Silver Lining in the Silver Trade - Finding Out What Drives Silver Prices

Like all precious metals, silver is no different and can easily be used as an investment. For many centuries now, silver has been used as a common form of trading, and to store value. However, since silver has been taken off the silver standards, silver has lost its role as legal tender in the US, but continues to be traded as precious metal. Most investors only think about gold when discussing the topic of investing in precious metal, overlooking silver's cornerstone position in our industrial sectors.

For those who have been following the precious metal trade, you will see that silver is notoriously volatile and can swing wildly between industrial and store of value demands. This causes wide ranging valuations in the markets, and thus creating volatility. Perhaps this serves as one of the reasons why investors stay away from this trade? However, let us look beyond the vitality and seek the main component that makes silver so attractive.

The main demand of silver lies in the industrial sector and caters mostly to the production of electronic goods such as household electrical appliances and medical products. Silver has also found its way into new applications such as batteries, superconductors and micro circuits, which may further drive the up the demand.

We cannot argue that the demand for silver will continue to rise in the industrial sector due to the fact that silver is heavily used in the production of electronic goods. More and more people worldwide are buying electronic goods at record speed, which far outpace the actual production and mining of this precious metal. Silver, like gold, is limited in supply, and so far, there is no close substitute to silver in the industrial sector. Silver is the most efficient metal used for conductivity, after gold.

The recent economic slowdown has caused drastic reduction in mining base metal, or which, silver is a bi-product. However, when inflation sets in, silver will be in a position where demand far exceeds supply. I think that investing in silver presents a long term arbitrage play against gold, and thus should be one of the major holding in any investor's assets. Silver has become highly attractive in the last decade or so, and will continue to climb in prices as demand for the industrial sector grows. The fact that silver is still relatively lower priced than gold adds to another reason to buy.

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