Learn About Futures Insider for November 3, 2011: Silver

Silver, like gold, has enjoyed a long history of use for adornments and currency. This ductile metal has woven its way into history - evidenced by its chemical symbol Ag from the Latin argentum - and even found a home in popular myths as the white ward against evil creatures. Futures and physical contracts trade on more than one exchange, but these specifications are for the COMEX silver futures contract.

Contract Size: 5,000 troy ounces

Price Quote & Tick Size: US cents per troy ounce; minimum tick size is half a cent per ounce or $25.00 per contract.

Contract Months: According to the exchange, “Trading is conducted for delivery during the current calendar month; the next two calendar months; any January, March, May, and September falling within a 23-month period; and any July and December falling within a 60-month period beginning with the current month.”

Trading Specs: Open outcry trading is conducted from 8:25 AM until 1:25 PM ET.

Electronic trading is conducted via the CME Globex® trading platform from 6:00 PM Sundays through 5:15 PM Fridays, ET, with a 45-minute break each day between 5:15 PM and 6:00 PM.

Daily Price Limit: As of date of initial publishing, there were no daily limits; however, it is wise to consult exchange.

Trading Symbols: SI

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Past performance is not indicative of future results.
***chart courtesy of Gecko Software
Silver Facts

On Earth, silver can be found in a native form or combined with gold or other minerals. It has high electrical conductivity; however, its susceptibility to tarnish was an impediment to widespread use in electrical purposes. White and highly reflective when polished, silver has been used as currency and ornament for centuries. When alloyed with other metals such as copper, this precious metal is known as sterling silver and is harder than pure silver.

Silver was likely mined through ancient times, with evidence of mining in islands of the Aegean suggesting that separation from lead was occurring nearly six thousand years ago. Silver can be extracted from ore via smelting or chemical leeching. Large deposits of silver were discovered in the New World - and today, many of the top producing countries are part of the Americas.

The following chart illustrates production of silver from some of the top silver mining nations:
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***data courtesy USGS

In the United States, silver mines are located per the following map:
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***data courtesy USGS

Like other metals, silver can be recovered from scrap, but mining remains the main source of supply for fabricating silver products as illustrated in the following chart:
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Price highlights for this market include:

* Silver prices started the 1970s at modest price levels, tempered over the years after being cut from currency standards. Through the mid-to-late 1970s prices were within sight of $5 per ounce. At the end of the decade, two brothers - Nelson Bunker Hunt and William Herbert Hunt- were already noted for hoarding silver. Bullion prices were rising on a mix of inflation and geopolitical tensions and silver rode high - up from just over $6 an ounce to nearly $35.
* In January 1980, prices for silver topped out at just over $50 an ounce. Margin requirement changes and dropping prices eventually led to a $100 million margin call on the Hunt brothers, and panic ensued. By May, futures prices had touched close to $10 per ounce.
* By the summer of 1982, silver contract prices revisited price points below $5 per ounce. When Mexico announced it would nationalize banks later that year, prices rebounded and headed above $8 per ounce.
* 1983 saw the US dollar strengthen against other major world currencies which caused weakness in silver prices.
* Speculators renewed interest in precious metals in April 1987. Most were betting on a weakening of the US dollar in the wake of a huge trade deficit. That month the US dollar hit a 40 year low against the Japanese Yen. Silver futures prices would peak just above $9.79 per ounce before retreating.
* Prices would reach a low point in the early 1990s - nearly dropping to $3.50 per ounce.
* February of 1998 saw a renewed surge in silver prices, partially boosted by news that famed investor Warren Buffet's company was a buyer of 130 million ounces. Prices touched on $7.40 per ounce that month.
* In 2004 silver futures prices traded above $8 per ounce. By 2006 they moved above $10 per ounce. 2008's commodity price surge saw the market hit above $20 per ounce. The ensuing global uncertainty combined with changes in industrial demand and COMEX margin requirements delivered price volatility through to present day, with lows around $8.80 per ounce and highs above $49.

Key terms for this market include:

Gold-Silver Ratio - an expression of the number of ounces of silver it would take to buy an ounce of gold. Can be used as a basis of certain trading strategies. For example, in the 1980s the ratio was about 1:17 and at its peak in the 1990s, it was around 1:100.

Electroplating - a process which deposits one metal on the surface of another electrically.

Fine Silver - pure silver that is at least 999.5 parts per 1000.

Key Uses

Besides the designation of precious metal and the investing demand which may go with that, silver enjoys application in a variety of industries including dentistry, electronics, soldering, mirrors, nuclear reactors, chemical catalysts, and even medicine. Silver was once widely believed to be a ward against disease and has shown significant broad-spectrum antimicrobial properties. This metal was once used to kill germs prior to the widespread use of antibiotics. It has also recently been applied to clothing to inhibit bacterial growth. Research into this side of silver usage is ongoing.

One of the often highlighted areas of use was photography. With the age of digital cameras, this field of use has tapered while other industrial applications had experienced growth, as illustrated in the following graph:

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Key Concerns

Silver, like gold, can play host to a variety of fundamental concerns which are closely tied into the global economic situation. Since a large portion of use is dedicated to industrial applications, demand for electronic components and other manufactured goods can be tied into the price of silver. Trade of world currencies as well as investment demand for silver bullion can also be important issues to watch.

On the supply side of fundamentals, the concentration of much of the mining of silver in Peru and Mexico can be of importance if there are any political or social events in either of those countries.

Disclaimer: There is a substantial risk of loss in [You must be registered and logged in to see this link.] and it is not suitable for all investors. Losses can exceed your account size and/or margin requirements. Commodities trading can be extremely risky and is not for everyone. Some trading strategies have unlimited risk. Educate yourself on the risks and rewards of such investing prior to trading. Futures Press Inc., the publisher, and/or its affiliates, staff or anyone associated with Futures Press, Inc. or [You must be registered and logged in to see this link.] do not guarantee profits or pre-determined loss points, and are not held monetarily responsible for the trading losses of others (subscribers or otherwise). Past results are by no means indicative of potential future returns. Fundamental factors, seasonal and weather trends, and current events may have already been factored into the markets. Information provided is compiled by sources believed to be reliable. Futures Press, Inc., and/or its principals, assume no responsibility for any errors or omissions as the information may not be complete or events may have been canceled or rescheduled. Any copy, reprint, broadcast or distribution of this report of any kind is prohibited without the expressed written consent of Futures Press, Inc.