Guide to the London Silver Fix
The London Silver Fix sets the standard for silver pricing. It is the global benchmark for prices in gold and silver. Entities from banks to refineries to jewelers use the London Silver Fix as a reference for the price of silver.
Globally, this price is accepted among businesses and governments working in the precious metal space. These entities can conduct transactions based off of this price. If you’re curious in learning how the value of silver is determined, here’s what you need to know about the London Silver Fix.
Silver price fixing is based on balancing supply and demand.
The price of silver is influenced by buying and selling activity, supply and demand in the silver market, and market conditions. But when the everyday investor is trying to understand the silver’s current market value you won't refer to the London Silver Fix. Rather, you may just look at silver’s spot price which can be found through a precious metals dealer online.
For a precious metals investor interested in adding silver to their investment portfolio, it can be helpful to know how the price of silver is determined.
What is the London Silver Fix?
The Silver Fix is used by precious metal producers, consumers, and traders for reference in executing contracts and transactions. Unlike the Gold Fix pricing which is set twice per day, silver fix pricing is set once a day at noon London time. The London Silver Fix is set in U.S. dollars per troy ounce in a series of auction rounds lasting 30 seconds.
After each auction round, the system analyzes whether there is a difference between buying and selling. When the difference is within the threshold then the auction stops and the silver price is set. The London Bullion Market Association (LBMA) sets the final silver price in U.S. dollars, British pounds, and Euros.
How the London Silver Fix Works
The London Silver Fix started in 1897. It is the benchmark for the price of silver. Thus it is used in the pricing of silver bars and silver coins. The fix price also influences assets related to silver such as large silver buyers and sellers like banks and refineries. But everyday silver purchases are done using the silver spot price.
The original process of the London Silver Fix was setting it once per day by three LBMA Market Maker banks who were a part of the London Silver Market Fixing Limited (LSMFL). This Silver Fix process took place from 1897 until Aug. 14, 2014.
Silver bullion usually comes in the form of silver coins or silver bars.
The silver fixing members involved included HSBC U.S.A. Bank, Deutsche Bank AG, and The Bank of Nova Scotia-ScotiaMocatta. Here is how prices were set:
These banks met once per day over a brief conference call at noon London time to fix the price of silver. The process began by an announcement from the Chairman of the LSMFL to the other members of the LBMA Market Makers. The price fixing would then start by banks referencing their list of buyers and the amount they wanted to pay that day. Likewise, sellers who wanted to sell silver for a specific amount that day would be quoted.
The banks would then convene to find a price that’s close to a price their customers are willing to buy and sell silver. The silver fix price is set by gathering bids until the supply and demand match. This is the announced fix price of silver and transactions are done based on this price. Then the silver price would move up or down according to the selling and buying amount.
Recent Changes to the London Silver Fix
This traditional process of silver pricing changed in 2014 when Deutsche Bank stepped back as a fixer for the price of silver. Then the LBMA silver price benchmark auction was set and administered by the CME Benchmark Europe Ltd and Thomson Reuters Benchmark Services Ltd.
The two companies replaced the telephone auction with the electronic auction. The purpose of the auctions is to ensure uniform silver prices in all markets. This means whether a small or large enterprise purchases a specific amount of silver, the price of silver is administered based on a single published price.
The process involved setting the benchmark through an electronic system auction that allowed for greater transparency. That way you could see the buy and sell prices. If there was a significant difference in ounces being bought or sold, the price would automatically readjust to prevent any market manipulation.
But after both companies served the process for only three years, they stepped down from their roles in providing the London Silver Fix to the LBMA in 2017.
The LBMA now owns the benchmark called the LBMA silver price. It is administered independently by the ICE Benchmark Administration (IBA). The LBMA Silver Price is still determined by electronic auction. The first round of the electronic auction involves the system’s algorithm trying to match buy and sell orders within a certain threshold.
If this threshold is too different, the auction price will change and the process will begin from the start. This is repeated until the buy and sell orders are in agreement and a stable price is set.
According to the LBMA, the IBA ensures appropriate governance over the IBA Precious Metals Auctions and the LBMA Silver Price benchmark, as well as ensuring standards of conduct are met. All participants that take part in the auction process must bid by the rules set by the International Organization of Securities Commissions (IOSCO) for Financial Benchmarks.
Tips for Understanding the London Fix as an Investor
The London Silver Fix is an international benchmark that sets the price of silver. This benchmark is used by producers, refiners, and companies in the precious metals business. It helps firms who frequently buy and sell silver to determine what price they should be selling silver at.
Knowing the history and process of how the London Silver Fix operates can help investors understand how large multifaceted companies involved in the manufacturing, production, and refining of precious metals like silver decide their silver prices which ultimately impacts the pocket of the individual investor.
Here are some helpful links to the current spot prices for the precious metals:
Written by Paulina Likos
Read more about the global precious metals markets with expert content from the writers at Gainesville Coins:
How Basel III Will Affect Gold Prices and Gold ETFs
What You Need to Know About Physical Gold Supply and Demand
France Has Repatriated All Its Monetary Gold
Why Gold Coin Demand Doesn't Drive the Gold Price
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