Learn About Silver

Silver (chemical symbol Ag) is a metallic element valued both for its appearance and for its physical properties. It conducts electricity and heat better than any other metal and is highly reflective, which is why it appears in electronics, mirrors and solar cells as well as in jewellery and coins.

Silver plays two roles in the economy:

• A precious metal. Silver has been used as money for thousands of years. Today, individuals and institutions hold it as bars, coins and through financial products.
• An industrial material. Manufacturers use silver as an input. Some of it is recovered later through recycling; some is used in such small amounts that recovery is not economical.

Because demand comes from different sources, it can respond differently to the same event. A slowdown in manufacturing may reduce industrial use while investment demand rises, or the reverse. This is one reason silver does not always move in step with gold.

Where silver comes from

Silver is mined, and a large share of it is produced as a by-product of mines whose main output is another metal, such as lead, zinc, copper or gold. It is also recovered from scrap, including old jewellery, silverware and industrial waste.

Precious metals are weighed in troy ounces, not the ordinary (avoirdupois) ounces used for food. One troy ounce is exactly 31.1034768 grams, while an ordinary ounce is about 28.35 grams. A troy ounce is therefore roughly 10% heavier.

Silver prices are usually quoted per troy ounce. When a product is sold in grams or kilograms, converting it to troy ounces lets you compare it fairly with other products. A one-kilogram bar contains about 32.15 troy ounces.

Common bullion sizes include 1 oz coins and bars of 10 oz, 100 oz and 1 kg, but sizes vary by mint and refiner. Always check the stated fine silver weight, not just the product name.

Purity, or fineness, is usually shown as parts per thousand:

• .999 (“three nines”): 99.9% silver. Common for bullion bars and rounds.
• .9999 (“four nines”): 99.99% silver. Used for some government-minted bullion coins.
• .925 (sterling silver): 92.5% silver, usually alloyed with copper for strength. Common in jewellery and silverware.
• Older circulating coins in many countries contained less silver, and their silver content varies by country and year.

The value of the metal depends on the fine silver content, not the total weight. To estimate it, multiply the gross weight by the fineness. For example, an item weighing 31.10 g at .925 fineness contains about 28.77 g of silver (31.10 × 0.925).

Checking what you are buying

Bullion products are normally stamped or documented with their weight, fineness and the name or mark of the mint or refiner. For large bars traded in the wholesale market, the London Bullion Market Association (LBMA) maintains a “Good Delivery” list of refiners that meet its standards. Products from widely recognized mints and refiners are generally easier to resell.

Silver’s conductivity, reflectivity and antimicrobial properties make it useful in many products. Common industrial uses include:

• Electrical and electronics: contacts, switches, conductive inks and pastes, and printed circuits.
• Solar photovoltaics: many solar cells use silver-based paste to carry electrical current.
• Brazing and soldering: silver alloys join metals in plumbing, heating and manufacturing.
• Chemical production: silver acts as a catalyst in some chemical processes, such as making ethylene oxide.
• Medical and hygiene: some dressings, coatings and devices use silver for its antimicrobial effect.
• Photography: once a major use, now much smaller since the shift to digital imaging.

Jewellery and silverware are also important sources of demand, although they are usually counted separately from industry.

Why it matters for prices

Industrial demand tends to follow manufacturing activity and technology trends, so it can weaken in an economic slowdown. Manufacturers also work to use less silver per unit (“thrifting”) when prices are high, which can offset growth in the number of units produced. Industry-wide demand estimates are published by organizations such as the Silver Institute, and they are revised over time.

The spot price is the current price for silver traded for immediate delivery in the wholesale market. It refers to large, standard quantities traded between banks, refiners and other institutions, and it is usually quoted in US dollars per troy ounce.

There is no single official spot price. The figures you see online are derived from trading in major markets, including the London over-the-counter market and futures exchanges such as COMEX. Different data providers can show slightly different numbers at the same moment.

The LBMA Silver Price is a separate benchmark, set once each London business day through an auction process, that many contracts refer to. It is not a live price.

What it means for individual buyers

• You will generally not buy physical silver at spot. Dealers add a premium, and buy back below their selling price (the spread).
• For prices in Canadian dollars, the US-dollar spot price is converted at the current exchange rate, which moves independently of silver.
• Some free websites show delayed or indicative prices. Check the timestamp, the currency and the unit before relying on any figure.

Like any traded asset, silver’s price reflects the balance between buyers and sellers at any moment. Influences commonly discussed include:

• Industrial demand, linked to manufacturing and technology trends.
• Investment demand, including purchases and sales of bars, coins and exchange-traded products.
• Mine supply and recycling, which can take years to adjust because much silver is a by-product of other mining.
• Interest rates. Physical silver pays no interest, so higher rates can make holding it relatively less attractive, although this relationship is not consistent.
• The US dollar. Silver is mainly priced in US dollars, so currency moves affect what it costs in other currencies.
• Economic conditions and sentiment, including speculative trading in futures markets, which can amplify short-term moves.

These factors interact, and their influence changes over time. A factor that seemed to explain prices in one period may not work in the next. Treat any confident prediction with caution.

For Canadian investors, the price in Canadian dollars depends on both the US-dollar silver price and the USD/CAD exchange rate. A stronger Canadian dollar can lower the local price even if the US-dollar price is unchanged.

This is a complex topic. See Factors Affecting Silver Prices for more detail, and consider independent research before drawing conclusions.

A premium is the amount a dealer charges above the spot price when you buy physical silver. It covers the costs of refining and minting, distribution and storage, and the dealer’s margin.

Premiums vary with:

• Product type and size. Smaller items, such as single coins, usually carry a higher premium per ounce than large bars.
• Brand and design. Government-minted coins and collectible designs often cost more than generic bars.
• Quantity and payment method. Some dealers offer tiered pricing or different prices by payment type.
• Market conditions. Premiums can rise when retail demand is high or supply of particular products is tight.

A premium is usually expressed as an amount per ounce or as a percentage of spot: premium % = (dealer price − spot) ÷ spot × 100. When comparing offers, also include shipping, insurance, payment fees and any applicable taxes.

A dealer quotes two prices: the ask (what you pay to buy) and the bid (what the dealer pays you when you sell). The difference is the spread.

The spread is a real cost. If you buy at the ask and later sell back at the bid, the silver price has to rise by at least the spread (plus any shipping, insurance or fees) before you break even.

Hypothetical example (made-up numbers, not current prices): if a dealer’s ask is $100 and its bid is $92 for the same product, the spread is $8, or 8% of the ask.

Spreads differ by product, size, dealer and market conditions, and they can widen during volatile periods. Exchange-traded products have spreads too: the difference between the highest price buyers will pay and the lowest price sellers will accept on the exchange.

Use the premium and spread calculator to compare quotes you have collected.

Physical silver for investment usually comes as bars, bullion coins or rounds. Each has trade-offs:

• Bars come in many sizes. Larger bars generally carry a lower premium per ounce, but they are less flexible: you sell the whole bar or nothing. Some buyers may want to verify bars from less familiar refiners.
• Bullion coins are issued by government mints, including the Royal Canadian Mint. They carry a face value in dollars, but that figure is symbolic and far below the metal’s value. Coins are widely recognized and easy to sell in small amounts, but premiums are usually higher than for bars.
• Rounds are coin-shaped pieces made by private mints. They have no face value or legal-tender status, and premiums often sit between bars and government coins.

Bullion vs. collectible coins

Collectible (numismatic) coins are priced on rarity, condition and demand from collectors, not just silver content. Their prices can differ a great deal from the metal value, and a high premium paid for a collectible may not be recoverable when you sell.

Silver is bulky for its value, so storage deserves planning. Common options include:

• At home. Convenient and private, but exposed to theft, fire and loss. Many home insurance policies limit coverage for coins and precious metals unless items are listed separately. Ask your insurer in writing what is covered.
• Bank safety deposit box. Secure and inexpensive, but access is limited to branch hours. The contents of a box are generally not insured by the bank, and deposit insurance such as CDIC covers eligible deposits, not box contents.
• Third-party vault or depository. Professional storage with fees. Read the terms carefully, particularly the difference between allocated storage (specific bars or coins held in your name) and unallocated storage (a claim on a pool of metal, which may leave you as a creditor if the provider fails). Ask about insurance, audits and how you can take delivery or sell.

Handle bullion carefully. Scratches and tarnish don’t change silver content, but they can reduce what some buyers will pay for coins.

Storage and insurance arrangements, and their costs, differ widely between providers. Research providers individually and keep copies of all agreements.

How easily you can sell silver, and at what price, depends on what you own and who is buying. Options include:

• Selling back to a dealer at its bid price. Check buy-back policies before you buy: some dealers pay more for products they sold, or only buy certain items.
• Other dealers or refiners, which may quote different bids. Getting several quotes can help.
• Private sales, which avoid dealer spreads but carry risks such as fraud, counterfeit concerns and personal safety.
• Auctions, which are generally more relevant for collectible coins than bullion.

Condition, original packaging and documentation (such as assay cards and receipts) can affect the price offered. Dealers in Canada may ask for identification and keep records for some transactions under anti-money-laundering rules.

Records and taxes

Keep records of what you paid, including fees. When you sell, a gain or loss may need to be reported, and whether it is treated as a capital gain or as income can depend on your circumstances. Check guidance from the Canada Revenue Agency or ask a tax professional.

You can gain exposure to silver by owning metal directly, or by buying an exchange-traded product (ETP) through a brokerage account. They work very differently.

Physical silver

• You own specific bars or coins.
• Costs: dealer premiums, the bid-ask spread, storage and insurance.
• No ongoing management fee, and no reliance on a fund manager if you hold the metal yourself.

Exchange-traded products

• You own units or shares of a product, not silver itself.
• Structures vary. Some hold physical bullion with a custodian; others use futures or other derivatives. Not every silver ETP holds physical silver.
• Leveraged and inverse products aim to multiply or reverse daily returns. Because they reset daily, their results over longer periods can differ greatly from what you might expect.
• Costs include management fees (the management expense ratio), brokerage commissions, the exchange bid-ask spread and possible tracking differences from the silver price.

Before buying any ETP, read its offering documents. Canadian exchange-traded funds publish an ETF Facts document summarizing holdings, fees and risks, plus a prospectus with full details. Check the legal structure, what the product holds, who the custodian is, the currency, and how it is taxed.

Volatility describes how widely and how quickly a price moves. Silver has often experienced larger percentage price swings than gold and many other widely held assets, in both directions.

Reasons often cited include:

• The silver market is much smaller than the gold market, so large trades can have a bigger effect.
• Industrial demand ties silver to the economic cycle, while investment demand can change quickly with sentiment.
• Supply is slow to adjust, because much silver is a by-product of mining other metals.
• Leveraged trading in futures and derivatives can amplify short-term moves.

What this means in practice

Volatility works both ways. The silver price can fall substantially and stay lower for long periods. Consider your time horizon, how much of your savings is involved, and whether you could tolerate a large decline. Avoid leverage you don’t fully understand.

The illustrative chart in Market Insights shows what higher and lower volatility look like, using hypothetical data.

Buying shares in a mining company means owning part of a business, not silver. The company’s results depend on the silver price but also on many company-specific factors.

• Costs. Mining is expensive. Companies often report all-in sustaining costs (AISC) per ounce, but definitions vary between companies.
• Operating leverage. Because costs are relatively fixed, changes in the metal price can have a magnified effect on profits, in both directions.
• Other metals. Many “silver” miners earn much of their revenue from gold, lead, zinc or copper.
• Company type. Producers have operating mines; developers are building them; explorers are searching and may have no revenue. Royalty and streaming companies finance mines in exchange for a share of production.
• Debt, management, permits and jurisdiction can all affect value, as can broader stock-market conditions.

Canadian-listed mining companies file disclosure documents on SEDAR+, and material mineral projects are described in technical reports prepared under National Instrument 43-101. These are useful starting points for research, but they require careful reading.

Diversification means spreading money across investments that don’t all move in the same way, so a fall in one is less likely to affect everything at once.

Some investors hold precious metals as part of a diversified portfolio. Whether that makes sense for you depends on your goals, time horizon, other holdings and tolerance for risk. A few points to keep in mind:

• The relationship (correlation) between silver and other assets changes over time, and different assets can fall together during periods of market stress.
• Physical silver produces no income: no interest, dividends or rent.
• Putting a large share of savings into any single asset increases concentration risk.
• Costs such as premiums, spreads, storage and fees reduce returns.

For advice about your own portfolio, consider a qualified adviser. You can check whether a firm or individual is registered to provide investment advice using the Canadian Securities Administrators’ National Registration Search.