You’ve seen the silver price quoted. You might have even bought a coin or an ETF at that price — or something close to it. But what actually sets the number on your screen? Who’s on the other side of the trade? And why does the “spot price” you see never match what you pay at a coin shop?
The answer involves a 19th-century London institution, a futures exchange in New York, and a structural gap between paper markets and physical metal that has fueled controversy for decades. This piece explains all of it.
The Price You See Is Not Simple
The “silver spot price” displayed on financial websites is the notional price for immediate delivery of one troy ounce of silver at that moment. It’s calculated from active futures market prices — specifically, the front-month COMEX futures contract, adjusted for cost of carry.
That’s the shorthand. The reality has more layers.
Silver’s price is determined primarily by two venues: the London Bullion Market Association (LBMA) price benchmark, set twice daily in London, and the COMEX futures market in New York, which trades continuously during market hours. These two markets interact continuously, and together they set the global reference price.
The LBMA and the Silver Price Benchmark
The London Bullion Market Association (LBMA) is the trade association representing the wholesale over-the-counter (OTC) market for gold and silver in London. The London precious metals market has operated in some form since at least the 17th century, and London remained the center of global bullion trade well into the 20th century.
Until 2014, the silver price benchmark was set through something called the London Silver Fix: a daily telephone conference call among a small number of major bullion banks, who would agree on a price to clear supply and demand from their clients. The Fix had operated in roughly this form since 1897. It was straightforward to the point of anachronism — and that anachronism created problems.
Following regulatory scrutiny (and the broader scandal around LIBOR manipulation), the telephone fix was replaced in 2014 by an electronic auction administered by the CME Group and Thomson Reuters (later refined under LBMA oversight). Participating banks submit buy and sell orders in multiple rounds until supply and demand balance. The result is the LBMA Silver Price, published twice daily (at noon London time as of the current structure).
This benchmark is used to settle physical contracts, value silver held in trust, and as a reference price in many financial instruments.
COMEX: Where Futures Are Traded
COMEX is a division of the New York Mercantile Exchange (NYMEX), itself owned by CME Group. It is the primary U.S. exchange for trading precious metals futures.
A silver futures contract on COMEX is a standardized agreement to buy or sell silver at a specified price at a specified future date. The standard COMEX silver contract represents 5,000 troy ounces of silver. (There is also a mini contract at 2,500 troy ounces.)
Futures contracts serve several legitimate purposes:
- Hedging: A silver miner can sell silver futures to lock in a price for future production, protecting against price decline. An industrial user can buy futures to lock in future purchase costs.
- Speculation: Traders who have no intention of handling physical silver trade futures to profit from price movements.
- Price discovery: The continuous trading of futures produces a continuous stream of price information reflecting market expectations.
The key feature of futures markets is leverage. To hold a futures contract, you post a margin deposit — a fraction of the contract’s full value. This amplifies both gains and losses. A 10% move in silver prices produces a much larger percentage move in a futures position.
Only a small fraction of COMEX silver futures contracts result in actual physical delivery. Most are closed out before expiration. This is normal and expected — it is how futures markets operate. It also means that the paper market for silver is many times larger than the physical market.
Paper Silver vs. Physical Silver
This distinction generates more heat than almost any other topic in precious metals discussion.
Paper silver encompasses any financial instrument that represents a claim on silver without necessarily holding the physical metal: futures contracts, options, unallocated silver accounts (where a bullion bank holds silver on your behalf without segregating specific bars for you), exchange-traded funds, and other derivatives.
Physical silver is the actual metal — coins, bars, or rounds that you can hold, store, and deliver.
The controversy centers on scale. On any given trading day, the notional amount of silver traded on COMEX and in the OTC market dwarfs annual global silver production. Critics — including some who have testified before the CFTC — argue that the scale of paper trading suppresses the silver price below where it would be in a purely physical market, because the paper “supply” of silver exposure is effectively unlimited.
The counterargument, made by analysts including CPM Group’s Jeffrey Christian, is that high paper-to-physical ratios are normal and functional in all commodity markets, and that paper markets provide essential price discovery and hedging functions that benefit physical market participants.
The CFTC conducted a formal investigation into silver market manipulation allegations from 2008 to 2013 and closed it without finding evidence of manipulation. Deutsche Bank settled a class-action lawsuit alleging silver benchmark manipulation in 2016 — not an admission of wrongdoing, but a documented legal resolution that confirmed the issue was taken seriously enough to litigate.
The honest answer: the paper market’s influence on silver prices is real and complex; whether it constitutes “manipulation” depends on definitions and evidence that remain contested.
Silver ETFs
For investors who want exposure to silver prices without physically handling metal, exchange-traded funds (ETFs) are the most accessible instrument.
The largest is the iShares Silver Trust (SLV), which holds physical silver bullion in trust. The fund’s prospectus specifies that it holds allocated silver in vaults in London and New York, with JPMorgan as custodian (as of recent filings). Each share represents a fraction of one troy ounce of silver (the fraction declines slightly over time as expenses are deducted).
Key points about SLV and similar funds:
- They hold physical silver — SLV is not a derivative. It is backed by metal.
- Expense ratio: SLV carries an annual expense ratio (as of recent filings, approximately 0.50%), which reduces returns versus holding physical silver.
- Counterparty exposure: You are trusting the fund structure, the custodian, and the sub-custodians. There is no counterparty risk with physical silver you hold in your own possession.
- Convenience: ETFs can be bought and sold like stocks through any brokerage, with no storage, insurance, or transport costs.
Other significant silver ETFs and funds exist in multiple jurisdictions. Not all hold physical silver — some are structured as derivatives. Read the prospectus before assuming.
Why You Never Pay Spot
If you have ever tried to buy physical silver — a coin, a bar, a round — you have encountered the premium: the amount above spot price that dealers charge.
Premiums exist for real reasons:
- Minting and fabrication costs. Turning a silver bar into a government-minted coin costs money. The Mint charges for it. The wholesaler adds a margin. The dealer adds a margin.
- Dealer spread. Dealers buy below spot and sell above spot — the spread is their operating revenue.
- Supply and demand. When physical silver demand spikes (during crises, silver squeezes, etc.), premiums expand significantly. When demand is soft, premiums compress.
- Product recognition. Government-issued coins carry higher premiums than private rounds because they are universally recognizable and carry legal tender status. A U.S. Silver Eagle commands a larger premium than a generic one-ounce round of identical fineness.
Under normal market conditions, you might pay 5–15% above spot for a Silver Eagle. During high-demand periods — the COVID-19 market disruption in early 2020, the Reddit silver squeeze in early 2021 — premiums expanded to 30–50%+ on popular coins as physical supply was temporarily exhausted.
This means that the “spot price” you see on a website is not the price you will pay to acquire physical silver. When analyzing any physical silver purchase, include the premium in your cost basis.
A Word on Mining Supply
Silver supply is structurally unusual. Approximately 70–80% of mined silver is produced as a by-product of lead, zinc, copper, and gold mining, rather than from primary silver mines. This has a significant implication: because most silver is mined as a side effect of mining other metals, silver supply does not respond as quickly to price changes as it would if silver were the primary product. A miner who is in the ground for copper will keep mining copper whether silver prices rise or fall — the silver is nearly free to him, marginal cost-wise.
This supply inelasticity means that silver price spikes don’t immediately call forth large new supply the way they might for other commodities. It takes years to develop new primary silver mines. The market must absorb price shocks through demand adjustment and above-ground inventory movements.
The Bottom Line
The silver market is more complex than a single price ticker suggests. It is set by the interaction of a London benchmark auction, a U.S. futures exchange, and a global OTC dealer network — then reflected imperfectly in the physical market through premiums that vary with conditions. Understanding this structure doesn’t tell you where silver will go, but it tells you why it moves the way it does and what you’re actually buying when you acquire exposure.
Sources
[1] London Bullion Market Association (LBMA), “Silver.” lbma.org.uk
[2] CME Group, “Silver Futures — Contract Specifications.” cmegroup.com
[3] iShares, iShares Silver Trust (SLV) Prospectus. Filed with the U.S. SEC; available at sec.gov or ishares.com
[4] Commodity Futures Trading Commission (CFTC), “CFTC Closes Investigation Concerning Silver Markets,” September 25, 2013. cftc.gov
[5] Stacy Meichtry and Liam Moloney, “Deutsche Bank Agrees to Settle Silver Rigging Case,” Wall Street Journal, April 14, 2016.
[6] Financial Times, coverage of the 2014 London Silver Fix reform.
[7] CPM Group / Jeffrey Christian, various research publications and CFTC testimony. cpmgroup.com
[8] The Silver Institute / Metals Focus, World Silver Survey (annual). silverinstitute.org
[9] U.S. Geological Survey, “Mineral Commodity Summaries: Silver,” various years. usgs.gov