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Will silver shimmer during the Russia-Ukraine crisis?

By Indrabati Lahiri

08:00, 7 March 2022

Image of silver bars
Silver may rally further as the war in Ukraine urges investors to move to safe havens – Photo: Shutterstock

As the woes of the world shift from the pandemic to a war, silver has seen a considerable rally as investors move towards safe-haven assets, of which precious metals are some of the most popular.

Long considered a popular second choice when gold was a touch out of reach, silver may finally be taking centre stage now. Silver prices have rallied over 70% in 2021 and more than 1.2% since the war in Ukraine started and is expected to keep going this year as the conflict continues.

Aside from being used for jewellery, demand for silver comes from dentistry, nuclear reactors, electronics, medicine and more.

Russia is the world’s fourth-largest silver producer, behind Mexico, Peru and China. Since the Ukraine conflict shows no signs of abating yet, this may lead to some shortage for the precious metal in the near future.

Western sanctions have made it harder to transport mine output out of the country with Russian producers quickly losing credibility in the global financial market. With a number of consumers boycotting Russian goods, silver prices may rise even more in the short term as supply tightens for the next few months.

Image of silver chart Silver chart – Credit: TradingView

Silver production by Russia

Silver supply has other and possibly better alternatives such as Mexico and Peru, but the Russian uncertainty would certainly cause supply to wobble in the short term.

Russia produced approximately 42.5 million ounces of silver in 2020, ranking it as the sixth-largest producer in the world, from where it has been steadily climbing to emerge as the fourth-largest by 2022.

As of 2020, the five largest silver mines in Russia were the Dukat mine, the Mangazeisky mine, the Lunnoye-Arylakh mine, the Mayminovskoye mine and the Kupol and Dvoinoye mine.

Out of these, the Dukat and Lunnoye-Arylakh mines are owned by Polymetal International, one of the largest mining companies in the world. Due to the conflict and subsequent share crashes, Polymetal International as well as Evraz, another mining giant have been forced out of the FTSE 100 index.

This development is expected to push silver prices even higher as investors look towards other alternatives with the credibility of Russian silver crumbling. With a large part of silver production being a byproduct from the mining of other metals, it is also considered much easier to replace from other sources than gold. Russia also contributes to the majority of global palladium and to a sizeable chunk of gold annually.

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Silver: Fundamental analysis

Silver is one of the most precious metals in the world, with properties of both gold and copper, which makes it a coveted electrical conductor. Often shunned in favour of gold, silver has managed to carve a place for itself in a number of industrial uses, unlike gold, which is usually used for end products, such as jewellery.

Over the last five years, more than half of the yearly demand for silver comes from industrial use, mostly from countries like China and Japan, which have massive and varied forms of industrial development. Silver is preferred for its excellent conductivity, which is the highest of any element.


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It is also coveted for its malleability, ductility, brilliance and physical strength, which makes it ideal for sturdy as well as decorative items, ranging from tableware to mirrors and much more. It also has anti-bacterial properties and is remarkably sensitive to light, which makes it even more sought after.

With its close ties to industrial demand, the metal benefits greatly from industrial growth, unlike gold, whose demand in the industry is only approximately 10-15%. Thus, silver flourishes in fast-growing economies such as China, where industrial growth is one of the most rapid in the world.

It also means that in times of industrial uncertainty, for instance during the coronavirus pandemic, silver suffered as many industries struggled to recover customers.

Considered a safe haven, though not as much as gold, the shortage has polished the metal’s lustre further as Russian supply slides out of the picture.

Image of silver production by country chart Silver production by country chart – Credit: Source: World Population Review

This year, major demand is expected to come from solar and green energy industries as photovoltaic demand for silver has increased from 5% in 2020 to approximately 10% in 2021. This trend is expected to outperform in 2022, as demand surges well above 10%.

The ESG transition as well as de-carbonisation, which were themes heavily prioritised in climate summits such as the COP26, would also act as a big driving force for silver demand from the renewable energy sector.

Gold to silver ratio 

Image of gold and silver chartGold and silver chart – Credit: TradingView

The gold to silver ratio, also called the mint ratio, looks at the relative value of an ounce of gold to an ounce of silver. Thus it illustrates the number of ounces of gold in order to be able to buy a single ounce of silver.

This ratio is primarily used by traders in order to make sure their portfolios are sufficiently diversified when it comes to precious metals. They can thus use it to hedge their bets on both metals. Historically, the gold-to-silver ratio was employed by governments to control monetary stability.

The ratio spiked to approximately 124.091 by mid-March 2020 as the coronavirus pandemic gripped the world in full swing. By August 2020, it had crashed to 70.749, as industrial demand continued to struggle, bottoming out at approximately 62.819 by February 2021, as investor sentiment began to recover, leading to cautious, but riskier approaches as investors gained the confidence to move away from safe-haven assets.

Since then, the gold to silver ratio once again saw a considerable rally as the delta, omicron and IHU variants of coronavirus, all surfaced one after the other, leading to widespread anxiety, with precious metals being favoured once more. By the end of February 2022, the ratio was trading at approximately 79.390. 

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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