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Commodity Trading: Silver Futures

Demand / Consumption Considerations

Though Silver has a long and distinguished history as being the metal of commerce, it has shifted roles in recent years to be more of an industrial metal than a precious metal. The single largest use of Silver is for industrial purposes, with the electronics industry making up the lion's share of this demand. Jewelry and Silverware is the second largest component, with more demand from the flatware industry than from the jewelry industry in recent years. The photography industry is a large user of Silver. Silver is an important ingredient in both the manufacturing of film, as well as in film processing. Silver coinage accounts for only a small portion of the demand for silver in recent years.

Silver is first and foremost an industrial metal. Silver components are found in everything from light switches and circuit breakers, to personal computers, stereos, telephones, microwave ovens and automobiles. Over 1.2 billion Silver oxide-zinc batteries are supplied to the world yearly. These miniature-sized batteries are found in watches, cameras and other electronic devices. Silver is also used in the production of bearings, as electroplated Silver bearings have greater fatigue strength and load carrying capacity than any other type. Silver also facilitates the joining of materials (called brazing), producing a leak-proof, smooth, corrosion-resistant joint in manufactured goods. Silver is also used as a catalyst in the production of formaldehyde, which has production estimated at 15 billion pounds a year. Formaldehyde is an essential ingredient in the production of adhesives, laminates, finishes for paper and textiles, surface coatings, including paints, dinnerware and buttons, packaging materials and much more. Silver is also used in the production of Mylar recording tapes, which makes up 100% of the recording tapes sold today. An estimated 23 million ounces of Silver are used daily in the catalytic oxidation processes described above.

Silver is the best electrical conductor of all metals and is hence used in many electrical applications, particularly in conductors, switches, contacts and fuses. Ordinary household switches, which normally carry high electric current for appliances from irons to refrigerators, use silver switches. The US electric switch market is a $1.5 billion per year industry, which relies on Silver. Silver is used in electrical switches because of its conductivity and low contact resistance, as well as its high thermal conductivity, mechanical wear resistance, and resistance to corrosion. Silver, unlike most other metals, does not allow electricity to arc, which is a common cause of fires; hence, electrical switches using Silver have become extremely commonplace, as the liability of using non silver is extremely great (that is, litigation risk…. don't use Silver switches, have a fire, get sued!). The United States Department of Commerce Bureau of Census reports that the electrical switch industry shows 18 billion precious and non precious metal contact switches were shipped in 1996, with a value in excess of $275 million. Electric motor switches use the largest amount of Silver, with nearly half of the 20,000,000 troy ounces used in the United States each year is used in the manufacture of contacts for these switches and conductors. Silver is also used in circuit breakers, which had a market value of $1.6 billion according to the United States Department of Commerce Bureau of Census 1996 report.

Silver is also used extensively in the electronics industry. Silver membrane switches, silk screened circuit paths, and other electronics related uses of Silver accounted for more than $83.2 in 1996 according to the United States Department of Commerce Bureau of Census.

Silver is also used in the manufacturing of flatware and jewelry. Sterling Silver, which is 92.5% Silver and 7.5% Copper, has been the standard use for centuries. Silverware and jewelry demand for Silver was estimated to be 280.2 million ounces in 1997, with an expected decline of two tot three percent in 1998. Jewelry and silverware demand has been steadily decreasing as a percentage of total use of Silver for many years, since manufacturing and electronics industrial uses of Silver increase.

Though Silver is often thought of as a precious metal, in recent years the fastest growing segment of demand and use for silver has been from industry, hence we tend to view Silver as more of an industrial metal than as a precious metal.

SPONSORED BY:

Commodity Trader's Almanac 2008
Scott W. Barrie
Best Price $26.37
or Buy New $26.37

Disclosure of Risk: The risk of loss in trading futures and options can be substantial; therefore, only genuine risk funds should be used. Futures and options ARE not suitable investments for all individuals, and individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option would result in a futures position.

SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST 15 YEARS. THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS. NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.