The fix is off.



What is the silver fix?

It’s a daily price benchmark for the silver spot market. The fix is set during a conference call at noon London time between Deutsche Bank , HSBC and Bank of Nova Scotia . During the call, the banks exchange bids and offers for silver on behalf of themselves and their clients, declaring the price ‘fixed’ when supply and demand is equal at a certain price.

So why is that important? Isn’t silver traded constantly on the spot market?

Sure, but since spot silver is traded 24 hours a day, the daily fix provides a snapshot of prices that industry participants can use to price deals. While some traders prefer the volatility of a constantly-moving spot price, larger players like miners and industrial consumers, which buy and sell in bulk, prefer to execute their deals on a set daily price.

Well that seems pretty crucial. Why is it being stopped?

Because in April Deutsche Bank resigned from the silver panel, and also a similar panel that sets the benchmark price of gold, leaving just HSBC and the Bank of Nova Scotia. This is a situation that both banks deemed nonviable, a person familiar with the matter said (there’s been a lot of scrutiny of price-setting lately) and they resigned their own seats. Deutsche Bank resigned as part of a wider withdrawal from the commodities business.

What does that mean for silver buyers and sellers?

Unless a new system is established, buyers and sellers will either need to price their deals on the moving spot silver price, or use another daily benchmark such as the silver futures closing price on the U.S. Comex exchange.

What happens now?

Well, the three banks will continue to publish the fix up to and including August 14 2014. Beyond that, no-one is really sure.

A consultation process will take place to explore possible alternatives. The Bullion Market Association, an industry body, has said it will work to ensure the London silver market continues to work. The silver market is entering unknown territory.