The silver price over the first ten months of 2023 averaged $23.29/oz. This is a solid improvement on 2022’s full-year figure of $21.73/oz. Silver is also trading well above its 2014-19 average of $16.81/oz.
Over the past three years, a recovery in fabrication from its COVID-induced slump coupled with buoyant investment has led to a ratcheting up in the silver price and its trading range. Nevertheless, as the chart below shows, prices remain distant from their 2011-12 bull market peaks.
Moreover, these are, of course, nominal prices. Looking at the price in inflation adjusted terms provides a more sobering perspective, especially the further back in time one looks. Adjusting the nominal price by the US Consumer Price Index and indexing the monthly average data to June 2023 terms shows how high past peaks were in today’s money.
On this basis, the April 2011 peak was $57/oz, while the all-time monthly average high in January 1980 comes in at no less than $153/oz. It is also interesting to observe how high real silver prices were in the second half of the 1970s and the first half of the 1980s.
Looking ahead, silver bulls may take comfort from the fact that silver is in real terms still looking “good value” at a little under the $25-mark. It is also arguably under-priced relative to gold, with the gold:silver ratio averaging a historically high 83:1 in the first half of 2023.
Silver is also a small market: In 2022, the value of global mine production was just $18 billion. It would therefore not require a considerable amount of additional investment to drive prices much higher. On the other hand, those inclined to see the glass half empty might fear an opposite outcome: that silver could settle at a lower level if, as in the 1990s, disappointed investors were to turn against the metal and liquidate substantial bullion stocks.
At present, there is no indication that such a sea-change in investors’ attitudes towards silver is likely – quite the opposite – but the impressive build-up in investors’ holdings over the past 15 years could represent a threat for the price in an environment of low inflation, high real interest rates and much lower gold prices.
If that were the case then the focus would shift to the metal’s other supply/demand fundamentals, especially the outlook for mine production and fabrication demand.
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