuations

In general, silver spot prices per ounce are much lower than gold’s. On February 1st, an ounce of silver cost $23.56, while an ounce of gold cost $1,929. Even though gold spot prices draw investors and traders’ attention, silver could be an alternative option for people who’d like to diversify their trading portfolios.

Depicted: Admirals MetaTrader 5 - XAG/USD Monthly Chart captured on Feb 2nd 2023. Date Range: July 1st 2016 - February 2nd 2023. Past performance is not an indicator of future results.

Silver spot prices have experienced noteworthy fluctuations in the last 3 years. After hitting a two-year low on March 1st 2020, silver spot prices rallied, reaching a seven-year high at the beginning of August 2020. Although silver spot prices got a boost during the first quarter of 2022, the next few months saw the price of the precious metal slumping from $25.61 (Apr. 10th) to $18.03 (Aug. 28th) per ounce.

Depicted: Admirals MetaTrader 5 - XAG/USD Daily Chart captured on Feb 2nd 2023. Date Range: September 20th 2022-February 2nd 2023. Past performance is not an indicator of future results.

The fourth quarter of 2022 was beneficial for silver spot prices as they rose from $18.25 (Oct. 14th) to $28.89 (Dec. 29th). On February 2nd 2023, silver traded at $24.43 per ounce.

What do market analysts forecast regarding silver spot prices?

As industries have resumed operations after the pandemic era, the problem of insufficient supply of silver has become apparent. Speaking to CNBC, commodity analysts suggested that silver spot prices could hit $30 per ounce in 2023 on the back of commodity shortages. It should be noted that the last time silver spot prices reached the $30 per ounce mark was in February 2013.

The CBNC report said that the demand for silver is likely to grow by 15% in the next 5 years as the automotive and electronics industries are expected to increase production. A survey provided by the Silver Group trade group noted that the supply of silver from mine production in 2022 was 843.2 million ounces, quite lower than the decade’s peak of 900 million ounces in 2016.

However, some analysts express their concerns regarding the positive outlook. They note that a large share of silver demand is related to industrial output that could be influenced by recession fears. Therefore, they suggest that silver spot prices could fall to $18 per ounce if the US Federal Reserve continues to tighten its monetary policy and inflation decreases quicker than the market expects, especially if the US economy heads into a recession.

Risk management in trading is imperative

Knowledge is power when it comes to trading. Loss of capital is possible if the price of an asset deviates from your forecast. When you properly manage your risk, you take control of the amount of your money that may be lost on a trade or group of trades by putting a cap.

In order to plan a successful trading strategy, you should first familiarise yourself with the market. In addition, you need to know the risk management resources your broker offers and learn how to use them. Even if the worst-case scenario becomes reality, you can still mitigate your risk if you have a plan in place to deal with it.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.