The price of silver (XAG/USD) held its ground after retreating from a fresh record high of $53.77, currently trading around $52.40 per troy ounce during European hours on Tuesday. Silver prices rose due to a historic short squeeze in London due to increased demand for safe-haven assets.
According to a Bloomberg report, the price of the gray metal rose amid growing concerns over liquidity shortages in London, prompting some traders to secure cargo space on transatlantic flights for silver bars, an unusually expensive transportation method usually reserved for gold, to take advantage of higher prices in the London market.
Meanwhile, silver in India is trading at a significant premium compared to global prices, facing increased domestic demand from millions of investors. Premiums have soared as much as 10% above international rates, causing physically backed exchange-traded funds to freeze new subscriptions. Meanwhile, jewelers are struggling to keep up with the strong festive demand ahead of Diwali.
Safe-haven demand for silver has increased amid United States (US)-China trade tensions. The United States (US) and China decided to impose additional port charges on ocean shipping companies. The US is scheduled to start collecting fees from Tuesday.
China also began collecting a special tax on US-owned, operated, built or flagged ships, but said Chinese-built ships would be exempt from the levy. However, China’s commerce ministry said in a statement Tuesday that Beijing “hopes to resolve concerns through dialogue.”
Silver FAQ
Silver is a precious metal that is highly traded among investors. Historically it has been used as a store of value and medium of exchange. Although less popular than gold, traders may turn to silver to diversify their investment portfolios, for its intrinsic value, or as a potential hedge during high inflation periods. Investors can purchase physical silver in coins or bars, or trade it through vehicles such as exchange traded funds, which track its price in international markets.
Silver prices may increase due to many factors. Geopolitical instability or fears of a deep recession may cause the price of silver to rise due to its safe-haven status, although to a lesser extent than gold. As a yield asset, silver tends to rise with low interest rates. Its movement also depends on how the US dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong dollar keeps the price of silver in check, while a weak dollar will likely push prices higher. Other factors such as investment demand, mining supply – silver is much more abundant than gold – and recycling rates can also influence prices.
Silver is widely used in industry, especially in areas such as electronics or solar energy, because it has the highest electrical conductivity of all metals – even higher than copper and gold. An increase in demand can cause prices to rise, while a decline can cause prices to decrease. Dynamics in the US, Chinese and Indian economies can also contribute to price fluctuations: for the US and especially China, their large industrial sectors use silver in a variety of processes; In India, consumer demand for the precious metal for jewelery also plays an important role in determining prices.
Silver prices follow the movement of gold. When gold prices rise, silver usually follows, as they have the same status as a safe-haven asset. The gold/silver ratio, which shows the number of ounces of silver required to equal the value of one ounce of gold, can help determine the relative valuation between the two metals. Some investors may consider a high ratio as an indicator that silver is undervalued, or gold is overvalued. Conversely, a low ratio may indicate that gold is less valuable than silver.
