A metal that is now present everywhere, from solar panels to circuits, from water purifiers to medical devices, from investments to jewellery. An element of elegance is oftentimes outshone by its sibling, the element of luxury. The lunar caustic, whose value was stripped down after its demonetization in 1873, is making a comeback, and it is the precious metal with the highest growth rate in the world this year.

On Oct 17th, this metal, this sterling metal, touched its all-time peak of $54.47. This metal of antiquity, the metal that destabilised great economies like that of the US and Europe, is the same metal that was used to make the piece of 8, Silver.

From Divine Tears to Global Tender

Silver is a very soft metal, a metal that showcases purity and divine femininity. Oftentimes, the purity of this pure-looking metal is described in parts per thousand, with the purest being 999 silver, the silver with 99,9% purity. 999 silver is used for investments and for premium purposes. For jewellery, usually 925 silver is used (92.5% silver and 7.5% other metals). This impurity is made to give silver jewellery its versatile nature.

 Silver has always been a very beautiful element, an element which is both humble and yet connected to beauty and elegance. The Incas considered silver the tears of the moon. In comparison, the higher availability of silver gave it less value than gold. Often, silver, because of its greater availability, was used for the same purposes as gold, but on a much grander scale. Silver was used for embroidering clothes,  creating utensils, fashioning jewellery and, like all precious metals, creating figurines and decorative materials.

In ancient Roman civilisation, the coins made of silver called denarius played a major backbone in the transaction of the economy.  But Rome was not the only time in history when silver was used as a currency.

Silver was used to make what is arguably the world’s first international currency, the Spanish Dollar. The Spanish dollar, or famously known as the pieces of eight, was made of silver. It allowed Spain to establish a global silver standard that connected the trade of a variety of nations spanning across the globe. It was so widely accepted that it replaced several local currencies, even in some regions as far as China. As time and tide moved forward,  people turned to gold for pricier deals and silver for normal transactions, and the principle of the bimetallic system was introduced.

The Bimetallic Betrayal and the Fall from Grace

The bimetallic system is when the currency is pegged to two different metals instead of one. A significant example of bimetallism is the one which started in the United States of America in 1792. The use of the bimetallic system was directly inspired by the Spanish Dollar. The US wanted an independent currency of their own and set out to establish it based on the familiar model of the Spanish dollar. Along with this, they created a gold coin with an eagle symbol. This was established through the Coinage Act of 1792, which fixed the mint ratio between silver and gold (the ratio that is used to determine the exchange rate between gold and silver) as 15 ounces of silver to 1 ounce of gold. 

Another union that was formed for bimetallism was the Latin Monetary Unit or the LMU via a treaty signed by France, Belgium, Switzerland and Italy on December 23rd 1865, and 3 years later, Greece joined in. This gave a form of stability to the economy, as stated by Milton Friedman. But later on, Gresham’s Law came into application.

Gresham’s Law states that “bad money drives out good”. The reason was that silver and gold had similar face value, though the intrinsic value of silver was less. People then used silver, the cheaper of the metals, and hoarded gold. This, in turn, drove out gold from the mainstream and reduced the availability of gold even further, in turn causing a significant increase in the value of gold (caused by higher demand, lesser supply).

Along with this, Germany shifted to a gold standard after the Prussia-Franco War and pushed its silver bullion to France. Subsequently, in 1873, France and the LMU demonetised silver, along with the United States of America (The Coinage Act of 1873). The Coinage Act of 1873 was dubbed the Crime of ’73 by farmers and debtors. They believed that the removal of the metal made the repayment of debts worse off. It was dubbed the same by silver miners because they thought it was an attempt by the Eastern financiers to protect their gold-backed sovereigns by sacrificing the industry.

What followed was a public backlash in the US, especially by backers of this stabilising metal. Since the demonetization significantly contracted the money supply, it caused the deflation of currency and a stark shortage of it in the economy. Monetary instability caused investors to be wary and ultimately led to the freezing of lending entirely. The farmers who relied on long-term mortgages and the railroad, which expanded heavily by depending on loans, started to suffer. This, exacerbated by the aftermath of the Franco-Prussian War and the overspeculation of railroads, ultimately led to the Panic of ‘73 and the Long Depression.

 This account of bimetallism becomes important because after this, silver depreciated quickly; the ratio of gold to silver during the early 1970s was 1:15.5, while within two decades it fell to the nearly 1:34 ratio. Of course, it was not just the value of the silver that took a hit, but also the world’s economic stability. This incident showed how much the world actually depended on silver. Since pulling it out once caused catastrophes to the economic stability. But now the modern world, plagued by progressions and the need to develop, finds even more “industrious” values in silver.

The Industrial Redemption and the Two-Faced Rally

When it comes to industrial applications, silver has more value than gold. This is because of the broader range of industrial applications of silver than its yellow counterpart, gold. But just like gold, since silver is a precious metal, it is also often used by investors as a safe-haven asset. There is a catch here: Silver is valued because of its dual role as both a raw material for industries and a safe haven for investors, but instead of stabilising silver, it has just made its price relatively more volatile.

While during times of economic downfall, the price of silver can increase, as can be seen in the previous situation of price peaking of silver in 2011, when the investors were worried about the quantitative easing methods, which were used to falsely prop up the economy. It can also be seen that during times when the industrial output, especially those industries tied to silver, slows, the price of silver also drops. This shows a unique scenario of silver’s dual positive and negative relation with the stability of the economy. This is unlike gold, which investors use solely to hedge against inflation or economic downfall, therefore showing a negative relation with economic stability, nor is it like copper, which shows a purely positive relation with economic stability.

As of now, there is an 84.92% increase in silver value over the past year with respect to Indian Rupees, or a 66.95% increase in silver value over the past year with respect to USD (The difference in change percentage is due to Indian rupees being a weaker denomination than the USD). The silver market seems to be bullish and is showcased by skyrocketing prices and record-high values.

The reason why silver can be seen with such a high value can be because of the current world scenarios. The demand is increasing for silver in greener technologies. This, combined with the push in silver ornaments caused by the increase in the gold prices, is in turn causing the increase in the market of silver.

The situation is even more supportive for the silver market because of the geopolitical tensions that preside over the current scenario. Though shortly after the peaking in October, silver prices did seem to fall, it just as quickly gained pace and broke back into growth with an 11% surge. The weakened US dollar can also be a reason that investors are incentivised to invest in silver. Since the prices are once again rising, the fear of missing out, or commonly called FOMO, can come into play because investors don’t want to miss an opportunity. This causes an increase in speculation for a further increase in the price of silver.

A key piece of information that should be kept in mind is the supply deficit of silver, which, as supply-demand principles dictate, should cause a rise in the prices of silver.

All of this does show a positive outlook for silver. But as previously mentioned, silver is a very volatile commodity because of its dual nature. This causes silver to be very sensitive to its economic surroundings. Since the prices are rising, it causes several speculations, some of them stating that since markets are volatile, a market correction can happen the moment the industry demand seems slow or investor sentiment changes.

The Silent Backbone and the Poor Man’s Gold

To a person, silver is a beautiful metal. But silver is a metal that has acted as the backbone of economies and the floor that fell below economies. Silver has been a metal that was both a currency and a commodity. Silver is that single metal that acts both as a hedge against economic instability and a force to grow with economic stability. One should realise the very irony that even gold medals are primarily made out of silver. So no, silver is not the second element; it is the poor man’s gold.