Wholesale Sterling Silver Jewelry: Spot Silver Prices

At the writing of this article (February 15, 2008), silver is hovering near $17.10 per ounce. Silver prices have risen almost 13% just since the first of the year.

Analysts blame oil prices near $100, the weak US Dollar, recession fears and geopolitical instability for creating an increased demand for gold and to a lesser extent, silver. But silver prices, unlike gold, are driven mainly by supply and demand. Silver is used by a wide variety of industries beyond jewelry manufacture, including computer manufacture, medicine, and photography. While demand for silver increases annually, supplies are dwindling as new sources are being found less frequently and are often hard to reach.

The advent of Exchange Traded Funds (ETF's) in the silver market in 2006 added a new component to silver demand, making it easier to buy and sell silver on the open market without having to physically hold it. For many of us in the jewelry business, the silver ETF approval came with a sense of dread, since many felt it would result in further price increases.

We haven't seen silver prices at current levels since 1980, when the Hunt brothers tried to corner the market and sent prices to $54 per oz. That debacle ended with a 50% single day drop in silver prices (and ultimately with the Hunt brothers serving time). Unlike that silver rush, there doesn't appear to be any conspiracy behind recent silver price rises.

As a silver importer and wholesaler, I've been dealing with this issue for the past couple of years. Silver prices have stair-stepped from around $6 per ounce to current levels over the last three years or so. When you add in the weakness of the Dollar against other currencies, it is a double whammy since most silver jewelry production is done in Asia. A weak dollar means imports cost more.

The one bright spot here is that at least part of this price increase is due to higher demand. And as a precious metal, silver is still cheap, especially when compared to gold (currently nearing $905 per ounce). Where is silver headed? It seems like $20 per ounce is within striking distance.

The results are already being felt in the jewelry industry, where silver is a large percentage of the final product cost. For other industries like computers or photography, the cost of silver is a much smaller percentage of total cost. To date, much of the increases in price have been absorbed by wholesalers and retailers of jewelry, but this cannot continue. We are now nearing the point where consumers will have to assume more of the burden if they want sterling silver jewelry. Options like silver plating over base metal may become more acceptable, but more likely consumers will want to stick with the "purity" of precious metals like silver and gold.

In the end, higher prices will probably mean less demand for silver jewelry, at least in the short term. Hopefully as the economy recovers from the recession that many say we are headed into, consumers will loosen the purse strings and see silver as a relatively affordable adornment.

(This article written by Mike McGinnis and published originally on indiasilver.com. We allow republication provided the piece is copied in its entirety with links and attribution.)

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