Silver's slide hurting investors, but may help shoppers

New York (Oct 5)  The dramatic downturn in the price of silver in recent weeks has brought on painful losses for investors whose precious metal is now worth less than what they paid. But retail jewelry shoppers could reap the benefits as the holiday shopping season draws near.

“There probably will be lower prices for silver jewelry in the coming months because people who make jewelry are able to buy the raw metal for less money,” said Harton Wolf, director of operations at Henne Jewelers in Shadyside.

Not long ago, silver was one of the hottest commodities on the market.

Prices were rising at such a dizzying pace three years ago that investors were practically trampling each other to pay a peak price of nearly $50 an ounce in April 2011. But gold’s “crazy cousin” has been on a continuous decline since then, and it truly lived up to the nickname earned by its volatility with a sudden plunge from $21.50 an ounce to below the $17-an-ounce mark last week.

It’s hard to say why the price of silver has hit the skids.

The rising stock market could be attracting dollars that would have otherwise gone to silver and other precious metals seen as safe haven investments in times of economic turmoil. Investors also may be focused on recent hints from the Federal Reserve that interest rates could soon be heading higher, which would put more selling pressure on the precious metals market.

Some silver industry insiders fear there could be more sell offs in the weeks ahead.

“It seems as if there is no bottom in sight,” said David Morgan, author of “Get the Skinny on Silver Investing” and founder of the Spokane, Wash.-based website

“Sentiment is a factor,” he said. “The belief that gold and silver are good investments has been taken out of the market. That psychology has been broken during the last three years, but significantly more so in the last couple of months. Even a lot of the strong hands and stalwarts who were extremely bullish on silver are now beginning to question whether their reasons for owning it are valid.”

While silver and gold are closely identified with each other and their prices tend to move in the same direction, gold prices — currently around $1,200 an ounce — have not declined as sharply as silver.

Part of this has to do with governments and central banks such as China and Russia continually buying more for their national reserves. The U.S. government hoards 147.3 million ounces of gold reserves in Fort Knox, Ky. In case of a world currency crisis, gold can function as the ultimate payment between nations.

The silver market, considerably smaller than the gold market, also is much more volatile.

Unlike the gold market, there are no big players, with the possible exception of the “Oracle of Omaha,” investor Warren Buffet, who accumulated 129.7 million ounces of silver bullion — more than 37 percent of the world’s known silver supply — between 1997 and 2006 at under $6 an ounce. He said he sold it all for $7.50 an ounce that same year.

The majority of investors have not been as skillful in knowing when to get in or out of the precious metal.

Blaine Shiff, co-owner of, a Dormont-based precious metals dealer, said many customers are taking a wait-and-see attitude in terms of buying or selling silver right now. But the shrewdest see the knocked down silver price as an opportunity to pick up more at a discount.

“After all, the objective is not to buy high and sell low,” Mr. Shiff said. “Relatively speaking, right now it’s pretty low, so the savviest people are saying it’s low, and it’s time to buy.”

Serious investors in the silver market accumulate the metal through one-ounce silver coins and silver bars that range from 1-ounce to 1,000 ounces. Investors also can gain exposure to the silver market by buying shares in silver exchange traded funds that track the price of silver and by buying shares in silver mining companies. The most sophisticated investors trade the metal with leveraged futures contracts on the Chicago Mercantile Exchange.

People who bring in silver to sell at Mr. Shiff’s shop in general don’t walk away with as much cash as gold sellers, but with enough silver, the payout still could be worthwhile.

“Silver jewelry doesn’t bring in nearly as much,” he said. “But it does add up when people bring in silverware, because there’s a lot of weight there and that could bring in hundreds of dollars. But when you are talking about a silver necklace, that’s not enough weight compared to gold.”

When it comes to retail jewelry sales, the weight of the silver, gold or platinum content in the item is only one factor in the price. Other factors include the labor involved in creating the jewelry as well as the design and brand, said Mr. Wolf at Henne.

“Granted, as the price of silver or any precious metal goes down, the price of the product goes down,” he said. “It depends on how often the jeweler replenishes his stock of jewelry.

”Some jewelers will tie the price of the metal to the price of what they are selling. Others will determine the price of the piece of jewelry based on current cost of the jewelry.“

For investors having doubts about the silver they already own, Mr. Morgan fears the market may get worse before it gets better.

”A lot of bank analysts are calling for silver to go as low as $14 an ounce,“ Mr. Morgan said. ”At this point, I’m inclined to throw in the towel and say they could be right. …I hate to say it. I have a lot invested in the silver market.“

The one silver lining he says is that it costs about $23 to mine each ounce of the metal, which means the current low price is unsustainable. Mexico was the world’s largest silver producer in 2010, according to the Silver Institute in Washington, D.C.

”If you make your money mining silver, you are out of business if the price stays under the cost of production for a long time frame,“ Mr. Morgan said. “There will be no new silver exploration projects if the best mines can’t produce silver for less than the price of silver. That means the supply will dry up and that will increase demand and the price goes up.“

Source:  Post-Gazette