Introduction to Silver Commodities - dummies

Introduction to Silver Commodities

By Amine Bouchentouf

Silverware and jewelry aren’t the only uses for the commodity silver. As a matter of fact, silverware is only a small portion of the silver market. A large portion of this precious metal goes toward industrial uses, such as conducting electricity; creating bearings; and welding, soldering, and brazing (the process by which metals are permanently joined together).

Because of its numerous practical applications and its status as a precious metal, investing in silver can bolster your portfolio. This list details the most important uses of silver, which account for more than 95 percent of total demand for silver:

  • Industrial: The industrial sector is the single largest consumer of silver products, accounting for almost 50 percent of total silver consumption in 2010. Silver has a number of applications in the industrial sector, including creating control switches for electrical appliances and connecting electronic circuit boards. Because it’s a good electrical conductor, silver will keep playing an important role in the industrial sector.

  • Jewelry and silverware: Many people believe (incorrectly) that the largest consumer of silver is the jewelry industry. Although silver does play a large role in creating jewelry and silverware, demand from this sector accounted for 25 percent of total silver consumption in 2010.

  • Photography: The photographic industry is also a major consumer of silver, accounting for about 20 percent of total consumption in 2006. In photography, silver is compounded with halogens to form silver halide, which is used in photographic film.

    Digital cameras, which don’t use silver halide, are becoming more popular than traditional cameras. As a result, photography demand for silver went from 20 percent in 2006 to less than 10 percent in 2010.

Monitor the commercial activity in each of these market segments and look for signs of strength or weakness, because a demand increase or decrease in one of these markets, such as photography, will have a direct impact on the price of silver.

Knowing where the silver comes from is always important to an investor. Below are the top silver producers in the world.

Country Production (Millions of Ounces)
Peru 124
Mexico 105
China 89
Australia 52
Bolivia 42
Russia 42
Chile 41
Poland 40
United States 39
Kazakhstan 20

If you’re interested in finding out more about silver and its investment possibilities, the Silver Institute, a trade association for silver producers and consumers, maintains a comprehensive database on the silver market.