The silver price spiked at the start of September, approaching its highest level in a month, but it failed to hold onto its gains and quickly slipped back.
Silver traded up from $23.84 on 2 September to $24.80 on 6 September, but it was back to the $23.80 level ten days later.
The metal reached an eight-year high in February 2021, hitting the $30 per ounce level for the first time since 2013, but the commodity has struggled to find support since. The price fell sharply in June and again in August, as the US Federal Reserve (Fed) indicated that it could begin tapering its monetary stimulus measures by the end of the year. The silver price has fallen by around 14.5% year-to-date, having lost 6.3% in August alone, to trade around the $23 per ounce level at the time of writing, 17 September.
What has prevented the metal’s price from breaking out despite the continued economic uncertainty that would typically be expected to lift precious metal prices? What are the main drivers for the market and what is the outlook for the rest of the year?
Current silver price and major drivers
As with gold, the silver market is widely seen as a safe haven investment that acts as a portfolio hedge against economic uncertainty or weakness. By holding commodities like precious metals, investors can hedge their portfolio against a drop in the value of stocks and bonds, as can happen during a recession. Silver is a store of value and has been used to make physical coins throughout history.
The silver price initially dropped in March 2020 as investors sold off assets and liquidated positions to fill margin calls. But the market quickly rebounded as safe haven demand for silver took over following the uncertainty that arose at the start of the COVID-19 pandemic. The metal more than doubled from around $12.10 in March to reach $29.77 in August 2020, then slipped back to $21.90 in November when the first vaccines were announced, prompting optimism about the prospects for an economic recovery from worldwide shutdowns. Overall, silver gained an average of 47% in 2020 on the increase in demand from investors along with disruptions to supply as some silver mines were closed during COVID-19 lockdowns.
Silver spiked again in February, as retail investors piled into the market, expecting the price to move up in response to rising inflation following economic stimulus packages issued to encourage recovery from the pandemic. But expectations of global recovery and concerns about the result of monetary tightening from the US and other central banks have limited gains in 2021. The meeting of the US Federal Open Market Committee (FOMC) in June weighed on precious metals prices as the central bank indicated a more hawkish stance than the market expected on the potential for lifting interest rates.
This makes investing in silver an important way for investors to manage their portfolio in light of macroeconomic factors that affect the performance of the global economy.