New precious metals investors often get confused by the fluctuating silver price per ounce. Silver is a commodity consumed for a variety of purposes beyond investment.
In addition to being an investment and store of value, it is used in jewelry making, electronics manufacturing, the medical industry, and others. Many industries that consume silver prefer to buy the silver they will use before it is mined. By buying their silver in advance, they lock in the best possible price to keep manufacturing costs stable and helps the miners better understand the market demand once it is mined.
What Are Silver Futures Contracts?
Trading silver futures contracts may not necessarily involve acquiring physical silver. Instead, the contract is an agreement to take delivery of a specified amount of silver at future time.
Compared to the quantity of available physical metal stored in COMEX, LBMA and Shanghai vaults, the ratio of paper contracts traded is strikingly disproportionate. Roughly 408 paper contracts are traded for every ounce of physical silver being produced.
Why? Because traders at large Wall Street Banks like JP Morgan use this as a way to speculate price swings or hedge against volatility in other investments.
For each ounce of actual silver, there are 408 contracts representing a claim that may never exist in physical form for delivery. Which also provides opportunities for price manipulation by large institutional traders and hedge funds which can lead to a disconnection between the actual supply of physical silver and its price.
Silver Spot Price Per Ounce
Silver spot price has little to do with the actual supply and demand for physical silver bullion. The silver spot price is derived entirely from the trading of futures. The price of physical silver bullion tracks the futures contract price.
Many believe a conspiracy exists to keep the spot price of silver artificially low so that banks and other institutions can accumulate physical silver bullion before the next major global economic crisis.