Guide to the London Silver Fix
The London Silver Fix sets the standard for silver prices. It is the global benchmark for gold and silver prices. Companies from banks to refiners to jewelers use the London Silver Fix as a reference for silver prices.
This price is accepted worldwide by companies and governments that are active in the precious metals sector. These companies can conduct transactions based on this price. If you’re curious about how silver is valued, here’s what you need to know about the London Silver Fix.
Silver pricing is based on the balancing of supply and demand.
The price of silver is affected by buying and selling activity, supply and demand in the silver market, and market conditions. But when the common investor is trying to understand the current market value of silver, you will not be referring to the London Silver Fix. Instead, you can simply look at the spot price of silver, which you can find at an online bullion dealer.
For a precious metals investor interested in adding silver to their investment portfolio, it can be helpful to understand how the price of silver is determined.
What is the London Silver Fix?
The Silver Fix is used by precious metals producers, consumers and traders as a reference when executing contracts and transactions. Unlike the Gold Fix Price, which is set twice a day, the Silver Fix Price is set once a day at 12:00pm London time. The London Silver Fix is determined in US dollars per troy ounce in a series of 30 second auction rounds.
After each auction round, the system analyzes whether there is a difference between buying and selling. When the difference is within the threshold, the auction stops and the silver price is fixed. The London Bullion Market Association (LBMA) sets the final silver price in US Dollars, British Pounds and Euros.
How the London Silver Fix works
The London Silver Fix was introduced in 1897. It is the benchmark for the price of silver. Therefore, it is used in the pricing of silver bars and silver coins. The fixed price also affects silver-related assets such as large silver buyers and sellers such as banks and refiners. But everyday silver purchases are made using the silver spot price.
The original process of the London Silver Fix was to be set once a day by three LBMA Market Maker banks which were part of the London Silver Market Fixing Limited (LSMFL). This silver fix process took place from 1897 to August 14, 2014.
Silver bullion usually comes in the form of silver coins or silver bullion.
Silver fixing members involved included HSBC USA Bank, Deutsche Bank AG and Bank of Nova Scotia-ScotiaMocatta. Here is how the prices were set:
These banks met once a day for a short conference call at 12pm London time to set the price of silver. The process began with an announcement by the LSMFL Chair to the other members of the LBMA Market Makers. Pricing would then begin with banks referencing their buyer list and the amount they wished to pay that day. Sellers who wanted to sell silver for a certain amount that day were also noted.
The banks would then come together to find a price close to what their customers are willing to buy and sell silver at. The fixed price for silver is set by bidding until supply and demand match. This is the announced fixed price for silver and transactions are processed based on this price. Then the price of silver would move up or down depending on the amount sold and bought.
Recent changes to the London Silver Fix
This traditional process of silver price formation changed in 2014 when Deutsche Bank stepped down as the silver price fixer. Then the LBMA Silver Price Benchmark Auction was set and managed by CME Benchmark Europe Ltd and Thomson Reuters Benchmark Services Ltd.
The two companies replaced telephone auctions with electronic auctions. The aim of the auctions is to ensure uniform silver prices in all markets. This means whether a small or large company buys a certain amount of silver, the price of silver is managed based on a single published price.
The process involved setting the benchmark through an electronic system auction, which allowed for greater transparency. This way you can see the buy and sell prices. If there was a significant difference between ounces bought or sold, the price would automatically readjust to prevent any market manipulation.
But after only three years in the process, both companies resigned from their role in providing the London Silver Fix to the LBMA in 2017.
The LBMA now owns the benchmark called the LBMA Silver Award. It is managed independently by the ICE Benchmark Administration (IBA). The LBMA silver price is still determined by electronic auctions. In the first round of the electronic auction, the system’s algorithm tries to match buy and sell orders within a certain threshold.
If this threshold is too different, the auction price changes and the process starts over. This is repeated until the buy and sell orders match and a stable price is established.
According to LBMAthe IBA ensures proper governance over the IBA precious metals auctions and the LBMA silver price benchmark and ensures standards of conduct are adhered to. All participants participating in the auction process must bid in accordance with the financial benchmark rules established by the International Organization of Securities Commissions (IOSCO).
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 companies that frequently buy and sell silver determine at what price they should sell silver.
Knowing the history and process of how the London Silver Fix works can help investors understand how large, multifaceted companies involved in the manufacture, production and refining of precious metals such as silver set their silver prices, which ultimately affects the pocket of the individual investor.
Here are some helpful links on the current spot prices for precious metals:
Silver spot price today
Gold spot price today
Platinum spot price today
Palladium spot price today
Written by Paulina Likos
Read more about the global precious metals markets with expert content from the authors 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 of its currency gold
Why gold coin demand isn’t driving gold prices
Investing in Gold vs. Silver