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Silver Price: Historic Trends

On the 27th October 2010, silver was worth about £14.98 per troy ounce.

There was nothing particularly out of the ordinary about this silver price; it had been rising for about two years along with the gold price - as you’d expect from these precious metals during a time of economic uncertainty.

Six months later, the price shot up, largely in the space of just a few short weeks, to almost double that previous price, at £29.26 an ounce, or 195.33 per cent of its previous value. Two weeks later, on the 16th May, the spike was over. If you’d hadn’t sold your silver bullion at that point – you’d missed out; it was back down to £20.78 an ounce. The price continued to fall over the coming months and years, and some seven years later it is even cheaper than its 2010 value, at around £13.00.

The interesting thing about this particular episode isn’t so much that it spiked and crashed so quickly. Silver prices do have a reputation for being somewhat volatile, if not quite to this extent. It’s that there’s actually no verifiably, economically governed reason why the silver prices rose. For just a few short weeks, investors were spooked into thinking that the silver supply was far more limited than it actually was. Prices rose accordingly.

The more the silver price rose, the more people assumed that supply was constricted, further inflating the price, until one day everyone realised what was going on. Prices crashed by almost 30 per cent in two weeks and suddenly everything was just about back to normal again. The winners had won, the losers had lost, and thus, the game went back to normal.

Volatile silver prices

If gold is the steadfast, reliable life partner that sticks with you when times are tough, then silver is the casual holiday fling. Even though the value of silver is substantially less than that of gold, it is considered to be notably more volatile – as the episode in April 2011 proves.

To an extent, this volatility can be explained by circular reasoning. As we saw in the example, investors are jumpier because they expect silver to be more volatile, further increasing the volatility and thus, the jumpiness of the investors. The circle continues. But there are some logical reasons that explain this volatility as well.

By and large, silver is used to far greater an extent in industry than gold, meaning its demand changes depending on the shifting fortunes of industries like film, photography and electronics.

If this wasn’t enough to cause drastic fluctuations, silver’s supply is also erratic. It’s mined principally as a by-product of more common metals like copper, rather than as its own distinct entity. That means the fortunes of industries dependant on copper, such as housing, govern silver supply just as much as other industries govern its demand.

What has the silver price been historically?

Once upon a time, a physical pound of silver would cost you £1. Or to be more precise, it would cost you 240 silver pennies, which was the standard unit of currency after the unification of the English kingdoms in the 8th Century – 240 of these pennies weighed in at a pound.

‘One pound’ became shorthand for 240 pennies, which continued to be the standard unit of conversion between the two until Sterling was decimalised in the 20th Century.

You hear quite a lot about the gold standard in economics, but it was in fact the so called ‘silver standard’ upon which most world economies based their currency for many years. From the fall of the Byzantine Empire until the 19th Century, silver reigned supreme as the metal from which most world currency was minted. The simple reason for this was silver’s sheer levels of abundance – gold was simply too rare and valuable.

What’s the relationship between the silver price and the gold price?

As a general rule, the silver price roughly correlates to the gold price. There’s no defined ratio for this, but when gold rises, silver tends to follow suit. For this reason, rises in the silver price often occur in times of economic insecurity, while prices tend to stagnate or fall when the economy is doing well.

Prices for both gold and silver rose following the 2016 referendum on UK’s membership of the EU – just one example of how political uncertainty can have an effect on the value of precious metals.

So, should you look to buy silver?

Due to the volatility of the metal, silver has often been viewed with interest by investors who are more open to risk. It has the potential to reap high returns over a comparatively short period of time.

A downside to buying silver, however, is that it is not exempt from VAT charges in the same way as gold, so you’ll need to factor this into your investment plans.

Diversify your precious metals portfolio with silver bullion today.