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How is the Silver Spot Price Set?

Silver Spot Price –

(n) the theoretical price of one troy ounce of Silver available for immediate delivery before being minted into a bullion bar, round, or coin.

Silver Spot Price Charts

When you visit the website of a reputable online Silver retailer, such as APMEX, you will see the live and up-to-the-moment Silver spot price prominently displayed on the site. You may wonder why the Silver products for sale on a reputable dealer’s website are more expensive than the Silver spot price. What exactly is the Silver spot price, if Silver products are not that price? That is simple. Even the most honest companies must charge a small premium for running their business. The amount over spot price that you pay covers business overhead for the company. Of course, there may be considerable premium attached if you choose an item with great numismatic value.

Who sets the Silver spot price in the first place?

You many then wonder, who sets the Silver spot price in the first place? The answer to that question is not quite as simple. When you examine how the worldwide Silver spot price is determined you will see that it is a complex equation. The entities with the most power over the Silver spot price do not generally exchange physical Precious Metal, but instead use derivative commodity contracts to determine the price of Physical Silver. If you think this situation is odd, you are not alone.

How do theoretical contracts representing physical commodities dictate the real-world price?

If the supply and demand of Physical Silver does not set the up-to-the-moment Silver spot price, does that mean we have entered the area of the proverbial tail wagging the dog?

Commodities Explained

Commodities are raw goods such as Gold, Silver, Platinum, crude oil, cocoa, coffee, soybeans and cotton, just to name a few. Each of these commodities have futures contracts traded on various exchanges throughout the world. You have certainly heard of a few of them—COMEX, CBOT, NYMEX, CME Group, etc. Futures contracts provide commodity producers, end users, and speculators the means to at least attempt to manage price risk, buy and take future delivery of real world goods, or simply bet on a commodity’s price rise or fall, respectively. Futures prices for a commodity are based on the price discovery contracts for the supposed future delivery of that particular commodity. Did you ever see Trading Places? The climax happens over the trading of frozen concentrated orange juice futures. A spot price refers to the fluctuating market price of a commodity bought or sold on the open market for immediate payment and delivery. However, the spot price takes into account the futures contracts, and futures contracts can extend pretty far into the future. It is entirely possible to purchase a futures contract that doesn’t expire for several years, but it is still influencing the current spot price. Silver is traded almost 24 hours a day during week days, but stops on weekends. The spot price for Sold is generally determined by the commodity exchanges centered in New York, Chicago, London, Zurich, China, and Hong Kong.

Why is the Spot Price Constantly Updating?

The fluctuations of Silver’s spot price at this time are mostly determined by the COMEX. The COMEX division of the New York Mercantile Exchange is the most influential trading market for Silver futures contracts and consequently has the greatest impact on Silver’s worldwide fiat currency spot price. Futures contracts for Silver on the COMEX represent the projected price of 5,000 ounces of Silver on a hypothetical future delivery date. However, most futures contracts are never settled in Physical Silver, just cash. Hundreds of ounces of “on-paper” Silver are traded on the COMEX for every single ounce of Physical Silver that is ultimately delivered in the real world.

Literally less than one-half of one percent of all Silver futures traded are ever paid off in physical Silver. A telling detail is that COMEX trades Silver contracts with a combined value in the trillions of dollars are annually, but the world’s annual Silver supply is valued at less that $20 billion USD.

Silver bullion is a tangible asset, and has long been recognized by individuals and governments as a store of value, but its daily spot price fluctuates based on nebulous factors like speculator sentiment, potential price inflation/deflation threats, changing values of digital and paper fiat currencies, fluctuations in government deficits, market/central bank mandated interest rates, geopolitical climate, and news events.

Did you know?

Since Silver’s spot price peaked close to $50 per ounce in April, 2011, commercial bank JP Morgan Chase has systematically acquired over 90 million ounces of Physical Silver for its COMEX depository Silver stocks. JP Morgan now accounts for close to 1/2 of all eligible and registered Physical Silver stocks today. Many industry experts believe JP Morgan has a significant and ever-growing influence on the COMEX Silver exchange’s ultimate impact on the worldwide Silver spot price. Why this commercial bank is amassing a Silver hoard to rival that of the Hunt brothers during the 1980 bull market is…mysterious.

Silver Spot Price in Review

Today’s Silver spot price is a composite of worldwide futures markets, mostly the COMEX, representing the underlying real-world Precious Metal value. The Physical Silver market, including respected Precious Metals retailers like APMEX, track the spot price of Silver carefully, and Silver bullion product prices generally hover just above the Silver spot price.

So how does the open Silver market play in to how you purchase Physical Silver for your personal investments? It looks like this:

  • Futures traders make leveraged derivative bets on worldwide futures exchanges determining fluctuations in the Silver spot price.
  • Miners extract mixed Silver ore from the ground and then sell the mixed ore and Silver doré bars to fine bullion refiners, typically pricing their goods just below the world’s silver spot price.
  • Refiners then melt and purify the ore into fine bullion, which is then sold to mints or bullion dealers at just above the Silver spot price.
  • Private and government mints strike bullion coins or bars, selling them to Silver dealers at prices typically just above the Silver spot price.

Precious Metals retailers such as APMEX offer Silver bullion coins, as well as Silver rounds and bars competitively priced close to the spot price of Silver. We hope this help you understand how the Silver spot price is determined and set. While it is a complex topic, savvy investors can develop at least a working understanding of how the Silver spot price is set because knowledge is, as always, power.

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