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|Silver Price Fixes|
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The international silver price is a silver spot or silver futures price derived from global silver trading. Silver trades in many markets around the world denominated in weights ranging from troy ounces to kilograms. By convention, the 'silver price' however usually refers to the international silver price derived in two main trading venues, the London Silver Market and the COMEX futures exchange. These two trading venues for silver have far higher trading volumes than other trading venues and markets and therefore have the most influence on setting the current silver price at any given time, thus dominating silver price discovery. Other silver trading venues such as TOCOM in Japan and the Shanghai Futures Exchange in China, also contribute to the ongoing establishment of the silver price during any given trading week.
Local physical silver markets and silver industry participants around the world remain price takers of the international silver price established on the London OTC and COMEX silver markets, and these physical markets essentially inherit the silver spot price that feeds in from these dominant international trading venues.
The Silver Spot Price is the current silver market price at which silver can be transacted in volume on the wholesale silver market for immediate delivery and short-dated settlement.
By convention, the Silver Spot price on the wholesale silver market is quoted in US dollars per troy ounce and the quotation refers to two-way bid and offer quotations for a standard amount of silver in the range of 100,000 troy ounces to 200,000 troy ounces which are quoted by silver market makers during silver trading hours.
The futures price for silver is the price of a silver futures contract agreement that offers delivery of a standardised quantity of silver on a specific future delivery date. Futures contracts are traded on futures exchanges and are centrally cleared. The futures price for silver quoted by silver traders and in the financial media will invariably refer to the 'front month' contract. This is a nearby month where the majority of silver futures trading volume is taking place, and hence it will be the contract month with the highest liquidity.
When the silver futures price is higher than the spot silver price, a silver futures contract is said to be in contango. When the silver futures prices is below the spot silver price, the silver futures contract is said to be in backwardation.
The London Silver Market is an over-the-counter (OTC) market where participants trade with each other on a bilateral basis via spot, forwards and options contracts. Although there is some standardisation to these silver contracts, there is also some flexibility as is typical of any OTC market. The London Silver Market is the largest silver market in the world with the largest trading volumes, and hence this market is central to silver price discovery for the international silver price. Typical participants in the London Silver Market comprise of bullion banks and brokers, miners, refiners, jewelry companies, investment and hedge fund institutions, Exchange Traded Funds (ETFs) and speculators.
The silver trading unit in the London Silver Market is one troy ounce of 99.9% silver purity. Silver prices are quoted in US dollars per troy ounce and spot settlement is for delivery of loco London silver in 2 business days (T+2). Market-making members of the London Bullion Market Association (LBMA) quote two-way bid and offer quotations for transactions ranging between 100,000 troy ounces and 200,000 troy ounces of silver. The settlement unit of loco London silver really refers to unallocated silver, which is essentially a claim against a bullion bank by an unallocated holder for a specific silver quantity.
Similar to gold in the London Gold Market, trades in the London Silver Market are cleared through the bullion bank operated London Precious Metals Clearing Limited (LPMCL), with nearly all transactions referring to unallocated silver versus a very small percentage for physically allocated silver trades.
If physical silver is being delivered in London in fulfillment of silver trades or as part of allocation of unallocated silver, the delivery location is within the LBMA recognised vaults in London. The standard of settlement for such silver trades is the London Good Delivery Silver bar. A London Good Delivery Silver bar must contain a minimum of 99.9% pure silver and weigh between 750 troy ounces and 1100 troy ounces. The LBMA recommends that a London Good Delivery Silver bar ideally should weigh between 900 and 1100 troy ounces. Furthermore, in practice, most Good Delivery silver bars weigh approximately 1000 troy ounces. So in summary, most silver bars stored in the London commercial vaulting network weigh around 1000 troy ounces and have a minimum silver purity of 99.9%.
Note that the Bank of England does not store silver, only gold. The commercial precious metals vaults of London, which are LBMA members, however store a significant quantity of silver in their vaults, over 30,000 tonnes.
The COMEX futures exchange, which is part of the CME Group, hosts the world’s most traded silver futures contracts. COMEX silver futures trading is almost totally electronic with silver trading practically taking place 24 hours a day throughout the trading week. As trading volume in these silver contracts is huge, COMEX is one of the silver markets, along with the London OTC Silver Market, which dominates international silver price discovery.
These COMEX silver contracts are technically physically deliverable but are in practice rarely delivered. Therefore, one criticism of COMEX precious metals futures trading, including silver trading, is that this trading is almost entirely speculative in nature with very few silver contracts triggering a physical movement of metal. Furthermore, the COMEX approved warehouses support very small physical silver inventories while there at the same time are huge Open Interest. Open Interest on COMEX silver futures is the amount of silver futures contracts outstanding at any given time.
The COMEX Silver Futures contract is a physically deliverable futures contract for 5000 troy ounces of silver. Although nearly all of these contracts are closed-out before expiration or cash-settled, if physical silver is delivered, it must conform to COMEX silver futures contract rules. These rules state that eligible silver for delivery can be in the form of five 1000 oz silver bars and that these silver bars must have a a minimum silver fineness of 99.9% and be fabricated by approved refiners.
The LBMA Silver Price is a benchmark silver price established in a daily electronic auction held at 12:00 p.m. London time Monday to Friday. LBMA is an abbreviation for London Bullion Market Association. The silver price derived in the auction is for spot unallocated "loco London" silver which is a form of synthetic paper silver. Notably, the auction is not for physical silver. The resulting silver auction price is expressed in US dollars per troy ounce of silver and is an equilibrium price at which buy and sell orders entered by silver auction participants are balanced within an acceptable tolerance range.
The LBMA Silver Price auction only has a handful direct participants, the majority of which are powerful bullion bank members of the LBMA, such as HSBC, JP Morgan Chase, Bank of Nova Scotia (ScotiaMocatta), Morgan Stanley and Goldman Sachs.
While the intellectual property of the LBMA Silver Price is owned by the LBMA, ICE Benchmark Administration (IBA) oversees the administration and governance of the auction.
Notably, ICE Benchmark Administration only became responsible for the LBMA Silver Price auctions after the previous administrator (Thomson Reuters) and calculation agent (CME Group) withdrew in September 2017, midway through their contract with the LBMA. The LBMA Silver Price is an officially ‘Regulated Benchmark’ under UK law and is regulated by the UK’s Financial Conduct Authority (FCA).
From August 2017, the London Metal Exchange (LME) commenced publishing a daily silver reference price at 12:00 midday. This silver reference price was launched at the same time as similar daily LME reference prices for gold.
The LME's midday calculation time was chosen to coincide with the time of the daily LBMA Silver Price auction since the liquidity and trading volumes of the London Silver Market and COMEX silver futures are high at that time. As a competitor to the LBMA Silver Price benchmark, it also makes sense for the LME to sync the calculation of its reference price for the same time as the LBMA auction.
Whereas the LBMA Silver Price benchmark is the price derived from the LBMA Silver Price auction, the LME Silver Price is a volume-weighted average price calculation using transactions in the LME’s Silver spot contract over a 2-minute period from midday until 12:02 pm. Similar to the LBMA silver auction, the LME Silver spot contract is for unallocated silver "delivered" in London. LME Silver spot contracts trade on the LME's LMESelect electronic trading platform. See BullionStar article LME Gold and Silver Reference Prices: Will anyone Notice? for more details.
Silver trades globally across marketplaces and venues around the world with each venue taking pricing inputs from other active marketplaces and with arbitrage trading keeping prices converged towards a common international spot price for silver. Local silver prices in particular markets should in theory only differ due to price differentials caused by localised frictions such as taxes, trade tariffs and other import/export rules and regulations.
The two most influential trading venues for silver price discovery globally are the over-the-counter wholesale London Silver Market and silver futures trading on the COMEX. The London Silver Market is active between 8:00 am and 4:30 pm London time, with the LBMA Silver Price auction running each trading day at 12.00 midday. COMEX silver futures trade predominantly on CME’s Globex electronic trading and are available for trading nearly continually between Sunday evening New York time through to Friday evening New York time. Globex is not just US centric and also captures significant trading volumes during European and Asian hours.
Silver markets within Asia are also important contributors to global silver price discovery. The Chinese Gold and Silver Exchange (CGSE) in Hong Kong offers 3 silver contracts via electronic trading, a 5000 oz loco London silver contract, a 500 oz loco London silver contract, and a 15 kilo silver contract. These contracts trade during the CGSE trading hours Monday to Friday from 9am to midday, and from 2 pm to 5 pm. This equates to 2 am to 5 am London time, and 7am to 10 am London time.
Although predominantly a gold exchange, the Shanghai Gold Exchange (SGE), which is in the same time zone as the CGSE in Hong Kong, also trades a number of physically settled silver contracts. There are three SGE trading sessions each trading day, a morning session from 9:00 am to 11:30 am Shanghai time, an afternoon session from 1:30 pm to 3:30 pm, and a a night trading session from 8 pm until 2 am the following day.
In Japan, the Tokyo Commodity Exchange (TOCOM) trades a 10 kg silver contract in two trading sessions each trading day, a day session between 8:45 am and 3:15 pm Tokyo time and a night session between 4:30 pm and 5:30 am the following morning. These times equate to between 12:45 am to 7:15 am London time, and 8:30 am and 9:30 pm London time. Trading hours in the Borsa Istanbul Precious Metals Market are 24 hours per day and continuous over weekends and other holidays.
When looking at the spot price of silver at any point of time during the trading week, it is therefore worthwhile thinking about which silver markets around the globe are open and active during that particular time.
In addition to silver futures trading on the COMEX, silver futures contracts are also traded on a number of other futures exchanges around the world, and these other trading venues also support price discovery of the silver price. These other trading venues for silver futures contracts include Japan's TOCOM exchange, the Shanghai Futures Exchange in China, the Multi Commodity Exchange (MCX) in India, the ICE Futures Exchange and LME Silver Futures. Physical silver also trades on Turkey's Borsa Istanbul.
The most common weights for trading silver in markets and exchange venues around the world is in terms of either troy ounces or kilograms.
Since the two most important silver markets in the world for price discovery, the London OTC Silver Market and the COMEX futures market, trade in terms of US Dollars per troy ounces, the silver price is usually quoted in US dollars per troy ounce. If physical delivery takes place in the London market, it is executed in Good Delivery bars which weigh around 1000 troy ounces and which contain 99.9% pure silver. Likewise, if physical delivery is requested from COMEX silver futures contracts, the silver bars are in the form of 1000 troy oz silver bars with a minimum silver purity of 99.9%.
Silver is also frequently traded in terms of kilobars (1 kilo = 32.1507 troy ounces). The TOCOM futures exchange in Japan, MCX futures exchange in India, and Shanghai Futures Exchange in China all trade silver futures contracts in kilo denominated contract units.
Since silver is used widely in a diverse number of industrial applications and uses, the demand profile of silver differs significantly to that of gold. About 60% of annual silver demand can be classified as industrial demand, with a further 20% of demand from jewelry fabrication, around 15% from physical silver bar and silver coin investment demand as well as exchange traded fund demand, with the remainder attributed to silverware demand. Silverware refers to items such as tableware and cutlery which contain silver. Silver's diverse uses and wide ranging demand sources therefore will mean that the silver price is affected not just by investment demand, but by the competing demand interactions of all potential buyers of silver across the industrial, jewelry, silverware and investment sectors.
Industrial demand for silver can further be classified into a number of high level areas namely electrical and electronic (including semi-conductors), photography, photovoltaic applications (such as solar panels), and brazing alloys and solders. For example, out of total worldwide silver demand in 2017 of just over 1 billion ounces, as calculated by Thomson Reuters GFMS, approximately 600 million ounces was attributed to industrial silver demand and 200 million ounces came from silver jewelry fabrication demand. Of the 600 million ounces of silver within industrial demand, GFMS estimates that 243 million ounces was in the electronic and electrical category, 94 million ounces from photovoltaic applications, and 44 million ounces from photography applications.
Another difference in the demand patterns of gold and silver is that unlike gold, central banks do not hold silver as a reserve asset stored in their vaults. However, speculators, investors and other commercial users of silver do, on a cumulative basis, hold large stockpiles of silver, and some governments hold strategic stockpiles of gold. GFMS estimates that these 'above ground' stockpiles of silver totaled over 86,000 tonnes at the end of 2017, which equates to 2.75 years' worth of physical silver demand.
Because of silver's use as both a commodity and a monetary asset, and silver's diverse demand pattern including the dominant industrial demand for silver, there are diverse demand drivers for silver which together affect the silver price.
Each source of demand for silver will have its own particular driver. Industrial demand will be influenced by economic cycles and the commercialisation of new technological uses for silver. Global demand for silver jewelry and silverware demand will be dependent on general income levels and disposable incomes in individual countries and regions. Investment demand for silver bullion bars, silver bullion coins, and silver-backed ETFs will be influenced by general financial market conditions, silver's store of value properties, the performance of currencies such as the US dollar, and also the relative performance of the gold price.
On the supply side, since silver demand can only be met from from mining operations and to a smaller extent scrap silver and the drawing down of above-ground stockpiles, increasing demand will only be induce supply increases if the silver price adjusts upward.
In the physical silver markets, product pricing of silver bars and silver coins reflects the spot price of silver plus a premium. The spot price, as discussed previously, feeds in from the international silver price, which is discovered in the dominant silver trading venues of London OTC and COMEX. Physical silver markets and participants around the world are merely price takers whose transactions inherit the international silver spot price.
The silver premium itself will reflect a number of components. One component of the silver premium will be relatively fixed and will reflect minting, refining and fabrication costs including insurance, marketing and distribution costs. Another part of the silver price premium is semi-variable and will reflect price variations due to supply and demand factors. Higher demand for a silver bar or silver coin will tend to increase the premium. Likewise, a tightness in silver supply would also tend to heighten the silver premium.
At times, premiums on silver bullion products, such as US Silver eagle coins, can spike noticeably even though the silver spot price, which is primarily determined in the paper markets, is falling. These upward moves in physical silver premiums may seem counter-intuitive, but are actually reflecting increased investor demand for physical silver products in an environment of limited supply.
For example in 2008, when the spot price of silver, which is determined on COMEX and in the London synthetic unallcoated silver market, fell sharply between July and November 2008 to less than $10 per troy ounce, premiums on US Silver Eagle bullion coins spiked upwards, with 1 ounce US Silver Eagle selling for over $20 per coin. As the silver spot price fell over this period, this induced investor demand for physical silver bullion to rise substantially. With the US Mint unable to increase supply over the short term, premiums on these coins as determined by the US Mint and its authorized distributors, rose within the supply chain to reflect the supply tightness from the Mint.
Silver bullion premiums will therefore ebb and flow over time to reflect silver spot price changes and their volatility, and the resulting changes in investor demand and conditions in the bullion supply chain. After a period of heightened premiums, premiums would normally drop again in an environment of increased supply, a cooling off in demand, and a leveling off or drop in volatility in silver spot prices.
Some of the most popular silver bullion coins that derive their prices from the international spot price of silver are the Canadian Silver Maple Leaf minted by the Royal Canadian Mint, the American Silver Eagle minted by United States Mint, the Australian Silver Kangaroo minted by the Perth Mint, the Silver Britannia from the Royal Mint, the Silver Philharmonic from the Austrian Mint and the Chinese Silver Panda from the Chinese State Mint.
Generally speaking, premiums on silver coins are higher than premiums on silver bars, and premiums on larger silver bars and coins will be lower percentage-wise than premiums on smaller silver coins and silver bars.
The Bid price for spot silver, also known as the buy price, is a price quote for an immediate purchase of a specified quantity or range of quantities of silver. The Ask price for spot silver, also known as the offer price or sell price, is a price quote for an immediate sale of a specified quantity or range of quantities of silver. The spread is the difference between ask and bid quotes and can be expressed in either cents or percentage terms.
The Bid price for a silver bar or silver coin is a price quote for the purchase of a specific silver bar or silver coin. The Ask price for a silver bar or silver coin is a price quote for the sale of a specific silver bar or silver coin.
The Gold / Silver Ratio is a numeric approach to measuring the relative prices of gold and silver. By convention, the Gold / Silver Ratio measures the price of silver in terms of the price of gold. As gold and silver prices most commonly refer to troy ounce prices in US dollars, the Gold / Silver Ratio is calculated as the USD price of one troy ounce of gold divided by the USD price of one troy ounce of silver, and thus measure how many troy ounces of silver it would take to purchase one troy ounce of gold.
The Gold / Silver Ratio is best looked at over the long term and as part of technical price analysis, where trends in the Gold / Silver Ratio can be observed in terms of its historic range. Proponents of the ratio then use the calculation to infer whether the silver is overpriced or under-priced relative to gold.
Traditionally, as gold and silver were both extensively used as monetary metals, circulating as money, the Gold / Silver ratio evolved as a simple way to gauge the relative value of gold compared to silver. Historically in some monetary systems, Gold - Silver prices were fixed at specific levels, for example, 16 to 1. More recently over the last two decades, the Gold / Silver Ratio has fluctuated in a range of approximately 80 to 35. According to some theories, a Gold / Silver Ratio of 80 at the high end of the range would suggest that gold is overpriced relative to silver or conversely that silver is under-priced relative to gold. BullionStar's charting functions allow you to create charts of the Gold / Silver ratio over time to visually view the Gold / Silver Ratio's movements and historic range.
Although central banks hold substantial quantities of gold and reflect gold as a reserve asset on their balance sheets, they rarely hold silver. However, large quantities of silver are held by Exchange Traded Funds (ETFs). Some of these silver ETFs include the iShares Silver Trust (SLV), the SOURCE Physical Silver ETC, some silver ETFs operated in ETF Securities such as ETFS Silver Trust (SIVR), and some silver ETFs operated by Deutsche Bank such as db Physical Silver ETC.
Many of these silver ETFs store the majority of their silver in LBMA vaults in London. See How many Silver Bars are in the LBMA Vaults in London for further details.
Silver is extracted and mined by two groups of silver mining companies, either primary silver miners or as a byproduct of other mineral mining operations. In 2017, global mining output of silver totalled 852 million ozs, equivalent to 26,500 tonnes, The top 10 silver producing countries in order of production are Mexico, Peru, China, Russia, Chile, Bolivia, Poland, Australia, US and Argentina. Mexico and Peru dominate silver mining production, with Mexico accounting for 196.4 million ounces in 2017 (23% of world output) and Peru contributing another 147.5 million ounces (17%). Adding the third largest producer China, the top 3 silver producing countries between them produced 456.5 million ounces of silver mining output in 2017, or 53% of the global total. Overall, the top 10 producing countries mined over 80% of world silver mining output in 2017. From the top 10 list, it is notable that South America is one of the world's critical silver mining regions. Also worth noting is that the top gold producing countries of China, Australia and Russia are also among the top silver producers.
The world's largest silver producing companies ranked by output are Fresnillo, KGHM (Poland), Glencorp, GoldCorp, PolyMetal, Buenaventura, Pan American Silver, and Hochschild, Other significant producers of silver mining output include Peñoles, Hecla Mining, Coeur Mining and Sunshine Silver Mining.
Beyond silver mining supply, the scrap silver market is also important in contributing to total annual silver supply. Precious metals consultancy Thomson GFMS estimate that is 2017, global scrap silver supply totalled 138 million ounces (neatly 4300 tonnes), which was approximately 14% of total global silver supply of 990 million ounces (approximately 30,800 tonnes).
Many precious metals refineries around the world are active in refining silver, and for example, there are over 80 refineries on the LBMA Good Delivery List for Silver. This list comprises silver refineries whose silver bars are acceptable in settlement of wholesale silver transactions in the over-the-counter London Silver Market. Some of the well-known refineries on the LBMA Good Delivery List for Silver include Heraeus, Argor-Heraeus, Asahi Refining (formerly Johnson Matthey), PAMP, the Royal Canadian Mint, and the Perth Mint.
The Silver Institute is an international trade association for the silver industry headquartered in Washington DC, USA, with members drawn from the silver mining, silver refining, and silver wholesale and retail markets around the world.
The main aims of the Silver Institute include promoting current and future uses for silver, supporting the development of new markets for silver and silver products, providing education on applications for silver, and generating research, literature and demand - supply statistics on the global silver market.
Silver Institute members include Fresnillo, Buenaventura, Coeur Mining, Hecla Mining, Sunshine Silver Mining from the silver mining sector, Wheaton Precious Metals, a silver streaming company which purchases silver mine output, Valcambi, Metalor and Asahi Refining (formerly Johnson Matthey) from the silver refining sector, and A-Mark and Dillon Gage from the silver wholesaling sector. The Silver Institute website contains useful resources related to the silver industry and a list of publications generated or commissioned by the Silver Institute.
Silver has been used as a form of money throughout most of recorded history, as both circulating currencies and as a backing to various monetary systems in the form of a 'silver standard'. During much of this time both silver coins and gold coins circulated, with gold coins used for larger transactions and for storing large sums of wealth, and silver coins for smaller transactions and for saving in smaller amounts.
The first use of silver as coinage can be traced to ancient Persia circa 600 BC. Silver subsequently circulated as coinage in many civilizations, including the Greek (silver drachma silver coin) and Roman Empires (Roman Denarius silver coin). In fact, the word for money in some languages derived from Latin is based on the Denarius, for example Portuguese - dinheiro, Spanish - dinero, Italian - denero. In Islamic civilization, the 'dirham' emerged as a silver coin, a counterpart to the Islamic gold dinar. The British money terms 'pound' and 'pound sterling' are derived from a pound weight of silver which consisted of 240 silver sterling pennies. The Indian 'Rupee' is also derived from a term for silver, the Sanskrit word 'rupyakam', which means silver coin.
The contemporary word ‘dollar’ is derived from Thaler, an abbreviated form of the German form of ‘Joachimsthaler’, an historic silver mine in central Europe, which gave its name to a silver coin that was first minted in the 1500s. The success of this coin in trade and the Austrian silver coin, the Guldengroschen, led to the evolution of the Spanish dollar (Real de a Ocho or Pieces of Eight) minted by the Spanish Empire from the 1500s to the 1800s and used extensively in trade worldwide. The US Constitution, when conceived in 1787, included the stipulation that "No State shall...make any Thing but gold and silver Coin a Tender in Payment of Debts". Furthermore, the US Coinage Act of 1792 defined the Dollar in terms of silver content (371.25 grains of pure silver).
With silver coinage as a circulating currency, many countries evolved a monetary system where the monetary unit was defined as a fixed weight and purity of silver, or else employed a bimetallic gold and silver standard where the value of gold and the value of silver were fixed in proportion to each other. As well as employing a circulating silver coinage and defining a currency unit in terms of silver, a silver standard also allows convertibility/redeemability of other forms of money into silver, and the import and export of silver in settlement of trade and international obligations.
Many countries operated on some form of silver standard during various periods between the 1500s and 1800s, including the Spanish Empire, Britain, India, China, the US, Mexico, and most countries in Europe. China and Hong Kong were the last to use a silver standard up until 1935. US circulating coinage up until 1965 still contained 90% silver content. However, the US Coinage Act of 1965 removed the silver content of quarters and dimes entirely, and reduced the silver content of Kennedy half dollars from 90% to 40%.
Silver can be viewed simultaneously as both a monetary asset and a precious metal commodity asset.
Silver has a very long history as money and has been used as circulating money in monetary systems throughout the ages. This is so because silver is a tangible asset with no counterparty risk. It is is also costly to mine, refine and produce, and exists in limited supply. Hence, silver also has a natural intrinsic vale. As a monetary asset which exists in limited supply, silver retains its purchasing power over the long term, and is thus, like gold, a suitable store of value.
Silver as an element is also incredibly adaptable and has many scientific properties and characteristics. These properties and characteristics make silver ideal for use in industrial, technological and scientific fields and applications as well as jewelry and ornamental uses. As such, silver's extensive applications and uses act as demand drivers to underpin the silver price.
Silver can therefore be purchased and held as a form of investment and savings by acquiring physical silver in the form of silver bars and silver coins, and can also be held in similar forms as a strategic holding knowing that much of the demand for silver arises from the industrial and jewelry sectors.
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