As well as the spot price for silver, there is also a liquid futures market for the precious metal that provides an insight into the long-term sentiment for silver.
While less actively traded than its precious metal peer in gold, the spot silver price is still closely followed by traders and investors alike, with the metal particularly popular among retail investors with its lower cost entry point than gold.
What is spot silver?
Spot silver is the price a buyer can purchase silver for on the spot. It provides an immediate snapshot of where silver is trading at on the international markets and gives a reference price for dealers, jewellers, traders, fabricators and other interested parties to use in their daily activities.
While spot silver reflects what the price of silver is now, there is also an actively traded futures market for silver on exchanges, such as COMEX.
How are silver futures prices calculated?
There are three different types of silver futures products available on COMEX. They are the silver futures, which have a contract size of 5,000 troy ounces, the micro silver futures with a lot size of 1,000 ounces and the e-mini silver futures where each contract is 2,500 ounces. While the silver and mini silver futures are physically deliverable, that is to say when the contract expires the equivalent amount of ounces must be delivered, the e-mini contract is financially settled.
Trading on these contracts starts for delivery in the current month and extends as far out as two years into the future. Typically the nearest month to delivery is the most liquid contract. The price that these different months are trading out sets the curve for the silver futures market.
If the price is higher for those contracts nearest to delivery, this is an indication of strong demand and is known as a market in backwardation. The reverse, where prices are higher for later months, indicates a weak market and is known as contango.
These monthly contracts are available for trading on the exchanges during market hours and are highly liquid with tight spreads between bids and offers. The volume of silver traded on exchanges far outnumbers the amount of physical silver available with contracts changing hands multiples of times.
How is the silver price determined?
As well as the spot and futures price, there is also the London Bullion Market Association (LBMA) Silver Price, which serves as the global benchmark price for unallocated silver delivered in London. The price is determined by a daily auction operated by the ICE Benchmark Association (IBA) and takes place at 12pm each day.
There are currently 16 banks and trading houses registered as direct and indirect participants in this daily auction with the trades carried out by these firms during the auction forming the basis for the LBMA’s silver price. The final price of the auction becomes the official Silver Price and the auction is settled in US dollars. This is then published in a variety of international currencies based on the foreign exchange levels at the time.
In summary, there are three main prices for silver. The spot price for immediate purchases, the futures price for silver to be delivered in upcoming months and the daily LBMA silver price that is the benchmark used for long-term contracts.
How does Kinesis’ silver price differ from spot silver?
Kinesis’ silver price is based on fully allocated physical silver with 1 KAG the price of 1 ounce of fully allocated silver. The KAG silver price is calculated via the aggregation of the silver in these vaults across the world, which covers 13 vaults across 9 countries. This global coverage enables Kinesis to offer some of the best available prices for physical silver.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.