Silver is a white, lustrous metallic element that conducts heat and electricity better than any other metal. In ancient times, many silver deposits were on or near the earth’s surface. Before 2,500 BC, silver mines were worked in Asia Minor. Around 700 BC, ancient Greeks stamped a turtle on their first silver coins. Silver assumed a key role in the U.S. monetary system in 1792 when Congress based the currency on the silver dollar. However, the U.S. discontinued the use of silver in coinage in 1965. Today Mexico is the only country that uses silver in its circulating coinage.

Silver is the most malleable and ductile of all metals, with the exception of gold. Silver melts at about 962 degrees Celsius and boils at about 2212 degrees Celsius. Silver is not very chemically active, although tarnishing occurs when sulfur and sulfides attack silver, forming silver sulfide on the surface of the metal. Because silver is too soft in its pure form, a hardening agent, usually copper, is mixed into the silver. Copper is usually used as the hardening agent because it does not discolor the silver. The term “sterling silver” refers to silver that contains at least 925 parts of silver per thousand (92.5%) to 75 parts of copper (7.5%).

Silver is usually found combined with other elements in minerals and ores. In the U.S., silver is mined in conjunction with lead, copper, and zinc. In the U.S., Nevada, Idaho, Alaska, and Arizona are the leading silver-producing states. For industrial purposes, silver is used for photography, electrical appliances, glass, and as an antibacterial agent for the health industry.

Silver futures and options are traded on the New York Mercantile Exchange (NYMEX), the NYSE-LIFEE exchange, and the London Metal Exchange (LME). Silver futures are traded on the Tokyo Commodity Exchange (TOCOM). The Nymex silver futures contract calls for the delivery of 5,000 troy ounces of silver (0.999 fineness) and is priced in terms of dollars and cents per troy ounce.

Prices – Nymex silver futures prices traded basically sideways in the first half of 2010. The European sovereign debt crisis during spring 2010 caused increased safe-haven demand for precious metals, but that was offset for silver to some extent by weaker European and U.S. economic growth and reduced industrial demand for silver. Silver then staged a sharp rally into year-end to a 30-year nearest-futures high of $30.975 per troy ounce. Silver prices continued to gain in the early part of 2011 and rose to a 32-year high of $36.73 per troy ounce in March 2011. Bullish factors in 2010 included (1) worries about inflation with the central banks of the U.S., England, and Japan all engaging in quantitative easing, (2) an escalation of the Middle East crisis which prompted a surge of safe-haven buying of precious metals, and (3) the global economic recovery which strengthened in 2010 and boosted industrial demand for silver.

Supply – World mine production of silver in 2010 rose +1.8% yr/yr to a new record high of 22,200 metric tons, continuing to show some improvement after flat production figures in 2000-03. The world’s largest silver producers in 2010 were Peru with 18.0% of world production, China (13.5%), Mexico (15.8%), Chile (6.8%), Australia (7.7%), and the U.S. (5.8%). U.S. production of refined silver in 2010 (through August, annualized) rose by +12.7% to 6,023 metric tons, a new record high.

Demand – U.S. consumption of silver in 2009 (latest data available) fell –11.8% yr/yr to 164.4 million troy ounces. The largest consumption of silver is for electrical contacts and conductors with 31.9% of total usage, followed by coinage (20.6%), photographic materials (13.4%), jewelry (7.1%), and brazing alloys and solders (3.2%). The world’s largest consuming nation of silver for industrial purposes is the U.S. with 20% of world consumption in 2004 (latest data), followed by Japan (16%), India (10%), and Italy (7%).

Trade – U.S. exports of refined silver in 2006 (latest data available) rose +423.2% yr/yr to 50.797 billion troy ounces, which about half of the record high of 99.022 million troy ounces seen in 1997. The major destinations for U.S. silver exports are UK (74.7%), Canada (10.7%), and Switzerland (4.2%). U.S. imports of silver ore and concentrates in 2005 (latest available data) fell –80.5% yr/yr to 14,000 troy ounces. U.S. imports of refined silver bullion in 2005 (latest data available rose +11.2% yr/yr to 134.387 million troy ounces in 2005. The bulk of those imports came from Mexico (65.908 million troy ounces), Canada (41.474 million troy ounces), and Peru (20.319 million troy ounces).

Excerpted from the CRB Commodity Yearbook. For more information on CRB products click here