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The New Silver Fix Explained

Effective August 15, 2014, the method for determining the price of silver has changed. For the past 117 years, the members of the London Bullion Market Association (LBMA) convened via phone to work out the day’s price for silver, which was then used as a baseline for sales contracts, ETFs, and over-the-counter trades (like those done here at MGS). Now the LBMA will determine the silver price using a price platform and methodology provided by the Chicago Mercantile Exchange (CME), which will be administrated by Thomson Reuters.

Another change to the silver fix is the makeup of the members of the LBMA. Of the previous members (Bank of Nova Scotia–ScotiaMocatta, Deutsche Bank AG, HSBC Bank USA), Deutsche Bank has dropped out and is being replaced with Mitsui – one Japan’s (and the world’s) largest corporate groups.

The new price fixing system is an answer to the market’s calls for a more transparent process. According to Thompson Reuters, the new silver fix uses an auction-based, auditable electronic system that will match buying and selling orders to reach a benchmark for the price of silver. All of the auctions can be viewed live on Thomson Reuters flagship desktop, Eikon.

Unlike the old price fix done over the phone, the observability of the new fix should improve overall transparency in the long run – avoiding conflicts of interest and leading to wider institutional and public participation in the precious metals markets. Since similar issues of transparency have been raised over the gold fix, some market professionals speculate that it may receive a similar update – depending on how well the new silver fix performs.

For more information about precious metal prices, or receive a quote for your precious metals, contact MGS today.

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