New silver bullion buyers often ask why the fluctuating Silver Spot Price is lower than the price for the various Silver Bullion products we offer on our website. Here we will explain (#1) what is the Silver Spot Price and (#2) its relation to the physical Silver Bullion market.
Let us begin by defining a few of the terms at hand:
Physical Silver - (n) refers to bullion typically in a .999 fine silver coin, round, and bar formats; yet there are also older highly traded 90% US silver coins which are often considered physical silver amongst silver bullion buyers.
Silver Spot Price - (n) the price of theoretical fine silver delivered right now. It gets determined by the front-month silver futures contract with the highest trading volume.
Virtually any competent online silver bullion dealers host live silver spot prices quoted real-time on their website. These silver spot price feeds get typically based or measured in their local fiat currency (e.g., fiat US dollars, fiat Canadian dollars, fiat euros, fiat pounds, fiat yuan, etc.).
The physical silver bullion industry in the USA and most industrialized nation-states is exceptionally competitive. Typically with United States online silver bullion dealers, the silver bullion products available for you to purchase and take delivery of are priced per troy ounce of silver, although there are also smaller gram or fractionalized troy ounce silver bullion rounds, coin, and bars available as well.
It is often possible to acquire silver bullion at mere percentage points above the fluctuating silver spot price here in the USA.
The additional price for acquiring fine investment-grade silver bullion products is due to the costs associated with mining, refining, manufacturing, minting, marketing, hedging, and warehousing the particular silver bullion products on sale for you to buy.
In contrast, when you are selling silver bullion to online silver bullion dealers, silver bullion products will typically yield a sale or bid price at or just below the fluctuating silver spot price. Much will also depend upon the silver bullion product form and silver mint hallmark sold to the silver dealer. For instance, the silver bid price you will get for 1 oz American Silver Eagle coins will be much higher than the silver bid price you will get for a 1 oz silver bar or generic 1 oz silver round for example.
The following chart shows how physical silver vs. silver spot price typically operates during normal market conditions.
Silver Bullion Prices During Calm Market Timeframes
When the financial markets are calm, physical silver bullion product prices hover slightly over the fluctuating silver spot price.
For instance, if silver’s spot price is $20 oz, most physical silver bullion products will be priced slightly above $20 per troy ounce of silver bullion you consider buying.
Conversely too, if silver's spot price is $20 oz and the financial market is calm, you should expect to be able to mostly sell silver bullion products at or near the then spot price to bullion dealers. Some silver bullion products almost always yield bid prices higher than the fluctuating silver spot price.
For example, Silver Canadian Maple Leaf coins and American Silver Eagle coins will virtually almost always fetch selling silver prices from bullion dealers at or above the then silver spot price.
During calm market conditions, the variance in silver bullion product prices ranges from as low as mere change above the silver spot price per ounce for large silver bullion bars to a few percentage points above silver’s spot price for various silver coins guaranteed by governments.
Silver Bullion Prices During Volatile Market Timeframes
When overwhelming physical silver bullion demand occurs as it did during the 2008 Financial Crisis, silver bullion prices for products climb higher. Often both on the sell and buy-side to levels in which both the silver bullion bid and ask prices hover above the world’s fluctuating silver spot prices.
Take a look at how the world’s most popular silver bullion coin was priced as high as +80% over the fluctuating silver spot price in the fall of 2008.
At the time, intelligent silver bullion sellers were asking for a high premium on any investment-grade physical silver bullion products they were selling.
Hitting measured high price premiums of +80% above the then silver spot price (silver spot $9 oz, ASE coins selling at $16 oz).
Silver’s Spot Price vs. Silver Bullion Prices currently functions like so:
- Silver traders buy and sell silver futures contracts on worldwide futures exchanges. Although seldom physically exchanging any real-world commodity, silver futures contract trading's ‘price discovery’ determines fluctuations in silver spot prices in various fiat currencies around the world, including the US dollar silver spot price.
- Silver miners extract and often sell mixed silver doré bars and silver ore to silver bullion refiners at rates just below the world’s fluctuating silver spot prices.
- Silver refiners convert the unpure silver ore into .999+ fine bullion, silver planchets, silver billets, or into .999 fine silver grain. Silver refiners then sell these various industrial silver bullion products to governments, mints, or silver bullion dealers at or just above silver’s spot price.
- Both government silver mints and private silver mints strike respective silver bullion coins/silver rounds or manufacture silver bullion bars. They then sell these investment-grade silver bullion products to silver bullion dealers like ourselves, or the public at large at prices typically above the fluctuating silver spot price.
- Retail and wholesale silver bullion dealers like us here at SD Bullion... we produce, procure, and sell silver bullion products for discreet fully insured delivery to door or professional fully insured segregated non-bank storage facilities at prices just over silver’s fluctuating spot price.
A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold