THE VALUE OF SILVER
Silver is a popular investment that can find a place among other precious metals in nearly any well-rounded investment portfolio. As with any product, it’s critical for investors to evaluate the history of silver prices to best understand when it’s wise to invest in this metal and when it may be profitable to sell. Taking a closer look at the history of silver prices can yield some keen insights into how this metal earned its place of pride in modern society.
Factors Influencing Silver Prices
The price of silver has fluctuated dramatically throughout history. This precious metal was historically used for circulating coinage in many countries but has since been replaced. Today, silver bullion coins and collectible coins are available to those who want to invest in silver coinage, while bullion bars and rounds and paper silver offer an alternative for investors looking for lower premiums.
The value of all these investments fluctuates based on numerous factors, including:
Supply and demand: Mining companies may respond to price fluctuations by adjusting their output. As mines slow their operation in response to low prices, supply dwindles, which can cause demand to increase and reverse the trend.
Currency fluctuations: The demand for one currency over another can cause silver prices to fluctuate. When the value of paper currency drops, silver investments may provide more stable protection in an investor’s portfolio.
Inflation fears: Massive inflation, such as that which occurred in 1980, can suddenly drive prices to extreme highs. Those anticipating such inflation may have the opportunity to make wise purchases before prices move.
Geopolitical risks: Silver is a safe haven property that can help investors protect themselves against geopolitical risks. Increases in geopolitical risk are associated with increases in silver prices. [14]
Asset allocations: As some assets rise in price, others typically fall. Investors will usually try to adjust accordingly and maintain diversified asset allocation. Their moves can influence the prices of these assets.
The History of Silver Prices
Major historical events have spurred fluctuations in silver prices throughout history. The history of silver prices has been influenced by several critical occurrences which are worth reviewing for their significance in silver trends. These include:
1792: The Coinage Act of 1792, which established the U.S. Mint, defined the dollar relative to silver and established the silver dollar as the country’s national currency. It pinned the U.S. silver dollar’s value to the Spanish silver dollar. [6]
1834: The Coinage Act of 1834 diminished the role of silver by adjusting the silver-to-gold ratio from 15:1 to 16:1. This reduced the gold content for a dollar and began the shift from silver to gold as the country’s standard for currency. [7]
1864: The price of silver rose to $2.94 an ounce. [1]
1873: The Coinage Act of 1873 effectively demonetized silver. Silver prices fell rapidly as a result, and critics began to refer to the act as the ‘Crime of 1873.’ [2, 7]
1878: In an attempt to restore the United States to bimetallism, the Bland-Allison Act of 1878 ordered the Treasury to buy between $2 million and $4 million worth of silver from miners monthly. [2]
1890: The Sherman Silver Purchase Act required the U.S. government to purchase another 4.5 million ounces of silver bullion at the market price monthly. This increased the government’s silver purchase by over 50% a month. [2, 3]
1893: Congress repealed The Sherman Silver Purchase Act. [3]
1908: The Royal Canadian Mint began producing silver coinage. [8]
1932: Silver reached the lowest price per troy ounce in history, at just 25 cents an ounce as the United States faced the Great Depression. [1]
1934: The Roosevelt administration issued Executive Order 6814, which ordered the nationalization of silver and required citizens to turn over all privately owned silver bullion stocks to the U.S. Mint. All domestically mined silver was purchased by the government for 64.5 cents an ounce. [7]
1959: The Federal Reserve rationed silver coin allocations to member banks in response to a silver coin shortage. [9]
1965: President Lyndon Johnson signed the Coinage Act of 1965, which phased out 90% of silver circulated coins. He stated that ‘silver consumption is now more than double new silver production each year. So, in the face of this worldwide shortage of silver, and our rapidly growing need for coins, the only really prudent course was to reduce our dependence upon silver for making our coins.’ [10]
1968: The Royal Canadian Mint introduced cupro-nickel coins, as the cost of issuing silver coins superseded the value of silver at that time. [8]
1977: The last silver peso was minted. [11]
1980: On January 21, silver hit an all-time record high of around $50 an ounce. A number of commodities were achieving record high prices at the time, as gold and oil prices quadrupled, platinum prices quintupled and palladium prices increased six-fold. [13]
2008: The price of silver nearly doubled to $20 an ounce, likely spurred by the breaking financial crisis that year, in which the global banking system nearly collapsed. [4]
2009: A drop in price to around $10 an ounce created a surge in demand for the metal. [4]
2011: Silver made a historical climb to almost $50 an ounce, likely in response to the massive quantitative measures used to prop up the economy, which caused investors to become risk-averse. [4]
2020: In the wake of the coronavirus pandemic, the West Point Mint reduced its production of silver and gold coins. Due to social distancing and safety measures, the mint could no longer produce both gold and silver coins concurrently. The mint asked dealers to provide their 10-day and 90-day forecasts for demand to help them determine what products to make. [12]
Anyone interested in balancing their portfolio should consider the value and importance of precious metals. Silver is one of the most powerful of these, as its extraordinary history can attest. With silver’s storied past in mind, it’s helpful to look forward and watch for repeated trends which can point to the ideal time to invest in silver going forward.
Article Sources:
- ValueWalk. ‘Silver Price History,’ https://www.kitco.com/commentaries/2016-04-28/Gold-Silver-and-the-US-Dollar-1792-1971.html.. Accessed Octover 23, 2020.
- United States Mint. U.S. Mint History: The Crime of 1873 https://www.usmint.gov/news/inside-the-mint/mint-history-crime-of-1873. Accessed September 2, 2020.
- Britannica. The Sherman Antitrust Act, https://www.britannica.com/place/United-States/The-Sherman-Antitrust-Act#ref612938. Accessed September 2, 2020.
- Silverprice. Silver Price History, https://silverprice.org/silver-price-history.html. Accessed September 2, 2020.
- Investopedia. The Coinage Act of 1792, https://www.investopedia.com/terms/c/the-coinage-act-of-1972.asp. Accessed September 2, 2020.
- U.S. Money Reserve. 7 of the Most Important U.S. Coinage Acts, https://www.usmoneyreserve.com/blog/important-us-coinage-acts/. Accessed September 2, 2020.
- Medium. ‘How President Roosevelt Outlawed Private Gold and Silver Bullion Ownership,’ https://medium.com/@metalscom/how-president-roosevelt-outlawed-private-gold-and-silver-bullion-ownership-cefedc2994e7. Accessed October 23, 2020.
- Royal Canadian Mint. ‘The Royal Canadian Mint Currency Timeline,’ https://web.archive.org/web/20220126215746/https://www.mint.ca/store/dyn/PDFs/RollTimeline_e.pdf. Accessed October 23, 2020.
- Penn State Cite Seer X. ‘Federal Reserve Bulletin, February 1959,’ http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.366.1868&rep=rep1&type=pdf. Accessed October 23, 2020.
- The American Presidency Project. ‘Remarks at the Signing of the Coinage Act,’ https://www.presidency.ucsb.edu/documents/remarks-the-signing-the-coinage-act.. Accessed October 23, 2020.
- Currency History. ‘History of Mexican Peso,’ https://currency-history.info/history-of-mexican-peso/. Accessed October 23, 2020.
- Pittsburgh Post-Gazette. U.S. Mint reduces silver, gold coin supply to purchasers, https://www.post-gazette.com/business/money/2020/07/29/U-S-Mint-reduces-silver-gold-coin-supply-to-purchasers/stories/202007290052. Accessed September 2, 2020.
- ETF.com. ‘When Silver Was $50/oz: Three Years Later,’ https://www.etf.com/sections/features-and-news/5821-when-silver-was-50oz-three-years-later. Accessed October 23, 2020.
- Seeking Alpha. Certain Precious Metals Can Hedge Political Risks, https://seekingalpha.com/article/4364437-certain-precious-metals-can-hedge-political-risks. Accessed September 2, 2020.
