While the price of silver rose above $23 at the beginning of December, it's endured a volatile ride since August, and the choppiness looks set to continue. The price has slipped back again today as short-term futures traders take profits. Meanwhile, a bearish economic outlook continues to weigh on financial assets across the board.
Wage pressures hint at inflation running higher for longer, which could lead the Fed to continue its rate-hiking agenda, raising the odds of a US recession in 2023.
So where does the resplendent metal sit in all of this?
The World Needs Silver
Silver has long-term appeal from the electrification camp, which see it as a critical element of EV batteries, renewable energy components and electronics. Of all the elements, silver is considered the best electrical conductor thanks to its high conductivity.
Silver is also a good conductor of heat, so it is found in industrial applications. Furthermore, it is highly reflective and commonly found in medical devices, mirrors, and other optical goods.
That's why silver bulls see it as an excellent long-term investment.
Silver as a Store of Value
Being a precious metal, silver also appeals as an alternative store of value to traditional money market instruments. While gold is always going to be preferable to silver from a safe-haven point of view, that's not to say silver is a write-off.
When it comes to investing, silver is a popular choice during periods of uncertainty. Therefore, silver holds a certain appeal as we enter 2023 with inflation, interest rate hikes, job losses, and recession risk all around.
The precious white metal has been considered a store of value for thousands of years, and this trend continues today. Being a relatively scarce metal, along with its wide-ranging use cases, silver holds its own among the precious metal faction.
Silver's combination of scarcity and usefulness makes it a valuable asset that can be traded and used to store wealth. Indeed, silver is often used to diversify an investment portfolio and potentially provide a hedge against inflation.
A Silver Dollar
The price of silver can be affected by the value of the US dollar. While the two are not formally correlated, the dollar's value can affect the price of commodities. That's because commodities are often priced in dollars on international markets.
When the dollar's value goes up, it can make commodities like silver more expensive for buyers using other currencies. This can reduce demand and lower the price of silver.
Conversely, when the dollar's value goes down, it can make commodities like silver cheaper for buyers using other currencies, which can increase demand and raise the price of silver.
The dollar has been remarkably strong this year, but many analysts believe it is unlikely to last, as it has a far-reaching impact on international trade and finance.
Therefore, the likelihood of dollar weakness lends strength to the bull case for silver. Nevertheless, the relationship between the dollar and the price of silver is complex and can be influenced by many other factors.
While buying physical silver is one option, Silver ETFs offer an alternative. A fund can be the simplest choice for investors looking to hold silver as a long-term investment and don't fancy storing silver bars or silver bullion.
iShares Silver Trust (NYSEARCA: SLV) is a popular fund, as are Aberdeen Standard Physical Silver Shares ETF (SIVR) and ProShares Ultra Silver (AGQ). But there are hundreds to choose from. Funds usually provide investment exposure to physical silver, and their value is linked to the silver price.
Investing in Silver Mining Companies is another way to get exposure to the lustrous metal. Pure silver miners are few, but several gold miners also mine for silver.
As we near the end of the year, trading volumes will decline, and news flow will slacken off. This often brings a Santa Claus stock rally as retail investors get bullish. But bearish sentiment looms large this year, and a bearish end to 2022 may be more likely.
Short-term volatility is par for the course in the silver market, but the investment case remains strong in the long term.