Value and History of Silver Bars

Silver has always carried significant value, but it has a long and storied history that has caused notable fluctuations in its price. If you’re thinking about investing in silver bars, it’s important to understand the factors that can cause silver prices to fluctuate. With the right knowledge, you can make savvy moves that will improve your investment profile.

How Has the Value of a Silver Bar Changed Over Time?

Silver has always been prized as a fine metal, but its value and uses have changed over time. The United States originally operated off of a silver standard. The Coinage Act of 1792 defined the dollar relative to silver by establishing the silver dollar as the country’s monetary unit. For the first 40 years of its existence, the country was bimetallic, using both silver and gold. Thus, the value of a silver bar was tied to the value of gold and American currency. [1]

Losing the Silver Standard

In 1873, Germany traded the silver standard for the gold standard, dropping 7.1 million pounds of silver onto the market from 1873 to 1879. This created a supply glut in a market that already had a great deal of silver. At that point, the world’s silver mines had an annual output of 80 million ounces. This was nearly double the output seen at the beginning of the century. [2]

Other countries soon followed suit behind Germany, demonetizing silver. The Coinage Act of 1873, signed by President Ulysses S. Grant, demonetized silver and halted the production of silver dollars. It also limited the legal tender of smaller silver coins to five dollars. The value of a silver bar dropped significantly as a result. [2]

The Gold Standard Act of 1900 established gold as the only metal redeemable for paper currency. The gold standard reigned internationally for several years. However, after World War I, it was widely recognized that the gold exchange standard created problems with deflation and unemployment. A transition to fiat currencies began instead. [5]

A Shortage of Silver

In 1959, the global demand for silver outpaced production. The U.S. Treasury sold silver into the market to keep prices low and soon became the largest seller of silver in the world. In 1961, the global value of silver rose above the legal limit that the treasury could sell it for. There was a surge in demand as buyers rushed to purchase silver at below-market prices.

President John F. Kennedy stopped government silver sales and retired $5 and $10 silver certificates, eliminating the cap on silver prices. As silver prices continued to rise, those who held silver certificates were able to redeem them for a profit. The U.S. Treasury ran out of silver coins and began exchanging these certificates for bags of silver granules.

In 1968, the government determined that silver certificates were no longer redeemable for this precious metal. The certificates were exchanged for Federal Reserve Notes instead. At this time, silver demand had increased by an average of 16% annually, while production rose by only 2%. [3]

Closing the Gap

By 1980, the gap between silver demand and production finally closed. The value of silver dropped from $50.35 an ounce in January of that year to just $15.80 per ounce in March. Though silver prices increased again in the wake of the 2008 Global Financial Crisis, it hit just $20.92 an ounce, which was far below its previous peak. In 2011, another jump saw silver prices hit $48.70 in response to the debt crisis in the United States and Europe. [4]

In the years since, the demand for silver has fluctuated, though it has followed an overall downward trend. Investors should keep a close eye on supply and demand for this precious metal to best anticipate future spikes in value. [7]

How Does the Value of a Silver Bar Compare to the Value of a Gold Bar?

The prices of gold and silver bars follow similar trends, but gold is more expensive than silver. The gold-to-silver ratio demonstrates the current difference between the values of gold and silver. If there is a gold-to-silver ratio of 30-to-1, for example, it would take 30 ounces of silver to purchase one ounce of gold. Prior to 1900, the ratio was typically around 16. Throughout the 20th century, it fluctuated widely, averaging somewhere between 47 and 50. [6]

As of August 2020, the ratio was 68.47, which was a drop from a peak of 114.77 in April 2020. In years prior, the gold-to-silver ratio rose steadily from a low point of 31.60 in April 2011. [7]

Comparing the availability of silver to gold is complex. On earth, it’s estimated that there’s about 19 times more silver in the ground than gold. The mining ratio of gold to silver is about 1-to-9. However, there are just 71,578 tons of identifiable above-ground silver stocks compared to 187,200 tons of identifiable above-ground gold stocks. This leaves plenty of room for potential fluctuations between the values of gold and silver in the future. [8]

What Factors Drive Someone to Invest in a Silver Bar vs. Coins?

Silver coins are popular among both collectors and investors. They feature designs that are as intricate as any artwork, adding to the intrigue of this investment. However, silver bars have many advantages for those whose priority is financial management, such as getting more silver for less money.

Silver coins have a higher premium over spot value than bars. The rarity of a particular coin may drive the price extremely high in comparison to the value of the silver itself. If you’re interested in investing in this precious metal at the lowest premium, silver bars may be the best choice.

Though silver coins are stamped with a legal tender face value, the silver contained in the coins is worth far more. The advantage would only turn in the coin’s favor if the value of silver dropped dramatically to a point below the face value of that coinage.

If you make your investment choices mindfully, you can enjoy great value from silver bars. This is a purchase that should retain its worth long into the future.


Article Sources

1. Investopedia. ‘Bimetallic Standard,’ https://www.investopedia.com/terms/b/bimetallic.asp. Accessed October 23, 2020.

2. Hillsdale College. ‘The Rise and Fall of the Gold Standard in the United States,’ https://www.hillsdale.edu/wp-content/uploads/2016/02/FMF-2012-The-Rise-and-Fall-of-the-Gold-Standard.pdf. Accessed October 23, 2020.

3. U.S. Department of the Treasury. ‘Resource Center,’ https://www.treasury.gov/resource-center/faqs/currency/pages/edu_faq_currency_sales.aspx. Accessed October 23, 2020.

4. Macrotrends. ‘Silver Prices – 100 Year Historical Chart,’ https://www.macrotrends.net/1470/historical-silver-prices-100-year-chart. Accessed October 23, 2020.

5. The Balance. ‘History of the Gold Standard,’ https://www.thebalance.com/what-is-the-history-of-the-gold-standard-3306136. Accessed September 8, 2020.

6. Investopedia. ‘A Historical Guide to the Gold-Silver Ratio,’ https://www.investopedia.com/articles/investing/080316/historical-guide-goldsilver-ratio.asp. Accessed Octoer 23, 2020.

7. Macrotrends. ‘Gold to Silver Ratio – 100 Year Historical Chart,’ https://www.macrotrends.net/1441/gold-to-silver-ratio. Accessed September 8, 2020.

8. Sprott. ‘World Silver Survey 2019,’ https://www.sprott.com/media/2268/world-silver-survey-2019.pdf. Accessed October 23, 2020.