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Why the Price of Silver Rose Just 7% in 2017

During 2017, the price of silver continued its rebound from its mid-2010s slump, finishing the year up about $1 an ounce to, at almost $17. Yet as nice as it is for investors to see further gains for the gray metal, the rise was less than what gold enjoyed during 2017, and it lagged far behind the more-than-50% gain that rare industrial metal palladium picked up from where it began the year. Let's look more closely at how silver did in 2017 and why investors still aren't certain whether stronger gains could lie ahead.

New York Silver Price data by YCharts.

What moved the price of silver in 2017?

Silver's price movements during 2017 were fairly restrained, with the metal generally staying in a tight range of between $15.50 and $18.50 per ounce. The beginning of the year came with optimism that the new Trump administration would be able to push through its policy initiatives to drive infrastructure and construction spending at the federal level. Unlike most precious metals, silver gets substantial use for industrial applications, and many market participants saw increased demand for silver from rising industrial spending as a huge prospective catalyst for price moves. By March, silver had climbed more than 15% and appeared to be building momentum for further gains.

Yet many of the hopes for silver started to dissipate during the spring and summer months. The failure of the White House to make progress on its proposed spending measures undercut the market, and fears about the possibility of the Federal Reserve accelerating its interest rate increases during the year also led some silver investors to back away from more bullish bets. In early July, silver fell to levels not seen in over a year.

Image source: Getty Images.

Why silver didn't do better

One key factor in the silver market's tepid performance came from lackluster interest from investors. Physical-silver demand was down about 55%, with about a one-third drop in sales of silver bars and coins for investment purposes. That was enough to offset rising silver demand from the industrial sector. Exchange-traded products also weighed on the silver market, with modest declines in ETF holdings compared to year-earlier figures.

At the same time, silver producers have been slow in adjusting their output to reflect market conditions. Only now are major miners looking at efforts to cut back production in 2018, hoping that constraining supply will be able to lead to better prices. For miners that have diversified exposure, much-better performance in base metals like copper and zinc could spur shifts in production priorities this year. Miners that specialize in silver won't be able to substitute production of other metals, but they might nevertheless choose to rein in their silver sales in the hopes of fetching better prices in future years.

Can silver grow faster in 2018?

One problem that silver has to deal with is that other financial markets are gaining more attention from investors. The stock market grew at double to triple the growth rate for silver prices. The rise of cryptocurrencies, which produced huge gains in 2017, also took away some of the demand that has traditionally gone toward precious-metals investing.

More bullish is the fact that the federal government has made some progress in moving forward with policy initiatives. With tax reform having gone through, many are more optimistic that an infrastructure package could pass in 2018. If that happens, it should provide more support for industrial demand for silver.

Silver prices can be volatile, and the metal hasn't been able to mount a convincing rebound from the huge losses it suffered several years ago. Steady gains might make some investors happy, but they don't compare well to the rises that other parts of the financial markets are seeing.

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