The nature of the players should tell one all they really need to know about price discovery and a system that is corrupt through to the core. They have 24/7 access to a paper market that is a gamblers den, and a faint shadow of that which it is purported to represent: fair price discovery.
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Silver is a very ductile and malleable metal used for thousands of years for ornaments and utensils, for trade, and as the basis for many monetary systems. Its value as a precious metal was long considered second only to gold. In Ancient Egypt and Medieval Europe, it was often more valuable than gold.
Silver mining was a driving force in the settlement of western North America, with major booms for silver and associated minerals (primarily lead) in the galena ore silver is most commonly found in.
Notable "silver rushes" were in Colorado, Nevada, Cobalt, Ontario, California and the Kootenai region of British Columbia, notably in the Boundary and "Silvery Slocan". The largest silver ore deposits in the United States were discovered at the Comstock Lode in Virginia City, Nevada, in 1859.
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Technically silver is counted in precious metals category but it is more an industrial commodity. Like all metals, London Bullion Market is the global hub silver trading especially in OTC (Over-The-Counter) while the New York’s Comex Futures dominate the solver fund activity.
Silver is found in native form, combined with sulfur, arsenic, antimony, or chlorine and in various ores such as argentite (Ag2S) and horn silver (AgCl). The principal sources of silver are copper, copper-nickel, gold, lead and lead-zinc ores obtained from Canada, Cobalt, Ontario, Mexico, Peru, Australia and the United States.
This metal is also produced during the electrolytic refining of copper. Commercial grade fine silver is at least 99.9% pure silver and purities greater than 99.999% are available. Mexico is the world's largest silver producer. According to the Secretary of Economics of Mexico, it produced 80,120,000 troy ounces (2492 metric tons) in 2000, about 15% of the annual production of the world.
Silver is currently about 1/50th the price of gold by mass, and approximately 70 times more valuable than copper. Silver did once trade at 1/6th to 1/12th the price of gold, prior to the Age of Discovery and the discovery of great silver deposits in the Americas, most notably the vast Comstock Lode in Virginia City, Nevada, USA. The resulting debate over cheap Free Silver to benefit the agricultural sector was among the most prolonged and difficult in that country's history and dominated public discourse during the latter decades of the nineteenth century.
Over the last 100 years the price of silver and the gold/silver price ratio has fluctuated greatly due to competing industrial and store of value demands. In 1980 the silver price rose to an all-time high of US$49.45 per troy ounce. By December 2001 the price had fallen to US$4.15 per ounce, and in May 2006 it had risen back as high as US$15.21 per ounce.
According to U.S. Geological Survey, in 2007, silver prices averaged $13.40 per troy ounce, surpassing 2006’s average of $11.61, and rising to the highest average annual price since 1980. Prices rose to $15.47 in November 2007, which was more than 10% higher than the previous year’s high of $14.89 per troy ounce established in May 2006.
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The rise in silver prices corresponded to investment interest in the newly established silver exchange traded fund (ETF). The ETF was established in April 2006 and was modeled after the gold ETF that was started in 2003. Exports of silver rose dramatically in 2006 owing to movement of physical silver to the ETF inventory agency in London, United Kingdom. ETF inventories at the end of 2006 totaled 3,330 tons of silver and by the end of October 2007 had risen to 4,200 tons.
The demand for silver also continued to rise for fabrication and industrial applications. The use of high-purity silver for color paper in home and other color printers offset the losses to digital photography owing to weak film sales. Overall, the photographic use of silver was relatively stable. Silver is still used in X-ray films, and 99% of the silver in photographic wastewater may be recovered.
Use of silver to help regulate body heat and control odor in shoes and sports and everyday clothing is increasing. The use of trace amounts of silver in bandages for wound care and minor skin infections is also increasing. The deficit in world silver mine production as compared with world silver consumption was about 800 tons in 2007.
Increased production at new and existing mines in North America and South America, such as at the San Cristobal Mine in Bolivia, coupled with lower flow of silver into the ETF inventory, is likely to bring production and consumption for silver in 2008 into closer balance.
According to World Silver Survey 2008, total global silver fabrication grew 1 percent in 2007 to 843.7 Moz. Most notably, industrial applications, a key constituent of the overall demand complex, posted an impressive 7 percent gain to 455.3 Moz, recording the sixth consecutive year of growth in this category.
In fact, in the period since the technology related slump in 2001, industrial applications have added an impressive 120.1 Moz to silver demand. A key factor behind the increase last year was the more than 6 percent rise in the electrical and electronics sector, which broke the 200 Moz mark for the first time.
India, China and the United States accounted for 70 percent of the world rise in all industrial uses, while Germany, Italy and France also posted gains. Total industrial demand reached 54 percent of total global silver fabrication demand in 2007.
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Jewelry fabrication coped well with high and volatile silver prices, slipping by only 2 percent in 2007, the product of weaker offtake in Europe and the Indian Sub-Continent, which offset growth in East Asia, where Chinese jewelry fabrication grew by a noteworthy 13 percent in 2007. Silverware demand fell by a modest 4 percent in 2007 to 58.8 Moz, as losses in India, Europe and Mexico were partially countered by gains for Russia and China.
Photographic demand continued to decrease, falling by 11 percent in 2007 to 128.3 Moz. The bulk of the decline was accounted for by lower consumer demand for color film, this sector being most affected by further inroads from digital photography.
The survey further says that global silver mine production rose by 4 percent in 2007, with particularly solid gains from Chile, China and Mexico. Total silver mine production reached 670.6 Moz last year. Peru was the world’s biggest silver mining country in 2007, followed in the rankings by Mexico, China, Chile and Australia. Last year, silver generated at primary mines drove global totals higher, increasing by 11 percent to account for 30 percent of all silver mined. Cash costs at primary silver mines rose to a weighted average of US$1.52 per ounce, driven by a combination of labor, consumables and energy cost rises.
The net supply of silver from above-ground stocks dropped by 8 percent in 2007 to 173.1 Moz. The decline was mainly the product of lower net government sales and rising producer de-hedging, although scrap supply was also trimmed. De-hedging reduced the overall producer hedge position by a sizable 30 percent last year, the global book declining by 25.0 Moz. Despite higher silver prices, scrap volumes fell in 2007 by 3 percent, to 181.6 Moz, the result of falling Indian recycling with the rest of the world virtually flat on a net basis.
Net government sales took a steep downturn in 2007, plummeting by 46 percent to 42.3 Moz. The decline was the result of two major sellers in 2006, namely China and India, being essentially absent in 2007. In contrast, Russian government sales, which comprised the bulk of net sales in 2006, rose, partly offsetting the others declines.