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How is the price of silver set?

The Silver Spot Price is the ever changing market price for silver bought or sold on the Silver Commodity Exchanges for immediate payment and delivery. It is determined by the price of Silver Futures Contracts, and is also used as a guideline for what price to set on physical silver bullion being sold to investors.

Spot Price, Fixed Price or Futures Contract Price

Prices to buy and sell silver are agreed in one of three ways: Auction Price, Spot Price or Futures Contract Price.

In the UK the silver auction price is set once per day via auction though the Ice Benchmark Association (IBA). This is typically used by dealers like BullionByPost for large transactions.

Under a Spot Price contract, the price is set by the silver trader at the time of the deal being agreed. The Silver Spot price is not the price of silver in high street jewellers. This is the secondary market price of silver outside of the commodities market.

Futures Contracts are an agreement to buy and sell silver at a set price, on a set future date of exchange.

Silver price options
In order to fully understand how the Silver Spot Price is set, investors need some understanding of how Futures Contracts and the derivatives markets operate.

Silver Futures contracts

As mentioned before, Futures Contracts are binding agreements to buy and sell silver for a specified price on a set date. They are traded on the silver derivatives market, which is separate from the actual Silver Commodities Market. The largest of the world derivative markets is the Chicago Mercantile Exchange; CME or Comex.

These contracts are a means for mines, mints, refiners, dealers and buyers of silver to hedge the value of their metal against large fluctuations on the Silver Commodities Market. This brings some degree of stability to an otherwise volatile commodity market.

Explained very simply: if a manufacturer needs one hundred ounces of silver to make their products, they can hedge risk over the production period by buying the physical metal, and at the same time buying future contract options on the same amount of silver. When they sell products, based on the silver price at that time, they can buy back the options and cover the risk.

Futures Contracts exist in their own right and do not represent actual physical silver. Because of this, the amount of silver listed in Futures Contracts does not necessarily equate to any real metal.

How is the Spot Price set?

The market Spot Price for silver is determined by the forward month’s high volume Future Contracts prices. It is a composite of the price on world’s futures markets and represents an underlying real world precious metal price.

The spot price is in fact an average of the estimated future price of silver, based on the traded futures contracts and the nearest month, called the front month.

Who sets the silver Spot Price?

When you buy and sell silver bullion, you buy and sell on a spot price calculated from the Futures derivative markets, which is independent of the current physical silver supply. These calculations are made by leading world markets such as CME in the United States.

LBMA Silver Auction Price

The constant state of flux in the Silver Spot price can make large volume trading difficult. To simplify this an LBMA Silver Auction Price is issued by the IBA shortly after noon, London time, every working day. This price is arrived at by testing and adjusting an initial price, which is close to the spot price, by a number of electronic auctions. This LBMA Silver Price is globally recognised as the standard set price for a troy ounce of silver on that day.

Trading hours and times of spot

Trading on the international commodities market, at the Spot Price, is available 23 hours a day from 11pm GMT Sunday, through 10pm GMT Friday. Trading is closed from 10pm to 11pm GMT daily. Spot silver trading also follows CME holiday closures. Market hours and holidays are subject to change.

BullionByPost silver prices

BullionByPost is the UK’s favourite place to view the silver Spot price via our real-time fast loading silver price charts. All our silver bar and coin prices are constantly updated in line with the spot price. Plus, when buying silver, we will agree a price with you based on the spot price, or occasionally the LBMA Silver Price in the case of large orders.

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