Guide to the London Silver Fix
Guide to the London Silver Fix
Understanding the global benchmark that sets silver pricing standards for banks, refineries, and precious metals traders worldwide
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.
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 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.
Complete Guide Overview
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.
Key Characteristics
- Set once daily at noon London time
- 30-second auction rounds
- Priced in U.S. dollars per troy ounce
- Global benchmark standard
Multiple Currencies
- Primary: U.S. dollars
- Secondary: British pounds
- Secondary: Euros
- Set by LBMA final determination
Auction Process
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 multiple currencies.
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.
Primary Uses
- Pricing silver bars and coins
- Bank and refinery transactions
- Industrial contract settlements
- International trade reference
Understanding these applications helps when deciding to purchase silver bullion for investment purposes.
Market Impact
- Sets global pricing standards
- Influences retail silver prices
- Affects industrial procurement
- Guides investment decisions
Monitor these influences through live silver price tracking for optimal timing.
Historical Process (1897-2014)
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 August 14, 2014.
Traditional Conference Call System
The silver fixing members included HSBC U.S.A. Bank, Deutsche Bank AG, and The Bank of Nova Scotia-ScotiaMocatta. Here's how prices were traditionally set:
Step 1: Daily Conference Call
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.
Step 2: Bid and Offer Compilation
The price fixing would 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.
Step 3: Price Discovery
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.
Traditional Method
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. This system worked for over a century before modernization became necessary.
Recent Changes and Electronic System
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.
Electronic Auction Introduction
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.
Enhanced Transparency
- Electronic system auction implementation
- Visible buy and sell prices
- Automatic price readjustment
- Market manipulation prevention
Uniform Pricing
- Single published price standard
- Consistent for all market sizes
- Small and large enterprise equality
- Global market standardization
Process Innovation
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.
Administrative Transition
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.
Current LBMA Silver Price System
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.
Current Structure
- Owner: LBMA (London Bullion Market Association)
- Administrator: ICE Benchmark Administration (IBA)
- Method: Electronic auction system
- Governance: Independent oversight
Auction Mechanics
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.
Regulatory Compliance
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 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.
Investment Applications
- Understanding institutional pricing
- Timing market entry and exit
- Comparing to retail premiums
- Analyzing market trends
Apply this knowledge when you invest in silver bullion to make informed decisions.
Market Intelligence
- Track daily fixing results
- Monitor auction participation
- Analyze volume patterns
- Compare to spot prices
Use real-time silver price charts for comprehensive market analysis.
Educational Value
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.
Precious Metals Context
Understanding the London Silver Fix alongside gold pricing mechanisms provides comprehensive precious metals market knowledge. While silver has its daily fix, gold prices are set twice daily, creating different trading dynamics between the two metals.
Disclaimer: This guide is for educational purposes only and should not be considered financial advice. Silver investments involve risk, including potential loss of principal. Past performance does not guarantee future results. Always consult with qualified financial advisors before making investment decisions.