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 is determined by the front month futures contract with the most trading volume.
Vitually any and all competent online silver bullion dealers host live silver spot prices quoted real time on their website. These silver spot price feeds are typically based in their local fiat currency (e.g. US dollars, Canadian dollars, euros, yuan, etc.).
The physical silver bullion industry in the USA and in most industrialized nation states is extremely 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 to acquire fine investment grade silver bullion products is due to the costs associated with mining, refining, manufacturing, minting, marketing, hedging, and warehousing the respective 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 product type and mint hallmark being 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.
When the financial markets are calm, investment grade 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.
During calm market conditions, the variance in silver bullion product prices range from as low as mere change above the silver spot price per ounce for very large silver bullion bars to a few percentage points above silver’s spot price for various silver coins guaranteed by governments.
When overwhelming physical silver bullion demand occurs like it did during the 2008 Financial Crisis, silver bullion prices for products climb higher. Often both on the sell and buy side to levels where both 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.
1 oz American Silver Eagle Coins traded over
25% above the then gold spot price in the fall of 2008
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 almost never 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 prices 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 silver grain. Silver refiners then sell these various industrial silver bulliion 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 dealers or to 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 to professional fully insured segregated non-bank storage facilities at prices just over silver’s fluctuating spot price.