Back in England 1919 a principal group of bullion traders and refiners got together to determine a fair price for precious metals. Each member of the group representing their own interests and the interests of their clients (meaning each bullion trader owns precious metals in their name and represents investments of their clients) gathers in a room to buy or sell their precious metals. One by one the traders would state the amount of silver, for example, that they want to buy or sell. Once each representative made his intentions know, the chair reviewed the requests and determined if the amount to buy was larger than the amount to be sold or visa-versa. If more there was more demand to buy than to sell, the chair would propose a higher price of silver; if the demand to sell was larger than to buy, the chair would propose a lower price of silver.
The members of this committee would gather together each day at the office of N M Rothschild & Sons to conduct this process. Thus instituting the manner in which the price of precious metals are determined.
The same process continues today to set the price of silver and other precious metals, albeit with some modifications.
How the Price of Silver and Gold are Set Today
Modifications
- The first committee consisted of five participants: N M Rothschild & Sons, Mocatta & Goldsmid, Pixley & Abell, Samuel Montagu & Co. and Sharps Wilkins. The current participants in the fixing committee consists of Barclays, the Bank of China, Goldman Sachs, HSBC Bank USA, JPMorgan Chase, Morgan Stanley, Société Générale, Standard Chartered, Scotia-Mocatta (Scotiabank), the Toronto-Dominion Bank, and UBS.
- The participants meet via phone conference rather than in person.
- The prices are fixed twice daily: 10.30am and 3pm, by London time.
10:30am when the London Market opens, and 3pm when the U.S. Market opens.
What Cause Prices to Shift?
There are three large contributing factors to the price of silver and gold.
Supply and Demand
The principle of supply and demand greatly effects the price of silver and gold.
According to gold.org, “Gold demand in the fourth quarter increased 4% year-on-year to a 10-quarter high of 1,117.7t. Full year demand was virtually unchanged, down just a fraction (-14t) to 4,212t. Weakness in the first half of the year was cancelled out by strength in the second half. Fourth quarter growth was driven by central banks (+33t) and investment (+25t), offset by a marginal contraction in jewellery (-6t) and continued declines in technology (-6t). Supply remained constrained: annual mine production increased by the slowest rate since 2008 (+1%) and recycling dropped to multi-year lows. Total supply declined 4% to 4,258t – the lowest since 2009.”
Demand for Silver coin and bars have been on the rise surging 324% from 2006 to 2015. The global usage of industrial silver is estimated to rise in the coming years, meaning a potential scarcity in the market. Many experts are saying a supply deficit is in our near future. This is why a sound portfolio has a few shares invested in silver.
Global Collapse
European nations face a rising debt crisis. While Greece has already collapsed, Cyrups, Ireland, Spain, and Portugal are following in scary footsteps. This means the Euro is unsteady footing. As investors dump the Euro from their portfolios, the price of gold will likely skyrocket. This isn’t unlike the inverse relationship of gold and the dollar; as the dollar weakens, the price of gold and likely the price of silver will rise.
Inevitable Inflation
Since the inauguration of central banks, inflation has plagued our economies worldwide, causing ever single currency to lose value over time. While fiat currencies can be manufactured at government will, and conversely silver and other precious metals cannot, the creation of dollar bills, euros, etc. will only increase the price of silver as well as other precious metals.
You can Rely on Landmark Capital for the Most Accurate Prices
While the process of determining the price of silver and gold may have stayed the same, we know that the monetary value of the metals has fluctuated drastically over time. The decreasing supply coupled with growing demand, the looming economic implosion of several European countries, and the inescapable climb of inflation implore us to earnestly consider an investment in silver, gold, and other precious metals. Our knowledgeable team at Landmark Capital is trained to help you determine if these investments are right for your portfolio.