The primary idea was to rattle the short sellers in the futures markets by buying up shares of ETFs like SLV and PSLV, buying physical silver from online dealers, local coin shops, and exchanges like eBay to spike demand and elicit a response in the spot price - set by the LBMA - and in futures trading.
With the dust settling, we can ascertain that there is a winner, actually two, as both sides can claim victory. The redditers managed to drain inventory from dealers and bump up the price for finished goods, while the LBMA and futures pit traders managed, after some initial shock treatment, to keep a lid on the price of their 5,000-ounce contracts. Rising from about $25.50 per troy ounce to as high an ask price of $30.50 or thereabout, futures participants smashed it back down into a range between $26.20 to $27.80, with the market makers initially increasing the bid-ask spread to a highly unusual $1.00, now back down to a 0.50 spread.
It will remain to be seen which side will eventually claim victory if it's assumed the LBMA and establishment players in futures want to keep the price of silver low and the reddit public wants it higher. That will work out over time, but for now, the dealers and the public don't have to rely on spot and futures prices when buying small amounts (1, 10, 100 ounce bars and coins), because a market price is available and actually has been in place for years. It's called eBay, where silver and gold coins, bars, bullion, jewelry, and other objects have been selling for years in a very robust marketplace.
Money Daily has been tracking prices since April 2020 consistently with the same methodology and the results are now providing a solid market pricing mechanism. Forget about "spot" and "premium." Think rather, spot price and market price, which are two distinct, separate pegs which may or may not correlate.
The LBMA sets the spot price, or "fix" as they call it, which is then further refined via futures trading on a continuous basis, with the exception of the weekly period beginning each Friday at 5:00 pm ET and ending Sunday at 6:00 pm ET. Their standard unit is a contract for future delivery of 5,000 troy ounces of silver, which is normally settled in cash, which actually eliminates physical silver from the equation and sheds doubt on the veracity of the process. In essence, they are trading paper (silver contract) for paper (FRNs, euros, yen, etc.)
The market price is determined via a weekly survey of completed sales on eBay of 1 oz. silver and gold coins and bars, performed every Sunday morning between 7:00 am and 9:00 am ET, numismatics excluded, shipping - often free - included, to derive a price for delivered silver product paid in paper currency.
Thus, the two pricing mechanisms are distinct and either or both can be ignored or followed at the buyer or seller's peril. There is obviously a price differential, being that the spot price is first set by the fix and then traded upon in the bulk amount of 5,000 ounces, whereas the market price is determined using finished goods (bars, coins), using a blended, transparent average (the sum of average and median prices for coins and bars for silver and gold separately, divided by four), universally settled in an exchange of US$ (FRN) for specific goods. The price, or "peg" is set only once per week. The market determines adherence, rejection, or any divergence from that price until the next survey.
There's no need to update pricing by the minute, as is the case in the futures trading. The market price is self-determinant.
For the present time, this weekly survey is sufficient to gauge the price of finished gold and silver (we're experimenting with silver first and will get around to gold as time and developments in the market persist), until a better system is devised, possibly incorporating prices from participating dealers and/or coin shops.
With a reasonably-calculated market price, there's little need for the spot price in the general operation of the open market, unless one is trading in larger amounts, though it makes perfect sense that items weighing 10 ounces, 100 ounces, and beyond would warrant a discount to the single ounce market price, while fractional amounts (1/2, 1/4, 1/10 ounce) would be priced accordingly higher on a per ounce basis.
The premia or discount is entirely a function of market participants. Some dealers may offer discounts to repeat buyers or pay a bit more from steady customers. Each market participant will have his or her own methodology, likes, dislikes, plans, and schemes, all of which makes for a vibrant, open market with a transparent benchmark.
Going forward, every Sunday morning around 9:00 am ET, Money Daily will release its Single Ounce Silver Market Benchmark, using the proven methodology and timing. Bear in mind that any price discovery carries a significant caveat emptor. Preliminary results from prior surveys can be found HERE.
The initial, current Single Ounce Silver Market Benchmark is now available.
Money Daily and Downtown Magazine (dtmagazine.com) bear no responsibility for sales or purchases based upon its posted prices and has no relationship with eBay other than as a casual seller. As developments proceed, the methodology and process may change.
One final thought: Through all the ups and downs, the real winners may have been the silver miners, some of which experienced significant gains in the price of their stock on the NYSE and NASDAQ, and they're always amenable to higher prices for their product, be it spot or market.
Let the games continue!
At the close, Tuesday, February 2, 2021:
Dow: 30,687.48, +475.57 (+1.57%)
NASDAQ: 13,612.78, +209.38 (1.56%)
S&P 500: 3,826.31, +52.45 (+1.39%)
NYSE: 14,768.58, +172.39 (+1.18%)
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