A STUDY ON
Content
A STUDY ON ―ANALYSIS OF SILVER‖ AT
THE STEEL CITY SECURITIES LIMITED
VISAKHAPATNAM
( Miss.Vandana Sethia.)
(2010-2012)
IN PARTIAL FULFILLMENT FOR
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THE AWARD OF THE DEGREE PGDBM
DECLARATION
I here by declare that the project entitled A study on ―ANALYSIS OF SILVER‖‖ in THE STEEL CITY SECURITIES LIMITED,Visakhapatnam is an original work done by me and the findings are collected during my study and submitted by me in partial fulfillment for the award of degree in ―PGDBM‖ from ―Integral Institute of Advanced Management‖ college of P.Gstudies affiliated to A.I.C.T.U.E
The findings in this report are based on information collected by me .
( Miss.Vandana Sethia)
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ACKNOWLEDGEMENT
I would like to express my sincere thanks to Mr.Satish Arya, DIRECTOR of STEEL CITY SECURITIES and Head of Compliance for permitting me to pursue this project and I am also very much thankful to Mr.Abhilash (Project guide ) at STEEL CITY SECURITIES LIMITED, staff and Employees of STEEL CITY for their support and advice in all stages of the project.
My sincere thanks to our Director Parvatishwara Rao. I express my gratitude to Mr.Srinivas for their constant encouragement and I would also like to thank my project guide of our college Mr.Aditya
( Miss.Vandana Sethia)
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CONTENTS
CHAPTER I
Objectives of the study
Scope of the study
Research methodology of study
CHAPTER II
Company profile
CHAPTER III
Brief description of commodity market:
Introduction
History of evolution of commodity market
Current scenario in indian commodity market
Trends in volume contribution on the three National Exchanges:-
Trade strategy
National commodity exchanges
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International commodity exchanges
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Benefits of commodities future market
Working of Commodity Market
Regulated Market in India
Benefits of trading in Commodity
CHAPTER lV
Silver
History of silver
Mines of silver
Global scanario for silver
Silver producing countries
Silver consuming countries
Grading of silver
Contract specifications for silver futures
Indian scenario for silver
Production of silver in India
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Silver at MCX
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Appointment of clearing agents of buyers and sellers
Appointment of business rules
Uses of silver
CHAPTER V
Analysis of awareness of people about commodity market
Investment options
Factors that influence the prices of silver
Price analysis of silver
World Demand of silver in 2010
World Supply of silver in 2010
price analysis in 2011
CHAPTER Vl
CONCLUSION
SUGGESTION
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CHAPTER I
OBJECTIVES OF THE STUDY
A new energy is coursing through a very old industry : the commodity market has been bitten by the futures bug and its throbbing opportunity for professionals in research, business development and analysis.
At this juncture one can easily exploit a very good opportunity in this market within a short period.
To understand the basics of commodity market and to discover the emerging
prospects in the Indian commodity market.
To empathies trading and settlement mechanism for commodities in Indian stock
exchanges
To know various forms of investment options for silver . To know how the analysis for silver is done To know upto what percentage of people prefer commodity
Study aims at understanding the governance and regulatory frame work ofcommodity derivatives exchanges and analysis of commodity silver
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SCOPE OF THE STUDY
The study mainly focuses on silver commodity market, its history and latest
developments in the country in Commodities market.
The study also keeps a birds eye view on global commodity market and itsdevelopment
The study vastly covered the aspects of commodity trading, fundamental analysis of silver and predicting future trends in the market mechanisms in Indian commodity.
The study also provides regulatory framework for commodities market in India.
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RESEARCH METHODOLOGY
PRIMARY DATA :
Data Collected from Brokers and Members of steel city Securities
SECONDARY DATA :
Data Collected from various books and sites • NCFM Module on commodity markets. • NCDEX handbook for commodities.
DATA PROVIDED BY AS PART OF THE CLASSES UNDERTAKEN.
DATA COLLECTED FROM NEWS PAPER AND INTERNET.
http://en.wikipedia.org/wiki/Silver
http://www.mcxindia.com
http://www.ncdex.com MCX Certified Commodity Professional Reference Material http://trade.indiainfoline.com http://www.finance.indiamart.com
SAMPLE SIZE :30
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CHAPTER II
COMPANY PROFILE
HISTORICAL BACKGROUND OF THE COMPANY:Confidence As Strong as Steel Steel City Securities Limited was incorporated on 22nd February 1995 and raised equity of Rs.105 lakh on 24th June 1995 and obtained the membership of the largest and prestigious National Stock Exchange of H-Limited (NSE) and Bombay Stock Exchange (BSE) in 2000, in its capital market segment. The 1st VSAT for its trading workstation (TWS) at Hyderabad was installed in 1995 and the 2nd at Visakhapatnam in April 1996.
Presently, there are 64 VSATS installed at more than 50 centers in Andhra Pradesh, Orissa, Tamilnadu and Karnataka. There are 219 computer trading terminals put together connected to their VSAT at the centers (each VSAT can have 5 TWS connected). Since its inception the service of this organization is prompt and there is not a single instance of payout of funds / deliveries delay to any client, from the beginning the firm is committed to continue the same service in future also. Companies‘ basic principle is total commitment in service to all clients with all transparency and ensures that is it their sacred policy not to indulge in own trading, there are no self-motives or necessity to cancel or delay anything.
Every branch is fully equipped and independently connected to the NSE Hub at Mumbai, every branch is having 2 to 5 trading terminals connected to VSAT. The company
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Board of Directors of Steel City Securities Limited
1.
Mr. G. Sree Ram Murthy
Chairman Cum Managing Director
2. 3. 4. 5.
Mr. G. Raja Gopal Reddy Mr. K. Satyanarayana Mr. Satish Kumar Arya Mr. G. Satya Ram Prasad
Executive Director Executive Director (Surveillance) Director (Operations) Director
THE VARIOUS SERVICE DEPARTMENTS IN SCSL ARE:
Systems Departments Inspection Department H.R. Department, Research and Development Department Accounts Department Deliveries , Depository Participant
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STRUCTURE OF THE COMPANY
The total control of the organisation is under the Chairman who is also the Managing Director. Under him there are three Executive Directors for surveillance & operations and also a Sleeping Director.
Mr.G.Sree Ram Murthy is the Chairman cum Managing Director, Mr.G.Raja Gopal Reddy the Executive Director looks after the market development and opening of new franchisees. He also looks after requirements of new and existing branches. Mr.K.Satyanarayana the Executive Director, surveillance has an inspection team under him for the purpose of vigilance in branches and franchises.
Mr.Satish Kumar Arya is the Director Operations. He controls the trading limits, margins etc. All office related matters are dealt by him. He is also responsible for meeting the requirements and following the rules set by the stock exchanges. Mr.G.S.R.Prasad is the fourth Director who does not play any role in the day to day working of the company.
General Manager (Operations) is Mr.Murali is responsible for De-Mat with NSDL / CDSL. General Manager (Systems) is Mr.V.Srinivas who looks after the Networking, Software, Hardware and trading related requirements and VSAT connectivity. Finance and accounts were
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looked after by Mr.Ramu who is a Chartered Accountant.
Mr. Samba Murthy is responsible for the trading and registration of new clients. He is the Trading Manager. Mr. Krishna Naga Bhutan is the Marketing Manager. He is also responsible for conduction various awareness seminars. The legal section deals with the investor‘s problems and legal issues with the company. Even without relation to the company they render legal services.
CAPITAL:
The base capital is set up a trade center is 1 crore, SCSL raised equity of Rs.105 lakhs during its incorporation. Earlier, SCSL paid Rs.75 lakhs as base capital to NSE when it was set up. Every trade corporation has to maintain a reserve of some amount with NSE. At present, SCSL has 7.5 crores as margin with NSE.
WORKING STAFF:
There is 100 to 150 staff employed in SCSL. The staff draws a salary basing on the cadre they are employed. The salaries in SCSL vary from Rs.2000 to Rs.20000 per month basing on the cadre of the employee.
MARKET INFORMATION:
In SCSL, daily the research analyst collects the market information and it is analyzed. The market information is used to forecast the index movement, price movement of the shares and
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enables the clients to make use of the information in trading to get better results.
The research analyst in forecasting the market movement follows the technical analysis, fundamental analysis and efficient market hypothesis. The research analyst collects the information about the company, the industry and the economy through different media to know the company‘s position.
Since, the NSE & BSE are markets with strong form efficiency, as the market discounts the information itself very quickly and changes as per the information, the research analyst has only fewer jobs to do here.
EMPLOYEE RECRUITMENT:
In SCSL, the top managements select the candidate and the letter of appointment or rejection is sent to the Board of Directors. The Directors do the placement in SCSL. The placement can either be in the Head Office or in any other branches of SCSL.
The research analyst not only analyses the marketing information but, every day in SCSL an edition of the research analyst’s, suggestions on scrips that have to be bought and sold is also printed which helps the clients of SCSL to invest in shares that are profitable.
To know the trade position of the client, back-office is done in SCSL everyday immediately after the trade ends. ‗STEEL PACK‘ is the package used in back office system. Steel City Software team was designed and maintained this ―STEELPACK‖ Package.
Back office
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The main modules of back office system are:
1. Trading 2. ImportingExporting 3. Margins
4. Clearing 5. Business Controls 6. Finance 7. Payin-Payout In the back office, first the Import Export module is opened where the trade file of the day‘s trade is collected and the text file was imported to the system. There, the old closing prices are inserted by new prices from the Bhavcopy file. Bhavcopy is the average of last half-an-hour prices of the scrips.
To calculate the net mark to market value, Bhavcopy file is imported from NSE/BSE/NCDEX/MCX. Net mark to market value is to be known to know the profit or loss position of the client, basing on which the Trading Manager of SCSL will decide whether the client can trade or not for the next day on comparing it with the margin paid by the client.
After importing the Bhavcopy file, the trading module is opened. In trading module, the sauda status is known from the Sauda Manager‘. Sauda manager is the number of trade confirmations recorded. Confirmation of trading transaction with brokerage commission is known as ‗Sauda‘.
After Sauda Manager, Net positions process is done. In the net positions process, cumulative net position reports, client-wise net position reports and other reports are made and are given to clients and to the accounts department. The bills are prepared and sent to the respective clients.
REPORTS After selecting ‗REPORTS‘ option from main menu, the member has to specify the criteria for
Client Wise and Scrip Wise; Contract Note reports; Client Wise Confirmation reports; Bills
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which the report is needed. The types of reports that may be generated are: Net Position Reports
Summary reports; bad deliveries reports; auctions reports; objections reports; margins reports; securities reports and miscellaneous reports. The daily reports of various aspects relating to the trading activities are maintained.
CLEARING:
Settlement of trades transacted on an exchange requires smooth, preferably instantaneous, movement of securities and funds in accordance with the prescribed schedule of pay-in / pay-out. Movement of securities has been almost instantaneous in the dematerialized environment. Two depositories are in place to provide electronic transfer of securities. 10 major stock exchanges accounting for about 99% of turnover have been connected to depositories. All actively traded scrips are held, traded and settled in de-mat form. NSE follows a different model where a clearing corporation guarantees settlement obligations emanating from trades.
SETTLEMENT:
The trades accumulated over a trading cycle are clubbed together at the end of the trading cycle, positions (trades) are netted and the balance obligations are settled.
THE ONE TYPE OF SETTLEMENT
ROLLING SETTLEMENT:In a rolling settlement, each trading day is considered as a trading period and trades executed during the day are settled based on the net obligations for the day.
At NSE, trades in rolling settlement are settled on a T+2 basis i.e. on the 2nd working day. For
holidays, Saturdays and Sundays are excluded. Typically trades taking place on Monday are
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arriving at the settlement day all intervening holidays, which include bank holidays, NSE
settled on Wednesday, Tuesday's trades settled on hursday and so on.The following table and figure represent rolling settlement process.
A tabular representation of the settlement cycle for rolling settlement is given below:
Table-4.1 Activity Trading Clearing Settlement Rolling Settlement Trading Custodial Confirmation Delivery Generation Securities and Funds pay in Securities and Funds pay out Valuation Debit Post Settlement Auction Day T T+1 w.d T+1 w.d T+2 w.d T+2 w.d T+2 w.d T+3 w.d
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CHAPTER III
Introduction to commodity
Commodity:
Any product that can be used for commerce or an article of commerce which is traded on an authorized commodity exchange is known as commodity. The article should be movable of value, something which is bought or sold and which is produced or used as the subject or barter or sale. In short commodity includes all kinds of goods. Indian Forward Contracts (Regulation) Act (FCRA), 1952 defines ―goods‖ as ―every kind of movable property other than actionable claims, money and securities‖.
In current situation, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for commodity trading recognized under the FCRA. The national commodity exchanges, recognized by the Central Government, permits commodities which include precious (gold and silver) and non-ferrous metals, cereals and pulses, ginned and unginned cotton, oilseeds, oils and oilcakes, raw jute and jute goods, sugar and gur, potatoes and onions, coffee and tea, rubber and spices. Etc.
commodity exchange:
A commodity exchange is an association or a company or any other body corporate organizing futures trading in commodities for which license has been granted by regulating authority.
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Commodity Futures : A Commodity future is an option between two parties to buy or sell a standardized quantity of a commodity at a certain time in future at a price agreed upon at the time of entering into the contract on the commodity futures exchange.
The need for a futures market arises mainly due to the hedging function that it can perform. Commodity markets, like any other financial instrument, involve risk associated with frequent price volatility. The loss due to price volatility can be attributed to the following reasons:
Consumer Preferences:
- In the short-term, their influence on price volatility is small since it is a slow process permitting manufacturers, dealers and wholesalers to adjust their inventory in advance.
Changes in supply:
- They are abrupt and unpredictable bringing about wild fluctuations in prices. This can especially noticed in agricultural commodities where the weather plays a major role in affecting the fortunes of people involved in this industry. The futures market has evolved to neutralize such risks through a mechanism; namely hedging.
History of Evolution of commodity markets
Commodities future trading was evolved from need of assured continuous supply of seasonal agricultural crops. The concept of organized trading in commodities evolved in Chicago, in 1848. But one can trace its roots in Japan. In Japan merchants used to store Rice in warehouses
known as ―rice tickets‖. Eventually, these rice tickets become accepted as a kind of commercial
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for future use. To raise cash warehouse holders sold receipts against the stored rice. These were
currency. Latter on rules came in to being, to standardize the trading in rice tickets. In 19th century Chicago in United States had emerged as a major commercial hub. So that wheat producers from Mid-west attracted here to sell their produce to dealers & distributors. Due to lack of organized storage facilities, absence of uniform weighing & grading mechanisms producers often confined to the mercy of dealers discretion. These situations lead to need of establishing a common meeting place for farmers and dealers to transact in spot grain to deliver wheat and receive cash in return.
Gradually sellers & buyers started making commitments to exchange the produce for cash in future and thus contract for ―futures trading‖ evolved. Whereby the producer would agree to sell his produce to the buyer at a future delivery date at an agreed upon price. In this way producer was aware of what price he would fetch for his produce and dealer would know about his cost involved, in advance. This kind of agreement proved beneficial to both of them. As if dealer is not interested in taking delivery of the produce, he could sell his contract to someone who needs the same. Similarly producer who not intended to deliver his produce to dealer could pass on the same responsibility to someone else. The price of such contract would dependent on the price movements in the wheat market. Latter on by making some modifications these contracts transformed in to an instrument to protect involved parties against adverse factors such as unexpected price movements and unfavorable climatic factors. This promoted traders entry in futures market, which had no intentions to buy or sell wheat but would purely speculate on price movements in market to earn profit. That‘s why Chicago Board of Trade (CBOT) was established in 1848. In 1870 and 1880s the New York Coffee, Cotton and Produce Exchanges were born. Agricultural commodities were
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mostly traded but as long as there are buyers and sellers, any commodity can be traded. In 1872, a group of Manhattan dairy merchants got together to bring chaotic condition in New York market to a system in terms of storage, pricing, and transfer of agricultural products. In 1933, during the Great Depression, the Commodity Exchange, Inc. was established in New York through the merger of four small exchanges – the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange.
Current Scenario in Indian Commodity Market
Need of Commodity Derivatives for India:-
India is among top 5 producers of most of the Commodities, in addition to being a major consumer of bullion and energy products. Agriculture contributes about 22% GDP of Indian economy. It employees around 57% of the labor force on total of 163 million hectors of land Agriculture sector is an important factor in achieving a GDP growth of 8-10%. All this indicates that India can be promoted as a major centre for trading of commodity derivatives.
Trends in volume contribution on the three National Exchanges
Pattern on Multi Commodity Exchange (MCX):-
MCX is currently largest commodity exchange in the country in terms of trade volumes, further it has even become the third largest in bullion and second largest in silver future trading in the world.
commodities contribute for more than 80 percent of total trade volume. As per recent data the
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Coming to trade pattern, though there are about 100 commodities traded on MCX, only 3 or 4
largely traded commodities are Gold, Silver, Energy and base Metals. Incidentally the futures‘ trends of these commodities are mainly driven by international futures prices rather than the changes in domestic demand-supply and hence, the price signals largely reflect international scenario.
Among Agricultural commodities major volume contributors include Gur, Urad, Mentha Oil etc. Whose market sizes are considerably small making then vulnerable to manipulations.
Pattern on National Commodity & Derivatives Exchange (NCDEX):-
NCDEX is the second largest commodity exchange in the country after MCX. However the major volume contributors on NCDEX are agricultural commodities. But, most of them have common inherent problem of small market size, which is making them vulnerable to market manipulations and over speculation. About 60 percent trade on NCDEX comes from guar seed, chana and Urad (narrow commodities as specified by FMC).
Pattern on National Multi Commodity Exchange (NMCE):-
NMCE is third national level futures exchange that has been largely trading in Agricultural Commodities. Trade on NMCE had considerable proportion of commodities with big market size as jute rubber etc. But, in subsequent period, the pattern has changed and slowly moved towards commodities with small market size or narrow commodities.
Major volume contributors
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Majority of trade has been concentrated in few commodities that are
Non Agricultural Commodities (bullion, metals and energy)
Agricultural commodities with small market size (or narrow commodities) like guar, Urad, Mentha etc.
Trade strategy
It appears that speculators or operators choose commodities or contracts where the market could be influenced and extreme speculations possible.
In view of extreme volatilities, the FMC directs the exchanges to impose restrictions on positions and raise margins on those commodities. Consequently, the operators/speculators chose another commodity and start operating in a similar pattern. When FMC brings restrictions on those commodities, the operators once again move to the other commodities. Likewise, the speculators are moving from one commodity to other (from methane to Urad to guar etc) where the market could be influenced either individually or with a group.
Beneficiaries: - So far the beneficiaries from the current nature of trading are Exchangers,Arbitragers, Operators In order to understand the extent of progress the trading the trading in Commodity Derivatives has made towards its specified objectives (price discovery and price risk management), the current trends are juxtaposed against the specification
Prevailing trade pattern:- No wide spread participation of all stake holders of commodity markets. The actual benefits may be realized only when all the stake holders in commodity market including producers, traders, consumers etc trade actively in all major commodities like rice, wheat, cotton etc.
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NATIONAL COMMODITY EXCHANGES
Multi Commodity Exchange of India Limited (MCX)
MCX started of trade in Nov 2003 and has built strategic alliance with Bombay Bullion Association, Bombay Metal Exchange, Solvent Extractors Association of India, pulses Importers Association and Shetkari Sanghatana.MCX deals wit about 100 commodities.
Commodities Traded at MCX:-
Bullion:- Gold, Silver, Silver Coins
Minerals:- Aluminum, Copper, Nickel, Iron/steel, Tin, Zinc, Lead
Oil and Oil seeds:- Castor oil/castor seeds, Crude Palm oil/ RBD Pamolein, Groundnut oil, Mustard/ Rapeseed oil, Soy seeds/Soy meal/Refined Soy Oil, Coconut Oil Cake, Copra, Sunflower oil, Sunflower Oil cake, Tamarind seed oil,
Pulses:- Chana, Masur, Tur, Urad, Yellow peas
Grains:- Rice/ Basmati Rice, Wheat, Maize, Bajara, Barley,
Spices:- Pepper, Red Chili, Jeera, Cardamom, Cinnamon, Clove, Ginger,
Plantation:- Cashew Kernel, Rubber, Areca nut, Betel nuts, Coconut, Coffee,
Petrochemicals:- High Density Polyethylene (HDPE), Polypropylene (PP), Poly Vinyl Chloride (PVC)
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Fiber and others:- Kapas, Kapas Khalli, Cotton (long, medium,short staple), Cotton Cloth, Cotton Yarn, Gaur seed and Guargum, Gur and Sugar, Khandsari, Mentha Oil, Potato, Art Silk Yarn, Chara or Berseem, Raw Jute, Jute Goods, Jute Sacking,etc
Energy:- Brent Crude Oil, Crude Oil, Furnace Oil, Middle East Sour Crude Oil, Natural Gas
National Multi Commodity Exchange of India Limited (NMCEIL)
National Multi Commodity Exchange of India Limited (NMCEIL) is the first de-mutualised Electronic Multi Commodity Exchange in India. On 25th July 2001 it was granted approval by Government to organize trading in edible oil complex. NMCEIL Head Quarter is at Ahmedabad
National Commodities & Derivatives Exchange Limited (NCDEX)National Commodities & Derivatives Exchange Limited (NCDEX) promoted by ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank of Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSC). Punjab National Bank (PNB), Credit Ratting Information Service of India Limited (CRISIL), Indian Farmers Fertilizer Cooperative Limited (IFFCO), Canara Bank and Goldman Sachs by subscribing to the equity shares have joined the promoters as a share holder of exchange. NCDEX is the only Commodity Exchange in the country promoted by national level institutions. NCDEX is a public limited company incorporated on 23 April 2003. Commodities Traded at NCDEX:
Bullion:-Gold KG, Silver, Brent
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Minerals:-Electrolytic Copper Cathode, Aluminum Ingot, Nickel Cathode, Zinc Metal Ingot, Mild steel Ingots
Oil and Oil seeds:-Cotton seed, Oil cake, CrudePalmOil, Groundnut, Groundnut expeller Oil, Cotton, Mentha oil, RBD Pamolein, RM seed oil cake, Refined soya oil, Rape seeds, Mustard seeds, Caster seed, Yellow soybean, Meal
Pulses:-Urad, Yellow peas, Chana, Tur, Masoor, Grain:- Wheat, Indian Pusa Basmati Rice, Indian parboiled Rice (IR-36/IR-64), Indian Rice , Barley, Yellow red maize
Spices:-Jeera, Turmeric, Pepper Plantation:-Cashew, Coffee Arabica, Coffee Robusta
Fibers and other:-Guar Gum, Guar seeds, Guar, Jute sacking bags, Indian 28 Multi Commodity Exchange of India Limited (MCX) is an independent and de-mutulized exchange with permanent reorganization from Government of India, having Head Quarter in Mumbai. Key share holders of MCX are Financial Technologies (India) Limited, State Bank of India, Union Bank of India, Corporation Bank of India, Bank of India and Cnnara Bank. MCX facilitates online trading, clearing and settlement operations for commodity futures market across the country.
INTERNATIONAL COMMODITY EXCHANGES Futures‘ trading is a result of solution to a problem related to the maintenance of a year round supply of commodities/ products that are seasonal as is the case of agricultural produce. The
commodity futures exchanges in the world.
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United States, Japan, United Kingdom, Brazil, Australia, Singapore are homes to leading
The New York Mercantile Exchange (NYMEX):The New York Mercantile Exchange is the world‘s biggest exchange for trading in physical commodity futures. It is a primary trading forum for energy products and precious metals.
London Metal Exchange:The London Metal Exchange (LME) is the world‘s premier non-ferrous market, with highly liquid contracts.
The Chicago Board of Trade:-
The first commodity exchange established in the world was the Chicago Board of Trade (CBOT) during 1848 by group of Chicago merchants who were keen to establish a central market place for trade.
Tokyo Commodity Exchange (TOCOM):-
The Tokyo Commodity Exchange (TOCOM) is the second largest commodity futures exchange in the world. It trades in to metals and energy contracts.
Chicago Mercantile Exchange:-
The Chicago Mercantile Exchange (CME) is the largest futures exchange in the US and the largest futures clearing house in the world for futures and options trading. Formed in 1898 primarily to trade in Agricultural commodities, the CME introduced the world‘s first financial futures more than 30 years ago
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Benefits of Commodity Futures Markets:-
The primary objectives of any futures exchange are authentic price discovery and an efficient price risk management. The beneficiaries include those who trade in the commodities being offered in the exchange as well as those who have nothing to do with futures trading.
1. Price Discovery:-Based on inputs regarding specific market information, the demand and supply equilibrium, weather forecasts, expert views and comments, inflation rates, Government policies, market dynamics, hopes and fears, buyers and sellers conduct trading at futures exchanges. This transforms in to continuous price discovery mechanism. The execution of trade between buyers and sellers leads to assessment of fair value of a particular commodity that is immediately disseminated on the trading terminal. 2. Price Risk Management: - Hedging is the most common method of price risk management. It is strategy of offering price risk that is inherent in spot market by taking an equal but opposite position in the futures market. Futures markets are used as a mode by hedgers to protect their business from adverse price change. This could dent the profitability of their business. Hedging benefits who are involved in trading of commodities like farmers, processors, merchandisers, manufacturers, exporters, importers etc. 3. Import- Export competitiveness: - The exporters can hedge their price risk and improve their competitiveness by making use of futures market. A majority of traders which are involved in physical trade internationally intend to buy forwards. The purchases made from the physical market might expose them to the risk of price risk resulting to losses. The existence of futures market would allow the exporters to hedge their proposed
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purchase by temporarily substituting for actual purchase till the time is ripe to buy in physical market. In the absence of futures market it will be meticulous, time consuming and costly physical transactions. 4. Predictable Pricing: - The demand for certain commodities is highly price elastic. The manufacturers have to ensure that the prices should be stable in order to protect their market share with the free entry of imports. Futures contracts will enable predictability in domestic prices. The manufacturers can, as a result, smooth out the influence of changes in their input prices very easily. With no futures market, the manufacturer can be caught between severe short-term price movements of oils and necessity to maintain price stability, which could only be possible through sufficient financial reserves that could otherwise be utilized for making other profitable investments.
5. Benefits for farmers/Agriculturalists: - Price instability has a direct bearing on farmers in the absence of futures market. There would be no need to have large reserves to cover against unfavorable price fluctuations. This would reduce the risk premiums associated with the marketing or processing margins enabling more returns on produce. Storing more and being more active in the markets. The price information accessible to the farmers determines the extent to which traders/processors increase price to them. Since one of the objectives of futures exchange is to make available these prices as far as possible, it is very likely to benefit the farmers. 6. Improved product quality: - The existence of warehouses for facilitating delivery with grading facilities along with other related benefits provides a very strong reason to
exchange. It ensures uniform standardization of commodity trade, including the terms of
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upgrade and enhance the quality of the commodity to grade that is acceptable by the
quality standard: the quality certificates that are issued by the exchange-certified warehouses have the potential to become the norm for physical trade.
WORKING OF COMMODITY MARKET
There are two kinds of trades in commodities. The first is the spot trade, in which one pays cash and carries away the goods. The second is futures trade. The underpinning for futures is the warehouse receipt. A person deposits certain amount of say, good X in a ware house and gets a warehouse receipt. Which allows him to ask for physical delivery of the good from the warehouse. But some one trading in commodity futures need not necessarily posses such a receipt to strike a deal. A person can buy or sale a commodity future on an exchange based on his expectation of where the price will go. Futures have something called an expiry date, by when the buyer or seller either closes (square off) his account or give/take delivery of the commodity. The broker maintains an account of all dealing parties in which the daily profit or loss due to changes in the futures price is recorded. Squiring off is done by taking an opposite contract so that the net outstanding is nil.
For commodity futures to work, the seller should be able to deposit the commodity at warehouse nearest to him and collect the warehouse receipt. The buyer should be able to take physical delivery at a location of his choice on presenting the warehouse receipt. But at present in India very few warehouses provide delivery for specific commodities
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Today Commodity trading system is fully computerized. Traders need not visit a commodity market to speculate. With online commodity trading theycould sit in the confines of their home or office and call the shots.
The commodity trading system consists of certain prescribed steps or stages as follows:
TRADING
The trading system on the NCDEX provides a fully automated screen based trading for futures on commodities on a nationwide basis as well as online monitoring and surveillance mechanism. It supports an order driven market and provides complete transparency of trading operations. Order matching is essential on the basis of commodity, its price, time and quantity. All quantity fields are in units and price in rupees. The exchange specifies the unit of trading and the delivery unit for futures contracts on various commodities. The exchange notifies the regular lot size and tick size for each of the contracts traded from time to time. When any order enters the trading system, it is an active order. It tries to finds a match on the other side of the book. If it finds a match, a trade is generated. If it does not find a match, the order becomes passive and gets queued in the respective outstanding order book in the system. Time stamping is done for each trade and provides the possibility for a complete audit trail if required. NCDEX trades commodity futures contracts having one month, two month and three month expiry cycles. All contracts expire on the 20th of the expiry month. Thus a January expiration contract would expire on the 20th of January and a February expiry contract would cease trading on the 20th of February. If the 20th of the expiry month is a trading holiday, the contracts shall expire on the
the near month contract
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previous trading day. New contracts will be introduced on the trading day following the expiry of
CLEARING
National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of trades executed on the NCDEX. The settlement guarantee fund is maintained and managed by NCDEX. Only clearing members including professional clearing members (PCMs) only are entitled to clear and settle contracts through the clearing house. At NCDEX, after the trading hours on the expiry date, based on the available information, the matching for deliveries takes place firstly, on the basis of locations and then randomly, keeping in view the factors such as available capacity of the vault/warehouse, commodities already deposited and dematerialized and offered for delivery etc. Matching done by this process is binding on the clearing members. After completion of the matching process, clearing members are informed of the deliverable/ receivable positions and the unmatched positions. Unmatched positions have to be settled in cash. The cash settlement is only for the incremental gain/loss as determined on the basis of final settlement price.
SETTLEMENT
Futures contracts have two types of settlements, the MTM settlement which happens on a continuous basis at the end of each day, and the final settlement which happens on the last trading day of the futures contract. On the NCDEX, daily MTM settlement and the final MTM settlement in respect of admitted deals in futures contracts are cash settled by debiting/crediting the clearing accounts of CMs with the respective clearing bank. All positions of a CM, brought forward, created during the day or closed out during the day, are market to market at the daily
expiry, the final settlement price is the spot price on the expiry day. The responsibility of
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settlement price or the final settlement price at the close of trading hours on a day. On the date of
settlement is on a trading cum clearing member for all trades done on his own account and his client‘s trades. A professional clearing member is responsible for settling all the participants‘ trades, which he has confirmed to the exchange. On the expiry date of a futures contract, members submit delivery information through delivery request window on the trader workstations provided by NCDEX for all open positions for a commodity for all constituents individually. NCDEX on receipt of such information matches the information and arrives at delivery position for a member for a commodity. The seller intending to make delivery takes the commodities to the designated warehouse. These commodities have to be assayed by the exchange specified assayer. The commodities have to meet the contract specifications with allowed variances. If the commodities meet the specifications, the warehouse accepts them. Warehouse then ensures that the receipts get updated in the depository system giving a credit in thedepositor‘s electronic account. The seller the gives the invoice to his clearing member, who would courier the same to the buyer‘s clearing member. On an appointed date, the buyer goes to the warehouse and takes physical possession of the commodities.
REGULATED MARKET IN INDIA
There are three types of regulated markets in India: • Spot Markets: Direct purchases for immediate consumption. • Futures and Forward Markets: Agreements new to pay and received deliver later.
Forwards and Futures reduce the risks by allowing the trader to decide a price today for goods to
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be delivered in the future.
• Derivatives Market is Purely financial transactions based on physical trading.
The system includes following elements: • Hedgers, Speculators, Investors, Arbitragers • Producers - Farmers • Consumers, refiners, food processing companies, jewelers, textile mills, exporters & importers.
The biggest benefits of commodity trading will accrue to commodity traders, farmers and companies dealing in commodity-based products (like wheat and metals) by allowing them to hedge their risks. Then there are speculators, who are in the game only to make money out of the volatility in prices. But unlike in stocks, few retail investors are expected to trade in commodity futures since it
requires a fair bit of expertise. Even those who do will probably restrict themselves to trading in gold or silver.
BENEFITS OF TRADING IN COMMODITY: -
A future trading performs two important functions of price discovery and price risk management with reference to the given commodity. It is therefore useful to all the segments of the economy and particularly to all the constituents of the Commodity Market System.
Benefits to Consumer & user: -
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a It is useful for the consumer because he gets an idea of the price at which the commodity would be available at a future point of time. He can do proper costing and also cover his purchases by making forward contracts. Predictable pricing & transparency is an added advantage.
b. Hedging their risks if they are using some of the commodities as their raw materials in particular can benefit corporate entities. They can hedge the risk even if the commodity traded does not meet their requirements of exact quality / technical specifications. c. Futures trading is very useful to the exporters as it provides an advance indication of the price likely to prevail and thereby help the exporter in quoting a realistic price and thereby secure export contract in a competitive market
Benefits to Investors: -
a. High financial leverage is possible in commodity markets. In case of stocks, an investor needs to put up the full amount of the stock value to buy the stock. With commodities, you control commodity futures contracts with a margin, which is usually between 5% to 10% of the value of the commodity. Investor can effectively hedge the risk in price fluctuations of a commodity.
b. Investor can also hedge his risk on investments in stocks and debt markets since commodities provide a choice and provide one more alternative avenue in the investment port for. It may be mentioned here that the Commodities are less volatile compared to equity market, though more volatile as compared to G-Sec's c. Commodity markets are extremely transparent in the sense that the manipulation of prices of a commodity is extremely difficult. Given the knowledge of the commodity, the investor can be thus clear about what he can expect in foreseeable future.
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d. Business involves just you and the market.
e. With the rapid spread of derivatives trading in commodities, this route too has become an option for high net worth and savvy investors to consider in their overall asset allocation.
f. The fact that the stock indices and commodity indices are not correlated implies that the commodity markets can be used as an effective diversification tool, where investors can park their money.
g. A look at the performance of the commodities markets during the last year shows that the positive movement was witnessed during most parts of the year.
Benefits to Producers: -
a It is useful to the producer because he can get an idea of the price likely to prevail at a future point of time and therefore can decide between various competing commodities, the best that suits him. Farmers for instance, can get assured prices, decide on the crop that they want to take and since there is transparency in prices, he can decide when and where to sell.
Benefits to the Economy: -
As the constituents of the commodity market system get benefited Indian economy in turn is also expected to gain a Lot. Growth in the commodity markets implies that there could be tremendous benefits to the Indian economy in terms of business generation and employment opportunities.
General benefits & other advantages for all players: Page
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a Improved Product Quality: Since the contracts for commodities are standardized, it becomes essential for the producers / sellers to ensure that the quality of the commodity is as specified in the contract.
b. Credit Accessibility: Buyers and sellers can avail of the bank finances for trading in commodities. As mentioned here, some nationalized banks as also some banks in the private sector have come forward to offer credit facilities for commodity trading.
CHAPTER lV
SILVER
Silver is a soft white precious univalent metallic element that is highlyductile and malleable having the highest electrical and thermal conductivityof any metal. It is found in the metallic state and also in a large amount of minerals mainly in argentite free form and that is why it is
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called argentum in latin
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Silver has attracted man‘s fascination fo History of silverr many thousands of years. A major watershed of silver production was the discovery of the New World in 1492, which was followed by the opening of major silver mines in Mexico, Bolivia, and Peru, leading to a rapid rise in the annual world production of silver. This rise, coupled with improved techniques for extracting silver from ore, broadened both the quality and quantity of ore that could be exploited. Later improvements, particularly in the late 19th and early 20th centuries, vastly enhanced the base of silver production and accelerated the exploitation of silver as a byproduct of base-metal mining.
Only about 25 percent of cumulative world silver production occurred before the 1770s. Records remain incomplete for the periods before 1900, however they play a critical part in determining cumulative historical production. Ancient civilizations found silver deposits plentiful on or near the earth‘s surface. Relics of these civilizations, include jewelry, religious artifacts, and food vessels formed from the durable, malleable metal. This metal took on near mystical qualities in marking important historical milestones throughout the ages, and served as a medium of exchange. The Mesopotamian merchants were doing just that as early as 700 BC.
Today, silver is sought as a valuable and practical industrial commodity, as well as an appealing investment precious metal. Many countries now issue silver bullion coins, among them the Unites States, Canada and Mexico. Private issue silver bullion is also available from select private mints.
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Although silver is relatively scarce, it is the most plentiful and least expensive of the precious metals. The largest silver producing countries are Mexico, Peru, the United States, Australia and Chile. Sources of silver include; silver mined directly, silver mined as a by-product of gold, copper, lead and zinc mining, and silver extracted from recycled materials, primarily used photographic materials. Today, silver bullion stocks make up a significant component of silver supply.
The defining quality of silver bullion is that it is valued by its weight and purity. For investment purposes, silver is melted down to its purest form, then struck or cast into coins, rounds, bars, and ingots. The final product is then traded on the basis of its silver content. The most popular government minted silver bullion coins on the market today are the American Silver Eagle and the Canadian Silver Maple Leaf. As a trusted retailer for both, we offer these products at among the most competitive prices in the industry. Silver bags, also known as 90% silver, contain commonly circulated US coins minted 1964 or earlier, with a silver content of 90%, or approximately 715 troy oz..
Northwest Territorial Mint proudly mints its own private label silver bullion products available in popular 1 troy-ounce silver rounds and bars of various sizes. Northwest Territorial Mint proudly mints its own private label silver bullion products available in popular 1 troy-ounce silver rounds, ½-troy ounce rounds and bars of various sizes (5g to 100 troy oz).
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PanAmericanSilver Pan American Silver is a world leader in the production of new silver. Northwest Territorial Mint is the exclusive mint for the striking of Pan American Silver bullion that has been refined to .9995+ purity. This Pan American silver bullion is struck in rounds of ½-troy ounce and 1-troy ounce, as well as silver bullion bars of various sizes (5g to 100 troy oz).
StagecoachSilverBullion Stagecoach Silver bars and rounds from Northwest Territorial Mint are portable and tradable silver bullion coins and bars. Perfect for when you need to get out of Dodge fast! Whether .9995fine silver bar or round, each is scored into four divisible pieces, giving them the potential to be split up should the need arise.
History of silver mining
Silver has been known since ancient times. It is mentioned that heaps found in Asia minor and on the islands of the Aegean Sea indicate that silver was being separated from lead as early as the 4th millennium BCE. The silver mines at Laurium were very rich and helped provide a currency for the economy of Ancient Athens. It involved mining the ore in underground galleries, washing the ores and smelting it to produce the metal. Elaborate washing tables still exist at the site using rain water held in cisterns and collected during the winter months.
Extraction of silver from lead ore was widespread in Roman Britain as a result of Roman mining very soon after the conquest of the first century AD.
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From the mid-15th century silver began to be extracted from copper ores in massive quantities using the liquation process creating a boost to the mining and metallurgy industries of Central Europe.
Vast amounts of silver were brought into the possession of the crowns of Europe after the conquest of the Americas from the now Mexican state of Zacatecas (discovered in 1546)[1] and Potosí(Bolivia, also discovered in 1546), which triggered a period of inflation in Europe. The conquistador Francisco Pizarro was said to have resorted to having his horses shod with silver horseshoes due to the metal's abundance, in contrast to the relative lack of iron in Peru. Silver, which was extremely valuable in China, became a global commodity, contributing to the rise of the Spanish Empire. The rise and fall of its value affected the world market.
Silver is also produced during the electrolytic refining of copper and by application of the Parkes process on lead metal obtained from lead ores that contain small amounts of silver. Commercial grade fine silver is at least 99.9 percent pure silver and purities greater than 99.999 percent are available.
. Global scenario for Silver:
Silver producing countries:
The below-mentioned figures are the silver production figures of thecountries. Clearly, Mexico leads the list of silver producing countries. Itcontributes to about 15% of the world‘s total
comes from the primary silver mines and the rest from other sourceslike refining of other metals
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production. Alreadymentioned, only 25% of the world‘s total production (i.e. 615 millionounces)
and also from scrap recycling. World silver survey done in 1998 depicts that around 152.2 million ounces of silver wasseparated from the waste for recycling purposes. This percentage of separated silver has improved due to advanced methods of separation.United States is the major silver producing country through scrap and wastefollowed by Japan. •Mexico (99 millionounces) •Peru (98.4 millionounces) •Australia (71.9million ounces) •China (63.8 millionounces) •Poland (43.8million ounces) •Chile (42.8 millionounces) •Canada (40.6million ounces) •United States (40.2million ounces) •Russia (37.9million ounces) •Kazakhstan (20.6million ounces) •Bolivia (13.1million ounces) •Sweden (9.4million ounces) •Indonesia (8.6million ounces)
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•Morocco (6.3million ounces) •Argentina (5million ounces) •Turkey (3.7 millionounces) •South Africa (3.2million ounces) •Iran (2.6 millionounces) •Japan (2.4 millionounces) •India (2.1 millionounces)
Silver consuming countries:
The countries that are the major consumers of silver are: •United states •Canada •Mexico •Germany •Italy •Japan •India •United Kingdom •France
Grading of Silver:
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Silver that is found with some percentage of other elements in it is called impure silver. That is why itis graded upon its fineness. According to the Indianstandards, silver is graded into six categories
Grade: 999.9 999.5 999 970 925 916
Fineness : 999.9 999.5 999 970 925 916
World Markets: •London Bullion Market is the global hub of OTC (Over-The-Counter) trading in silver. •Comex futures in New York is where mostfund activity is focused
Contract specifications at Comexexchange:
There are two different contracts of Silver traded on this exchange; they are Silver Futures andSilver Mini Futures.
Contract specification for SilverFuture:
Trading Symbol:SI
Trading Unit:5,000 troy ounces.
Price Quotation:U.S. cents per troy ounce.
Trading Hours (All times are New York time):
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Open outcry trading is conducted from 8:25 AMuntil 1:25 PM.Electronic trading is conducted from 6:00 PM until5:15 PM via the CME Globex® trading platform,Sunday through Friday. There is a 45-minute break each day between 5:15PM (current trade date) and6:00 PM (next trade date).
Trading Months:
Trading is conducted for delivery during the currentcalendar month; the next two calendar months; anyJanuary, March, May, and September falling withina 23-month period; and any July and December falling within a 60-month period beginning with thecurrent month.
Minimum Price Fluctuation:
Price changes for outright transactions are inmultiples of one-half cent (0.5¢ or $0.005) per troyounce, equivalent to $25.00 per contract. Afluctuation of one cent (1¢ or $0.01) is equivalent to$50.00 per contract.
Last Trading Day:
Trading terminates at the close of business on thethird to last business day of the maturing deliverymonth.
Delivery:
Silver delivered against the futures contract mustbear a serial number and identifying stamp of arefiner's officially listed brand. Delivery must bemust be made from a warehouse or vault
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licensed or designated by the Exchange specifically for thestorage of silver.
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Delivery Period:
The first delivery day is the first business day of thedelivery month; the last delivery day is the lastbusiness day of the delivery month.
Exchange of Futures for Physicals (EFP):
The buyer or seller may exchange a futures positionfor a physical position of equal quantity bysubmitting a notice to the Exchange. EFPs may beused to either initiate or liquidate a futures position.
Grade and Quality Specifications:
In fulfillment of each contract, the seller mustdeliver 5,000 troy ounces (±6%) of refined silver,assaying not less than .999 fineness, in cast barsweighing 1,000 or 1,100 troy ounces each andbearing a serial number and identifying stamp of arefiner approved and listed by the Exchange. A listof approved refiners and assayers is available fromthe Exchange upon request.
Position Accountability Levels and Limits:
Any one month/all months: 6,000 net futuresequivalent, but not to exceed 1,500 in the spotmonth.
Margin Requirements:
Margins are required for open futures positions.
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Contract specification forSilverMiniFutures
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Trading Symbol:QI
Trading Unit:2,500 troy ounces
Price Quotation:U.S. dollars and cents per ounce.
Minimum Price Fluctuation:$0.0125 per ounce.
Trading Hours:
The contracts are available for trading on the CMEGlobex® trading platform from 6:00 PM Sundaysthrough 5:15 PM Fridays, Eastern Time, with a 45-minute break each day between 5:15 PM and 6:00PM.
Trading Months:
Trading is conducted during the same months as thefull-sized silver futures contract (SI), except thecurrent month.
Last Day of Trading:
Trading terminates at the close of business on thethird to last business day of the month preceding thenamed contract month.
Settlement:Financial.
Margin Requirements:
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Margins are required for open futures positions.
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Major trading centers of silver: •London •Zurich •New York (COMEX) •Chicago (CBOT) •Hong Kong •Tokyo Commodity Exchange (TOCOM)
Indian scenario for Silver:
India is primarily a silver importing country,as the production of India is not sufficient to satisfythe ever-growing domestic demand. The productionof silver in India stands out at the figure of around2.1 million ounces placing it at the 20th position inthe list of major silver producing countries. Theimport of silver in India hovers over 110 millionounces that shows the huge size of Indian domesticdemand.However, this import level fell sharply as aresult of the decline in demand due to rise in silver prices and inconsistent monsoon on which theincome of the rural sector depends. But, even this sharp decline could not affect India‘s reputation of being one of the largest consumer countries of silver in the world. India stands third after United Statesand Japan among the leading consumers of silver inthe world.
By contrast with United States and Japan,Indian industrial off take for fabrication in hardcoreindustrial applications like electronics and brazingalloys accounts for only 15 % and the rest being for foils for use in the decorative covering of food,plating of jewelry and silverware and jari.The countries from which India imports silver and maintain the flow of silver in the market are: •China
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•United Kingdom •European Union •Australia •Dubai
Over 50% share of import of silver in India isheld by Chinese silver. The major importing center of silver in India was Mumbai but now it has beenshifted to Ahmedabad and Jaipur due to high salestax and octroi charges.
Production of silver in India:
India hardly produces any silver and isbasically a silver importing country. It holds the 20thplace in the list of silver producing countries and thetotal production of silver in India in 2004 wasaround 2.1 million ounces. The three major silver producing states in India are: •Rajasthan •Gujarat •JharkhandRajasthan is the leading silver producing statein India with a production of around 32 thousand tons. Gujarat follows on the second place with aproduction of around 20 thousand tons.In India, silver is traded at the following places: •Delhi •Indore
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•Rajasthan •Madhya Pradesh •Mathura (Uttar Pradesh) •Rajkot (Gujarat)Also, silver is traded in the Indian commodityexchanges like
National Commodity &Derivatives Exchange ltd, Multi CommodityExchange of India ltd. and National MultiCommodity Exchange of India ltd.
Silver at MCX:
Though the silver futures are traded onNCDEX and MCX, bigger volumes are traded onMCX. So we will have a look on silver specificationon MCX. There are three different types of silver contracts traded on MCX; they are Silver future,Silver HNI Futures and Silver Mini Futures.
Specification of Silver Futures
Contract:Symbol:SILVER
Description:SILVERMMMYY
Contracts available for trading:
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March contract: 16th March of the previous year to5th March of the contract year May contract: 16th May of the previous year to 5thMay of the contract year July contract: 16th July of the previous year to 5thJuly of the contract year September contract: 16th September of the previousyear to 5th September of the contract year December contract: 16th December of the previousyear to 5th December of the contract year
Trading period:Mondays through Saturdays
Trading session: Mondays to Friday: 10.00 a.m. to 11.30 p.m.Saturday: 10.00 a.m. to 2.00 p.m.
Trading unit:30 kg
Quotation/Base Value:1 kg
Price Quote:
Ex-Ahmedabad (inclusive of all taxes and leviesrelating to import duty, customs , if applicable but excluding Sales Tax / VAT, any other additional taxor surcharge on sales tax, local taxes and octroi.
Maximum order size:600 kg
Tick size (minimum price movement):Re. 1 per kg
Daily price limit:4%
Initial margin:5%
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In case of additional volatility, a special margin atsuch percentage, as deemed fit, will be imposed immediately on both buy and sale side in respect of all outstanding position, which will remain in forcefor next 2 days, after which the special margin willbe relaxed.
Maximum Allowable Open Position: •For individual client: 50 MT collectively for allcontracts in Silver (i.e. including Silver M andSilver HNI contracts) •For a member collectively for all clients: 150 MTor 15% of the market-wide open position,whichever is higher.(As per FMC letter no. 6/3/2006/MKT-II (VOL II)dated August 18, 2006)
Delivery unit:30 kg
Delivery period margin:25%
Delivery center(s):Ahmedabad at designatedClearing House facilities.
Quality specifications:
Grade: 999 and Fineness: 999 (as per IS 2112: 1981) •No negative tolerance on the minimum finenessshall be permitted.
If it is below 999 purity it is rejected.It should be serially numbered silver bars suppliedby LBMA approved suppliers or other suppliers asmay be approved by MCX.
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Delivery and Settlement Procedure of Silver:Last Day of Trading:
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5th day of the contract expirymonth.
Tender Period:1st to 6th day of the contract expirymonth.
Delivery Period:1st to 6th day of the contractexpiry month. Buyer‘s intention:On 1st, 2nd, 3rd & 4th of thecontract expiry month by 6.00 p.m.
Tender Notice by Seller:
The seller will issue tender notice along withevidence of delivery to the Exchange in a specifiedformat by 6.00p.m. The seller is also required tosubmit the certificate issued by the supplier inoriginal.
Dissemination of information on tendereddelivery and buyers interest:
The Exchange will inform members through Trader Work Station (TWS) regarding tender and deliveryintentions of the buyer members and the seller members by 7.00 p.m. on the respective tender days.
Tender and Delivery Period Margin:
Tender and Delivery period margin of 25% will beimposed with effect from the beginning of the tender period.
Exemption from Delivery Period Margin:
Delivery Period Margin is exempted if goodstendered on designated tender days of the contract month and seller submits all the documentaryevidence.
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Delivery Logic:
Compulsory Delivery
. Any seller having openposition on the expiry date fails to deliver on thenext day then a penalty of 5% shall be imposed outof which 90% will be passed on to the buyer.
Delivery Pay-in:
On any tender days by 6.00 p.m.Funds Pay-inT+1 working day by 11.00 a.m. (T stands for tender day).Funds Pay-outT+1 working day by 05.00 p.m.
Delivery Pay-out:
T+1 working day after completion of pay-in funds.
Mode of Communication: Fax or Courier
Allocation of Delivery:On the respective tender days after the end of the day.
Delivery Order Rate:
Settlement/closing price onthe date of allocation and the due date rate on expirydate.
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Buyer‘s obligation:
The buyer shall not refuse taking delivery and suchrefusal will entertain 5% penalty out of which 90%of the penalty amount shall be passed on to theseller.10% will be retained by the Exchange.
Close out of outstanding positions:
All outstanding positions on the expiry of contractnot settled by way of delivery in the aforesaidmanner, will be settled as per the due date rate withpenalty of 5% and out of which 90% shall be passedon to the buyer.
Verification by the buyer at the time of release of delivery:
At the time of taking delivery, the buyer can openthe sealed packets in front of Group 4 personnel. If he is satisfied with the quantity, weight and qualityof material, then he will issue receipt of the metalsinstantly. If he is not satisfied with the metal, he caninsist for assaying by any of the approved assayersavailable at that center.
Legal obligation:
The members will provide appropriate tax formswherever required as per law and as customary andneither of the parties will unreasonably refuse to doso.
Duties, Cess and Levies:
Ex-Ahmedabad, inclusive of all charges / leviesrelating to import duty, customs to be borne bySeller. But excluding Sales Tax / VAT, any other additional tax or surcharge on sales tax, local taxesand octroi to be borne by the Buyer.
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Vault, Insurance and Transportation charges
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:Borne by the seller upto Funds Pay-out date.Borne by the buyer after Funds Pay-out date.
Evidence of Stocks in Possession:
At the time of issuing the Delivery order, theMember must satisfy MCX that he holds stocks of the quantity and quality specified in the DeliveryOrder at the declared delivery center by producingwarehouse receipt.
Validation Process:
On receipt of delivery, the Group 4 personnel willdo the following validations:a. whether the person carrying Silver is thedesignated clearing agent of the member;b. whether the selling member is listed in thestatement forwarded by the Exchange as a deliveringmember c. whether the quantity being delivered by the seller is exactly the same quantity as communicated by theExchange;d. whether the serial no of all the bars is mentionedin the seller‘s bill;e. whether the original certificates are accompaniedwith the Silver Bars
whether the serial nos listed in the certificate tallywith the nos written inscribed on the barsg. whether the seller has issued individual bills of relevant quantity in favour of each of the buyer Any other validation checks, as they may desire.
Delivery Process:
In case any of the above validation fails, the Group 4Securitas will contact the Exchange office and takeany further action, only as per instructions receivedfrom the Exchange in writing. If all
in front of thecustomer with unique tamper-proof seal/s. Then thecustodian of Group 4 will cut a
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validations arethrough, then the Group 4 personnel will put theSilver in bag/s and seal the same
serially numberedGroup 4 receipt (in triplicate consisting of White,Pink and Yellow slips), get the signature of theseller‘s clearing agent and signing the same for authorization, hand over the Pink slip to seller‘sclearing agent, send by courier the third copy(Yellow Colour slip) while retaining the White for the records of Group 4 Securitas. The receipt detailsin full are then entered into the package supplied byMCX and is uploaded to MCX server for authorization and further processing. Group 4 infront of the selling member‘s clearing agent depositthe said metal into a bag and seal it with a tamper-proof unique numbered Group 4 seal and give acopy of the same to the customer, send the secondone to MCX for its records and third copy of thereceipt for its record. The sealed bag will be vaultedin the same condition with Group 4 Securitas untilfurther delivery to MCX customer. Even in case if the metal has to be sent to various destinations, itshall be done in same bag only. Each bag shall notcontain not more than 30 kg of Silver and where thedepository is more than 30 kg, the same will bestored in multiple bags with each having individualseals with unique number. If the metal delivered bya seller has to go to 10 different buyers, 10
individual packets will be made for each buyer andunique numbers will be assigned to each packet.
Quality adjustment:
The price of Silver is on the basis of 999 purity.If the quality is less than 999, it is rejected.
Quantity adjustment:
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The tolerance limit will be +/- 3 kg. The weight of Silver bar must be between 27 kg to 33 kg.
Appointment of Clearing Agent of Buyer‘s andSellers:
For the purpose of effecting delivery of Silver, everymember will be entitled to appoint a maximumnumber of two Clearing Agents, who will be entitledto receive and deliver precious metals on behalf of such member. These Clearing members have tosubmit requisite form, four photographs, a copy of their ration card / driving license or other document,as may be specified by the Exchange. The Exchangewill issue a photo identity card for each ClearingAgent, which will be duly signed and stamped bythe Exchange and the member with lamination. Atthe time of giving or receiving delivery of preciousmetal, the Clearing Agent will be required to showthis Card to Group 4 Securitas persons. A list of allsuch Clearing agents will be forwarded by theExchange to Group 4 Securitas in advance.
Intimation about the Clearing Agents:
On last day of contract maturity, the buyer will berequired to inform name of the Clearing agent, whowill visit Group 4 Securitas office for liftingdelivery. This information will be compiled by theExchange and will be forwarded to Group 4Securitas by 12.00 noon on 1st day of the contractmaturity month.
Endorsement of Delivery Order:
The buying member can endorse delivery order to aclient or any third party with full disclosure given toMCX. Responsibility for contractual liability wouldbe with the original assignee.
Extension of Delivery Period:
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As per Exchange decision due to a force majeure or otherwise.
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Due Date Rate:
Due Date Rate is calculated on 5th day of thecontract month. This is calculated by way of takingsimple average of last 5 days of the spot market of Ahmedabad.
Applicability of Business Rules:
The general provisions of Business Rules anddecisions taken by FMC / Board / ExecutiveCommittee in respect of matters specified above willapply mutatis mutandis. The Exchange may further prescribe additional measures relating to deliveryprocedures, warehousing, quality certification,margining, risk management from time to time. Incase of any interpretational dispute or clarificationsthe decision of the Exchange shall be final andbinding on the members and others.
Specification of Silver HNI Futures
ContractSymbol:SILVER
Description:SILVERHNIMMMYY
Trading unit:50 kg
Quotation/Base Value:1 kg
Maximum order size:600 kg
Tick size (minimum price movement):Re. 1 per kg
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Daily price limits:6%
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Initial margin:5 %
Maximum Allowable Open Position:For individual client: 50 MT collectively for allcontracts in Silver (i.e. including Silver andSilver Mini contracts)
For a member collectively for all clients: 200 MTor 20 % of the market‘s open position in acontract at any point of time
Delivery unit:150 kg
Delivery margin:25%
Delivery logic:Both Option
Delivery period margin:25% margin will beimposed during tender and delivery period on bothbuyers and sellers on matched quantity.
Delivery pay-in:On tender days
Delivery pay-out:E+3 working day by 11.00 a.m.(E stands for expiry date of the contract)
Pay-in of funds:
E+2 working day by 11.00 a.m.
Pay-out of funds:
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E+3 working day by 11.00 a.m.In case the buyer opts for second sampling, he has toinform the Exchange on E+2 working day by6.00p.m and in such case the pay-out of funds willbe released only after completion of samplingprocedure.
Specification of Silver Mini Futures
ContractSymbol:SILVERM
Description:SILVERM MMMYY
Trading unit:5 kg
Quotation/Base Value:1 kg
Maximum order size:600 kg
Tick size (minimum price movement):Re. 1 per kg
Daily price limits:4%
Initial margin:5%
Maximum Allowable Open Position •For individual client: 50 MT collectively for allcontracts in Silver (i.e. including Silver andSilver HNI contracts)
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•For a member collectively for all clients: 150 MTor 15% of the market-wide open position,whichever is higher.(As per FMC letter no. 6/3/2006/MKT-II (VOL II)dated August 18, 2006)
Delivery unit:30 kg
Delivery center(s):Office of Group 4 Securitas atAhmedabad.
Delivery logic:Both Option
Delivery period margin;
25% margin will be imposed during tender anddelivery period on both buyers and sellers onmatched quantity.
Exemption from delivery period margin:
Delivery period margin is exempted if the Seller provides with documentary evidence of the deliveryat the Exchange‘s designated delivery center.
Delivery allocation:
- Date- RateOn expiry date of the ContractAt due date rate (DDR)
Delivery pay-in:On tender days
Delivery pay-out:E+3 working day by 11.00 a.m.
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Pay-in of funds:E+2 working day by 11.00 a.m.
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Pay-out of funds:E+3 working day by 11.00 a.m.
USES OF SILVER
Demand for silver is built on three main pillars: industrial and decorative uses, photography, and jewelry & silverware. Together, these three categories represent more than 95 percent of annual silver consumption. In 2010, 487.4 million ounces of silver were used for industrial applications, 167.0 million ounces were consumed in the jewelry market, 50.3 million ounces were used in the silverware market and over 101.0 million ounces were used in coins and medals.
Traditional
o o o o
Coinage photography jwellery silverware and table settings
Industrial
o o o o
batteries bearings Brazing and soldering Catylst
Emerging
o
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Medical Applications
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o o o
Mirrors and coatings Solar Energy Water Purification
Silver has been used as a medium of exchange since earliest recorded history, but silver coins – those minted by an authority either public or private – came on the scene in the eastern Mediterranean during 550 BC. By 269 BC, the Roman Empire adopted silver as part of its standard coinage and it was used throughout the trading world.
Silver jewelry is highly prized for its brilliant luster and its ease of fabrication, properties that it shares with gold, a precious metal also used extensively in jewelry. Pure silver, also known as 999 fineness, is quite tarnish resistant, but it is too soft for use in jewelry. Silversmiths often alloy it with other metals, such as copper, to harden it. Sterling silver, for example, is 92.5 percent silver and 7.5 percent copper. Sterling silver is a standard in many countries for silver jewelry and has been since the 14th century.
The same properties that make silver ideal for jewelry also cross over into silverware – its reflective brilliance, beauty and tarnish resistance. Copper is mixed with silver to toughen it for use as cutlery, bowls and decorative items such as picture frames.
Sterling silver (or 925 fineness) has been the standard since the 14th century, particularly for hollowware and flatware, but sometimes less-expensive tableware is plated with a silver coating of 20 to 30 microns thick.
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Photography Through use of chemical ‗developers‘ the differences in light intensity form negative images which can then be processed into paper pictures by using silver-imbedded paper. Approximately 5,000 color photographs can be taken using one ounce of silver.
batteries
The most common of these batteries is the small button-shaped silver-oxide cell - used in cameras, toys, hearing aids, watches and calculators - which is approximately 35 percent silver by weight.
bearings
Steel ball bearings electroplated with silver have greater fatigue strength and load carrying capacity than any other type. These bearings are used in continuous, heavy-duty applications such as in jet engines. Because steel has a poor coefficient of friction, placing a layer of silver between the steel ball bearing and the housing reduces friction between the two, increasing the performance and longevity of the engine.
Brazing and soldering
Silver brazes and solders combine high tensile strength, ductility and thermal conductivity. Silver-tin solders are used for bonding copper pipe in homes, where they not only eliminate the
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use of harmful lead-based solders, but also provide the piping with silver‘s natural antibacterial action
Catylst
Silver, because of its unique chemical properties is an important catalyst in the production of two major industrial chemicals. Because there is no net chemical change undergone by silver, it is almost completely recovered after such uses.
electronics
Silver membrane switches, which require only a light touch, are used in buttons on televisions, telephones, microwave ovens, children‘s toys and computer keyboards. These switches are highly reliable and last for millions of on/off cycles. Silver is also used in conventional switches likes those used for controlling room lights.
Medical Applications Silver‘s anti-bacterial powers have been tested and proven scientifically even though its power as a bactericide has been known for centuries. The ancient Phoenicians, for example, knew that water, wine or vinegar kept in silver vessels stayed fresh during long sea voyage
mirrors and coatings
increasing use of silver is in paints. Silver ions offer an anti-bacterial shield that keeps the coating germ and fungus free. This is particularly important in health care facilities, jails,
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schools, food and beverage factories and other places in which bacteria growth can be dangerous to health.
Solar Energy
Silver paste is used in 90 percent of all crystalline silicon photovoltaic cells, which are the most common type of solar cell. Around the world, solar arrays are being tested for large and smallscale electricity production. In Europe, photovoltaic systems commonly are used to power private homes and local businesses
Water Purification In building water supply systems, silver ions can destroy Legionnaires‘ Disease, which is caused by bacteria building up in pipes, connections and water tanks. In pools and spas, silver ions, usually held in canisters within filters, are activated by water to spread a biocide blanket to all components, keeping the water pure and disease free.
Silver is also finding its way to personal water purification devices that are short, easy-to-carry tubes inserted into suspect water. With several different methods of water purification in the tube, often including a charcoal filter, silver‘s role is to prevent the growth of bacteria and fungi that could overwhelm the system and render it useless.
Factors that Influence Silver Prices
DemandAnd supply:
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demand for silver is the leading aspect of prices. If there‘s currently a high demand for scrap silver from multiple industries, junk silver prices might get higher to attract more customers turning in their scrap silver pieces.Silver supply is an important factor influencing junk silver prices. Junk silver suppliers are mostly individuals turning in their and major manufacturing businesses that use silver during their technological process.
The Effect of Silver Stockpiling:
Silver is one the best conductors of energy which makes it an important component in most electrical devices. It is also a very good reflector of light making it valuable to producers of mirrors, windows, and other glass products. When silver prices rise, large companies that are dependent on the metal tend to horde it.This can further drive up demand, as was the case with palladium. In 2000, the Russian supply of palladium was disrupted causing prices to rise. In response, companies who used palladium in their products began to stockpile the metal.This drove prices up to $1,100/oz from $330/oz previously. 1. Silver is a Byproduct Metal: 2. About 80% of mined silver is gathered as a byproduct of other metals, such as copper, nickel, zinc, and lead.. Most of this metal comes from mines outside of the U.S. When the dollar falls against other currencies, the cost for importing these metals rise and demand falls, driving down silver production.. 3. Shorting Silver: 4. On the Commodity Exchange (COMEX), the silver short position is very large. In fact, silver is the world's only commodity that has a short position which is larger than both its global production and inventories.[16] The extent of this position has been created by
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naked short selling, which means shares are sold without an arrangement or promise of a borrower. This large short position helps to keep silver prices lower than they may be otherwise. 5. Countries Buying and Selling Silver: 6. When countries sell their reserves of silver in the market they increase the supply of silver available. However, in 2007, sales from countries dropped 46% because China and India did not sell as much silver as they did in the past. 7. Mine Production: 8. Although the majority of silver is produced as a byproduct of other metals, 20% comes from actual silver deposits. Mine production grew only 4% in 2007 to 670.6M oz and additional silver deposits are becoming increasingly difficult to find
VALUE OF DOLLAR COMPARED TO RUPEE
Xia Bin, a member of the monetary policy committee of the central bank,said that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.
Interest Rates, Price Inflation and Silver
Most people don't pay too much attention to the price of silver or the consumer price index, and
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they might not pay too much attention to interest rates. However, they do pay attention when
they see prices going up around them. If their grocery bill goes up or if their electric bill goes up they notice that.
In periods of time where they see that prices are going up much more than what they can earn by putting their money into the bank they realize that their money is being devalued. They want to seek out ways to preserve the wealth they have because nobody wants to save money to lose money. That‘s not the goal. So they seek out ways to preserve their wealth. Gold and silver are two obvious ways but you might go to real estate or invest in stocks or invest in commodities. They basically want to get out of the dollar so they are not losing this battle where inflation is out pacing what they can earn in interest on their dollars.
The only sure fire way to stop the devaluation of your money is to trade in Fiat Currencies for hard tangible assets like Gold and Silver. These hard assets will preserve the buying power of your money both now and way, way into the future.
This is evident when you look at the statistics of the consumer price index, the price of silver, and also the going rates of interest on the one year and ten year bonds. You see that in periods of time in the early seventies the interest rate was lower than the rate of inflation and so people sensed their money was being devalued and that is kind of the time when you started seeing the steep upward trend in the price of silver. Those conditions of lots of inflation and small interest rates probably had a large impact on how high the price of silver went. Similarly, with in the past decade silver has more than tripled in price and you can kind of see that we have had these low interest rates and any time you get a little inflation is has that impact where the purchasing power
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of your dollars are being lost because price inflation is larger than what you can earn in interest at the bank.
If you actually thought about it and you were in charge of the Fed and your goal was to make the price of silver go way up and you could control interest rates and how money you printed and if you only objective was to increase the price of silver you would keep interest extremely low and you would just print out as much money as you can to create as much price inflation as you could and that would cause the price of silver to go through the roof.
And if you look at what our government is currently doing there is a lot of pressure for them to keep interest rates low and there is pressure print up a bunch of money. Maybe they shouldn't do any of those things, but that is kind of the direction where they are going. For example, they want this housing bubble to come down into this soft landing. They don't want to raise interest rates because it might not help with their soft landing approach. If they did raise interest rates it would be more like a crash. Also they have so many unfunded liabilities they are going to have to default in those things in some way and probably the easiest way is to just print up a bunch of money.Based on their current debt and unfunded liabilities they are bound into a little box of keeping interest rates low and printing up a bunch of money which is eventually going to result in a lot of inflation. It is almost looks like it is that recipe for making silver go through the roof.If you have money saved in the bank, then that money is actually decreasing in value, so you should really be worried about inflation because it affects the prices of everything that you use
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on a daily basis.
ANALYSIS OF AWARENESS
Survey was conducted in steel city (in areas like Andheri, Santacruz, Bandra Church gate) to judge the awareness of peoples regarding investment in Commodity Market.
Quantitative Analysis
Analysis of data revels that majority of people prefer investment in Real Estate (28.81% of total sample) which specified in other category investment and it is greater than share market investment preference. 2. People‘s knowledge about Commodity Market: Page
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Very few people heard of commodity market. Vast majority of people are unaware about Commodity Market. 3. Investor‘s interested to invest in Commodity Market: -
(Out of those, who know Commodity Market)
Though some people heard of commodity market due to lack of complete knowledge about it half of then are not interested in investing in Commodity Market.
Above data revels that majority of commodity investors like to invest in Bullion (Gold & Silver).
5. Perception about Commodity Market
Analysis of data shows that majority of people who are aware about commodity market; feel that investment in commodity market is very risky. So efforts should be done to minimize the risk in commodity investment and make peoples about minimum risk in commodity investment.
6. Opinion about Commodity Market Advertisements
(Expressed by those who know commodity market)
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There is no second opinion amongst commodity investors, that commodity market advertisements do not give all the necessary information.
Qualitative Analysis
1. Investment preferences: -
Most of the investors prefer least risky investment which gives higher returns. That is why majority (70% of sample) of people interested in investments other than Share and commodity market.
Very less number of people (only 7%) showed their interest in investment in commodity market.
2.Commodity Exchanges: -
People who are interested in commodity investment showed more concern towards NCDEX; for its brand name and people think there might be surety of transaction at NCDEX.
3.Commodities: -
Bullion is most preferred commodity for investment. Because one can expect maximum returns from such investment.
4.Advertisements: Page
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Commodity market Advertisements should be more informative. And it is the failure of commodity market‘s advertisement campaign to attract people‘s attention; as majority of people are not aware about commodity market.
Investment options Silver is a commodity that is traded 24 hours a day in the world‘s market centers – London, Zurich, New York, Chicago and Hong Kong. The London market started trading in the 17th century, and it – like other major markets – provides a vehicle for those who wish to trade in physical silver on a spot basis, or on a forward basis for hedging purposes.
The London market has a "fix" which offers the chance to buy or sell silver at a single price. The fix begins at 12:15 p.m. and is a balancing exercise; the price is fixed at the point at which all the members of the "Fixing" can balance their own, plus clients‘, buying and selling orders.
Although London remains the true center of the physical silver trade for most of the world, the most significant paper contracts trading market for silver in the United States is the COMEX division of the New York Mercantile Exchange. Spot prices for silver are determined by levels prevailing at the COMEX; and although there is no equivalent to the London fix, Handy & Harman, a precious metals company, also publishes a price at noon each working day.
A primary factor affecting the price of silver is the available supply versus fabrication demand. In recent years, fabrication demand has greatly outpaced mine production forcing market participants to draw down existing stocks to meet demand. As these available sources continue to
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decline, silver's fundamentals continue to strengthen. However, since silver is a tangible asset, and is recognized as a store of value, its price can also be affected by changes in things such as inflation (real or perceived), changing values of paper currencies, and fluctuations in deficits and interest rates, to name a few.
After disscussing with the financial advisor we must decide upto which certain percent of our investment portfolio should be in silver, we should choose the silver investment vehicle that is in accord with your own preferences and investment philosophy.
As with any investment, we should judge the merits of our silver investments as they relate to our investment needs. The following are some of the advantages and disadvantages of particular silver investments. Exchange - Traded Funds (ETFs) Advantages: For investors who seek exposure to the physical silver market, but have no desire to possess the metal or pay direct insurance, assay, and storage costs, ETFs offer an alternative. They have major exchange listings and trade like equities. Investors can buy shares in a trust that owns the silver bullion. Silver Bullion Bars of Approved Refiners Advantages: Usually the least expensive Convertible into cash...Internationally negotiable...Price is widely quoted. Silver Mining Stocks Advantages: Offers capital appreciation opportunities...Dependent on the company's management and operating strength...May yield a dividend. Silver Mutual Funds Advantages: Many mutual funds offer investment
Disadvantages: Because the ETFs are created to reflect the price of the silver, the market price can be as unpredictable as the price of silver on any given trading day.
Disadvantages: Must be stored securely...Possible need for assay at time of sale...Yields no interest.
Disadvantages: May require greater investment than small physical bullion purchases...Requires knowledge of equity market.
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Disadvantages: May require greater investment than small
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programs in silver and precious physical bullion purchases...Requires metals...Diversified holdings among dozens knowledge of equity market. of companies. Silver Bullion Coins Advantages: Disadvantages: Relatively inexpensive, some less than Must be stored securely...Yields no US$10.00...Small and easy to store...Instant interest...Premium over bullion bar prices. convertibility into cash...Easy to transport...Internationally negotiable...Prices quoted widely. Silver Medallions Advantages: Disadvantages: Prices can range from least expensive to most Similar to coins, but not always easily expensive...Small and easy to store...Easy to convertible to cash unless they bear the mark transport. of a reputable refiner. Silver Certificates or Storage Accounts Advantages: Disadvantages: High liquidity...But at competitive prices...No Several days' delay in delivery of silver...Silver storage risk...No sales tax...Prices widely not in physical possession of owner. quoted...Invest by dollar amount. Silver Accumulation Plans Advantages: Disadvantages: Invest as little as $100...Discounted Silver not in physical possession of owner commission rates...Highly liquid...No sales although some firms will deliver the metal if tax...Offers dollar cost averaging...No storage requested. fees. Silver Futures Contracts Advantages: Disadvantages: Speculative appeal...Leverage reduces capital Many trading limitations...High risk tie-up...Liquidity...Contracts widely factors...Unlimited loss potential...Requires quoted...No storage risk. market expertise. Silver Options Advantages: Disadvantages: Speculative appeal...Leverage reduces capital Trading limitations...Highest risk...Less tie-up...No storage risk...clearly defined risk. negotiable and less liquid...Investor must be willing to sustain the loss of their entire investment in a commodity option...High degree of knowledge required.
Price Analysis
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In order to fully understand how silver came to be where it is today, and where it might be going, it is useful to review silver market trends since the 1950s. By looking at the larger trends that have swept silver supply, demand, and prices upward and downward since 1950, a much fuller understanding emerges of where silver stands today.
Price Analysis from 1950-1960
(yearly average prices based on London PM Fix)
After the end of World War II until the early 1960s, fabrication demand for silver rose strongly. This period witnessed the rebuilding of Europe and Japan, and a tremendous push worldwide toward electrification, housing construction, and consumer durables. Many electrical appliances, as well as electrical generation and transmission systems, use silver, which was one of the major factors behind this extended boom in industrial silver usage. At least as important was the advent of mass market photographic products, which sharply increased the use of silver in photographic films and papers.
There was another reason why fabricators were eagerly turning to silver during this period. The U.S. Treasury had a silver inventory that, as of 1950, stood at 2 billion ounces. Furthermore, Treasury policy was to buy domestically mined silver at 90.5 cents per ounce and sell silver at 91 cents, effectively putting a cap on the United States market price of silver.
In this way, the U.S. Treasury was the buyer or seller of last resort in the silver market, by virtue of the Silver Purchase Act of 1934 (itself one of a series of such laws extending back to the
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1870s). The 1934 law authorized the Treasury to buy silver either until:
the market price reached $1.29 (the monetary value of silver) or the monetary value of Treasury silver stocks reached one-third of the monetary value of the Treasury‘s gold stocks
This purchase program remained in effect, in essence, until 1961. During the intervening 28 years, the Treasury acquired 3.2 billion ounces of silver. About half was acquired in the first four years, from 1934 through 1937, and the other half between 1937 and 1955.
A good portion of this silver was acquired from U.S. mines: 880 million ounces, or nearly all domestic production from 1937 to 1955. About 110 million ounces were purchased during the first three months following passage of this legislation in 1934. The law prohibited Americans from owning non-monetary silver, and directed them to sell it to the Treasury. A great deal of silver was also imported. Between 1934 and 1939, nearly 2 billion ounces of silver came from other countries. Market prices ranged between 25 cents and the ceiling created by the Treasury‘s set price of 90.5 cents during these years, but spent most of the time below 75 cents. U.S. fabrication demand (excluding coinage), which totaled 1.8 billion ounces from 1935 through 1955, was met by imported silver. By 1955, the demand for silver was great enough to push market prices above the Treasury‘s 90.5 cents purchase price. Since the Treasury was a seller at 91 cents, the price remained around this level for several more years, as the Treasury‘s reserves were depleted. While the 1934 law directed the Treasury to buy silver with an eye on boosting the silver price to $1.29, the Treasury‘s policy during the late 1950s was designed to keep silver prices below the point at
silver market.
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which coins would be melted down, to allow time for the Treasury to extricate itself from the
Treasury reserves peaked in 1959, when the U.S. Treasury had 2,060,000,000 ounces on hand, and another 1,331,000,000 ounces were outside the Treasury in circulating coinage, for a total of 3,391,000,000 ounces.
In summary, the post-war period saw silver demand rise sharply, while mine production and other supplies were relatively stable. The U.S. Treasury sold tremendous amounts of stockpiled silver during the years after 1955, in order to keep the price of silver below its "monetary value." Additionally, the actual growth of the overall economy increased the need for circulating coinage. One reason for the Treasury‘s sales was straightforward: if silver‘s market value rose above its monetary value, $1.29 per ounce, holders of U.S. silver certificates, one form of currency in circulation at the time, could trade in these $1, $5, and $10 bills in exchange for silver bullion. Also, there would be an enormous incentive for individuals to melt down the silver coins in circulation.
Had the Treasury not been present as a seller of silver, market supplies from other sources would have been hard pressed to keep pace with the growth of fabrication demand, and the price of silver most likely would have risen sharply during the late 1950s and early 1960s.
Price Analysis from 1960-1965
(yearly average prices based on London PM Fix)
After decades, the Treasury had been a net buyer of silver. By 1960, it had become a net seller. In 1960, the Treasury sold 22 million ounces of silver in bullion form, and used another 46
and use another 56 million ounces to replace silver coins that had been taken out of circulation
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million ounces in coinage. The next year the Treasury had to sell 63 million ounces of bullion
by investors. That year, 1961, the Treasury realized that it would run out of silver for use in coinage and as a reserve against silver certificates unless it took drastic measures to begin phasing silver out of currency. In 1961, the Treasury ordered $5 and $10 silver certificates out of circulation, freeing silver reserves held against these bills and reducing the public‘s call on Treasury silver. In November 1961 the government also suspended silver bullion sales by the Treasury at the formerly fixed price of 91 cents.
Once the Treasury stopped selling at that price, market quotes for silver quickly rose. In June 1963 the Treasury also replaced the $1 silver certificate with Federal Reserve notes. By 1963, silver prices reached $1.29, the monetary value of silver in coinage. At prices above this level, holders of silver certificates would have been able to redeem them for more valuable silver, under the now-defunct silver certificate legislation. (The other trigger price the Treasury worried about was $1.38, at which level it was profitable to recycle coinage for its silver content.)
During this transition period, the U.S. Treasury still had to keep the silver market well supplied, in order to keep the silver market relatively calm until it had completed the withdrawal of silver form its currency. In late 1963 the Treasury resumed its silver bullion sales, as part of this effort. Over the six years between 1960 and 1965, the Treasury sold a total of 342 million ounces of silver bullion. It used another 814 million ounces of silver in coinage during this same time. In total, the Treasury used 1,156,000,000 ounces of its silver reserves. Much of this silver, especially the bulk of it used in coins, found its way quickly into the hands of investors. Government steps to remove silver from the currency led investors to conclude that the price of silver would rise sharply once the Treasury no longer was supplying the market with such large volumes of the metal.
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Fabrication demand continued to rise sharply. Industrial use, excluding coinage, rose at a 9 percent per annum pace, from 212.9 million ounces in 1959 to 355.8 million ounces in 1965. Including coinage, which grew rapidly during this same time due to the investor run on coins, total fabrication demand rose 16% per annum. Mine production, in contrast rose only 1.9% per year from 195.6 million ounces in 1959 to 218.4 million ounces in 1965.
Secondary recovery of silver was starting to expand, in part spurred by the realization that with the passing of Treasury silver sales and coinage programs the market would need to recover increasing amounts of silver from scrapped items. It was clear to market participants that silver prices had been restrained by the Treasury‘s willingness to fill the gap between market supplies and industrial demand, and that once the Treasury‘s silver was gone, additional supplies would have to be found elsewhere. Coin melt rose from 10 million ounces in 1960 to 30 million ounces in 1965. Silver recycling from other items rose from 40 million ounces in 1960 to 57 million ounces in 1965.
Price Analysis from 1966-1970
(yearly average prices based on London PM Fix) By 1966 the Treasury‘s program of eliminating silver from coinage was in place. The Treasury continued to use some silver in coins from then until 1969, but the annual average during these four years was 38.5 million ounces, down from 178 million ounces per year on average during the previous four years. Austria, France, and West Germany continued to use silver in some circulating coins until the late 1970s.
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The U.S. government also continued to sell silver bullion. From 1966 through November 1970, 674 million ounces of bullion were sold. (In 1967 the bullion sales program was transferred from the Treasury to the General Services Administration. Ownership of the bulk of the remaining silver were transferred from the Treasury stocks to the National Defense Stockpile.)
Industrial demand meanwhile remained strong, although there was a period of weakness in the mid-1960s. The higher silver prices had some limiting effect on use, although the major factor was slowing overall economic growth and a shift in the economy away from the manufacture of goods that used silver. Industrial use peaked in 1966 at 414.9 million ounces. It declined 10 percent over the next two years, before stabilizing between 372 and 387 million ounces on an annual basis in the late 1960s and early 1970s.
Investors remained keenly interested in silver, absorbing around 620.5 million ounces of silver from 1964 through 1970. Interestingly, the price of silver rose from $1.29 to a peak of $2.57 in 1968, before falling back. The rise and fall in silver prices was coincidental with the volume of these investor purchases: As investor demand decreased over the next three years, prices softened commensurately.
The weighted average price paid in these investor acquisitions, using annual average prices, was $1.88 per ounce. This figure will be important in understanding the next phase of the silver market, from 1971 into 1979, when the new supply of silver fell short of industrial requirements and the resulting deficit was accommodated by investor selling.
While investor demand was strong and industrial demand remained at healthy levels, Mine production rose at a 3.4 percent per annum rate, from 218.4 million ounces in 1965 to 258.5
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million ounces in 1970. (Actually, mine output of silver was not as vibrant as these figures suggest, since 1965 was a year of stable output and 1970 represented a cyclical peak in silver production. Output fell back the following year, and did not regain its 1970 level until 1977.) Secondary supply also continued to expand, in part due to the rise in silver prices, which made recycling much more attractive. Bloated by continued U.S. government sales, total supply remained high throughout this period.
Price Analysis from 1971-1977
(yearly average prices based on London PM Fix)
By 1971 U.S. government stocks had fallen from their 1959 peak of 2.1 billion ounces to around 170 million ounces. The U.S. government had removed silver entirely from its currency, and ceased to intervene in the silver market. Total silver supplies had reached a record 747.4 million ounces in 1965, of which 54 percent, or 400 million ounces, came from the U.S. Treasury. From that point onward, the Treasury was backing out of the silver market, and total supply declined steadily, and never has approached that 1965 record again.
Total silver supplies had declined to 381.3 million ounces by 1971, their lowest level since 1960. New mine production accounted for 65 percent of this total, or 247.3 million ounces. Secondary and other supplies totaled 134.0 million ounces. Throughout the 1970s, mine production remained rather static, fluctuating between 236.6 million ounces in 1974 and 272.0 million ounces in 1979. Secondary supply rose from 1972 to 1974, in line with silver prices, and then fell back to 152.0 million ounces in 1978.
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Fabricating demand rose sharply in the early 1970s, from 414.4 million ounces in 1971 to 545.0 million ounces in 1973. Demand then dropped for two years, as a worldwide recession reduced consumer demand for silver-using end products and as higher silver prices led to some reductions in silver use. Demand fell to 497.9 million ounces in 1974 and 437.9 million ounces in 1975. Use rebounded the next year, to 511.0 million ounces, before stabilizing between 488.6 million ounces and 491.3 million ounces in 1977 and 1978.
Total new silver supplies fell far short of meeting these requirements. From 1971 through 1978 there was a cumulative deficit of new supply over demand of 415.8 million ounces. The silver that filled this gap came from the 620.5 million ounces of silver inventories – many held by investors – built up during the previous seven years. By becoming net sellers of silver, investors replaced the U.S. Treasury as the source of silver to make up for a major, ongoing shortage of silver. The difference was that in the early 1960s the U.S. Treasury had sold at a fixed price because it was acting to restrain silver prices. In contrast, investors wanted increasingly higher prices for this service. The weighted average price of the investor silver sales from 1971 through 1978 was $3.21, 71 percent higher than the price they had paid for this metal in the late 1960s. The average price of silver was $1.55 in 1971. The average price rose to $4.71 in 1974, and then spent the next four years between $4.35 and $5.40.
Price History 1978-1980
(yearly average prices based on London PM Fix)
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By 1979, investors and other market participants had come to the strong conviction that the silver market was facing a severe shortage of metal, and that prices were likely to rise sharply at some point. The market had been living off of investor selling for seven years. Prices had risen from the beginning of the decade, but there were serious questions as to how much longer investors would be willing and able to continue supplying silver to fabricators, at least at the prices seen in the mid-1970s.
World economic and political events also were coming to bear on the silver market, most notably in the form of a major cyclical upward surge in inflation throughout the industrialized world. Sensing that silver prices should be adjusting upward to compensate for these inflationary trends, many investors decided that silver prices between $4.00 and $5.50, which had prevailed during most of the late 1970s, were too low. Investors ceased selling their old silver holdings, and instead began adding to their holdings. This added further upward pressure to the price of silver. Simplistic retrospectives of the silver market in late 1979 tend to focus on the high-profile purchases of large amounts of silver and silver futures by various wealthy individuals; in reality, there was a tremendously broad-based rush to buy silver by investors worldwide at the time.
By the final quarter of 1979, silver prices had risen to levels between $15.00 and $25.00 per ounce. At these levels several physical market forces combined to act against higher prices.
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Additionally, the two major U.S. futures exchanges that traded silver at the time took steps to
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force those with margined long positions to liquidate their positions. During the Hunt brothers' accumulation of the silver, prices of silver bullion rose from $11 an ounce in September 1979 to $49.45 an ounce in January 1980 based on London PM Fix. Silver prices ultimately fell to below $11 an ounce two months later.
As silver prices rose above $15.00 in September 1979, fabrication demand began to be affected. On an annual average basis, industrial silver use fell a relatively mild 0.9 percent to 445.1 million ounces in 1979. Demand had held up reasonably well during the first three quarters of the year. However, a sharp cut-back in demand in the fourth quarter led to overall annual decreases in silver use. By some estimates, industrial use of silver was 40 percent lower in the last quarter of 1979 than it had been in the first quarter of that year.
When silver prices rose sharply in 1973-1974, manufacturers began searching for ways to reduce their need to use silver. Several substitutes for silver and methods to reduce per-unit silver use were developed, but they were too expensive to implement as long as silver was around $5.00 per ounce. When silver rose to $15.00 and more however, fabricators were able to introduce these measures rapidly. Demand also quickly declined for jewelry and sterlingware.
Investors began to sell large amounts of silver especially old coins from the 1960s. Other sold large amounts of sterlingware and jewelry for its silver content.
A host of political events, including the continuous U.S. hostage crisis in Iran and the Soviet invasion of Afghanistan, motivated investment demand, helping keep silver prices high and volatile through 1980. High inflation, high nominal interest rates, and negative real interest rates further stimulated investor interest in silver and other tangible assets. Prices dropped as low as
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$10.80 in March, but rose back to $25.00 in September, as the Iran-Iraq war erupted. By the end of 1980 silver prices had subsided once more to around $16.00.
These high silver prices meanwhile were having a dramatic effect on the physical silver market conditions. Total supply rose form 434.8 million ounces in 1978 to 505.0 million ounces in 1979, and then to 584.6 million ounces in 1980. The bulk of this increase occurred in secondary recovery. Total secondary recycling of silver doubled, from 152.0 million ounces in 1978 to 302.0 million ounces in 1980. The recovery of silver from old coins, those holdings taken in by investors during the 1960s, increased from 21 million ounces in 1978 to 45 million ounces the next year, and then to 94 million ounces in 1980. Refiners faced substantial backlogs, sometimes of 6-12 months in processing these materials.
Mine production remained almost unchanged during this time, and actually was lower in 1980, at 264.6 million ounces, than it had been in 1978. (A U.S. copper industry strike, along with a strike at a major U.S. silver mine, were major factors behind the low output.) Mine developments have long lead times, and the increases in output that came about in response to the 1979-1980 jump in silver prices did not appear until the mid-1980s.
Prices also were having a dramatic effect on fabrication demand, compounded in 1980 by the onset of the deepest post-war recession. Industrial silver use fell from 449.1 million ounces in 1978 to 362.5 million ounces in 1980, a level fully 25 percent below the 1976 cyclical peak of 481.0 million ounces. The last countries using silver in circulating coinage, Austria, France and West Germany, withdrew from that activity, reducing silver use in coinage on a worldwide basis
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from 39.5 million ounces in 1978 to 15.0 million ounces in 1980.
The combination of higher secondary recovery and lower fabrication demand brought an abrupt end to the eight years of silver market supply deficits. In 1978 new supply had fallen 53.8 million ounces short of fabrication requirements. In 1979 there was a 28.9 million ounce surplus.
In 1980 this surplus reached 207.1 million ounces, nearly as high as the 228.9 million ounce surplus that had resulted from the 1968 run-up in silver prices and the Treasury‘s sales programs. The increase in the recovery of silver from old coins accounted for nearly half of the surplus.
Price Analysis from 1981-1991
(yearly average prices based on London PM Fix)
By the beginning of 1981 the silver market was starting to adjust after the traumatic events of 1980. Industrial silver demand was declining, both because of the worldwide recession that had set in, and in reaction to high silver prices. Investment demand for silver also fell sharply. Investors were aware of the reduced fabrication demand for silver, and of the amount of silver backed up at refineries Other investors had lost money in 1979-1980, and were wary of returning to the market. Still others were distracted from silver by more attractive financial markets.
Supply also fell, as the surge of old scrap and coin melt subsided. Total supply dropped 101.1 million ounces from 1980's level to 483.5 million ounces.
The worldwide recession persisted until late 1982, continuing to restrain fabrication demand and discourage investment absorption. Silver mine production, meanwhile, had begun to rise, as some mines developed in reaction to the higher prices since 1979 came onstream. Much mine output of silver remained profitable even as silver prices subsided to around $8.00 in the early
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1980s, so that expanding existing operations and developing new mines remained an attractive proposition for many miners. Secondary recovery of silver, meanwhile, continued to decline.
Silver prices reached a cyclical nadir of $4.98 in June 1982, 10% of the $48 peak just 30 months earlier. June 1982 also proved to be the trough of the recession in the United States. During 1982 serious problems erupted in the international debt market, in particular relating to the debt repayment problems of certain countries in Eastern Europe and Latin America.
In late 1982 investor interest in silver was rekindled by several forces, all of which emerged at roughly the same time. The international financial market panic led some investors to turn to silver. Others were attracted by what they saw as unsustainably low prices. Investment demand also was encouraged by a rapid easing of credit market conditions by monetary authorities in most industrialized nations; this easing led to an immediate revival of inflation fears. As a result of all of these forces coming to bear at once, investment demand picked up during the second half of 1982 and the first quarter of 1983. This influx of investor buying helped take silver prices from the June 1982 low of $4.98 to a peak of $14.72 in March 1983.
In March 1983, several trends came into play reversing the rise in silver prices. First, the price had nearly tripled in nine months. Such a fast ascent led to profit-taking by investors; it also constricted industrial use. On the supply side, secondary recovery of silver from scrap and coinage increased in response to the higher prices. OPEC lowered its official benchmark oil price, for the first time in the cartel's history. The sudden decline in petroleum prices quickly reduced inflation expectations. Silver prices had averaged $13.96 in February 1983. In March
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they averaged $10.62.
Prices recovered slightly during the summer months, but from 1983 until 1986 the trend in prices was downward. This downward trend served an important purpose in the physical market, in that it discouraged new developments of primary silver mines, except where high ore grades or other factors made for extremely efficient plants. It also served to reduce secondary recovery of silver. On the demand side of the market, relatively low silver prices removed the incentives to using less silver or substituting away from silver in products.
Total fabrication demand fell sharply at the beginning of the 1980s, in response to higher silver prices, and worldwide recession. Longer term demographic and technological trends had been pointing to a decline in use, which the price rise and recession accelerated.
For example, silver use in sterlingware in the United States actually had peaked in the early 1970s, and was clearly going through a secular loss of markets due to changing demographics and consumer tastes. By 1979 U.S. sterlingware use of silver had fallen 55% from its 1973 peak of 29.3 million ounces. The decline that followed 1979 was a continuation of this longer term trend, exacerbated by the rise in silver prices and the economic recession.
Other industries, including the important photographic and electronics uses for silver, were able to reduce their per-unit silver requirements in some instances, and in other cases to substitute other materials for silver. As silver prices subsided later in the 1980s, some of these trends reversed. In the color film photographic market, for example, competition for higher film speeds led to an increase in per-unit silver use, to levels higher than those seen in the late 1970s.
Fabrication demand, including coinage, reached a low of 363.1 million ounces in 1981, the lowest level since 1960. During the early 1980s, fabrication demand remained weak, but in 1984
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it began rising once more, stimulated by low silver prices and strong growth in industrial activity.
Silver supply followed a more erratic pattern during the 1980s, which partly reflected the high degree of price responsiveness of secondary recovery. Total supply fell 101.1 million ounces from 1980 to 1981. This decline was entirely a function of the scaling back of secondary recovery, after the rush of material in late 1979 and 1980. Total supply continued to slump in 1982, falling to 455.1 million ounces. While this was happening, in late 1982, silver prices staged a rally from $4.98 to nearly $15.00. This surge in prices brought out significant quantities of scrap in 1983, which boosted total supply to 531.1 million ounces. As prices decreased from early 1983 into 1986, total supply once more fell back, to 449.7 million ounces in 1986. Mine production was restricted by the low prices at this time, with silver reaching a low for this period of $4.85 in May 1986. Secondary recovery also was constricted by these low prices. Since 1986 total supply rose once again, reaching 514.0 million ounces in 1990.
Since 1979 there was a surplus of total silver supply over fabrication demand every year. On a cumulative basis, this surplus totaled 927 million ounces from 1979 through 1990.
It appears that most of this surplus was bought by bona fide investors, individuals who have accumulated these silver positions in the expectation of being able to liquidate them at some later date at a profit. Minor surpluses and deficits can be accounted for by changes in reported market inventories and investor coin purchases. Most of the silver coins produced in this decade were bullion coins, designed for investors and collectors and not intended by their mints for use as
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circulating currencies. Silver coinage since 1979 totaled 241.6 million ounces.
Accounting for these factors, it still seems that investors acquired around a billion ounces of silver since the late 1970s, one quarter of this in coins. The period of heaviest silver purchases occurred in 1980 and 1981. Simple logic bears this out: Strong investment demand was keeping prices high at this time. As investor buying waned later in the decade, prices slipped down. The weighted average acquisition cost of the silver added to investor inventories during this past past decade was $11.25 per ounce.
Price Analysis from 1990-1999
(yearly average prices based on London PM Fix)
Throughout the 1990's, the main question for the silver market was the rate at which aboveground stocks of bullion and coins were being consumed by the widening gap between fabrication demand and conventional supply, and when this erosion of stocks might begin to significantly impact the price of the metal. Mine production of new silver rose by only 4 percent from 1990 to 1999, while total fabrication demand increased by 22 percent during the same period.
While the fundamentals for silver strengthened during the past decade, the price of silver slowly climbed from an average price of $4.83 in 1990 to an average price of $5.22 in 1999.
In 1999, silver's price performance was subdued following an eventful 1998, and was off 5.8 percent from the previous year, but it did finish the year up 6.7 percent from its starting level (ending the year at $5.33 having begun it at $4.99). It traded in a narrow range between $4.88
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and $5.79.
Substantial flows of silver out of China helped to keep the price in check in 1999, and had similar impacts in the early 2000s.
The gold/silver ratio (the number of ounces of silver it takes to buy one ounce of gold) is another market indicator some analysts watch. This ratio has at times been a closely followed indicator of the relative trends in the two markets and in the past has been used by investors as signals for buying, selling, or exchanging gold and silver. The ratio for 1999 was 53.37, versus 53.08 in 1998. The average for the period 1968-1999 is 50.18
Price Analysis from 2000-2010
(yearly average prices based on London PM Fix)
Silver prices remained under pressure for most of 2000, averaging $4.95 per troy ounce. The trading range did manage to increase marginally year-on-year, recording a high of $5.45 in February of 2000 and a low of $4.57 in December. The silver price softened throughout the year, largely because of continued Chinese government sales and ongoing private disinvestment.
In 2001, silver prices averaged $4.37 per troy ounce. The metal ended the year on a muchbrighter note, with silver fixing at $4.52 on December 31, only 7 cents down from the year's first trading day.
In the face of an enduring global economic slowdown, the silver price demonstrated resilience in 2002. With an average price of $4.60 per ounce in 2002, silver recorded a 5-percent year-on-year increase over 2001. Silver retained its characteristics as a precious metal, rising in value during periods of crisis last year.
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The average silver price in 2003 was $4.85 per ounce - a 5.4-percent increase over 2002. Much stronger investment interest and the improved fabrication demand scenario, which picked up strongly from the third-quarter onwards, propelled the silver price to $5.97 per ounce at year's end.
The silver price in 2004 staged a dramatic rally, rising a robust 36 percent to average $6.66 per ounce. This compared to an average price of $4.85 in 2003. This stunning price performance reflects fundamental changes in silver's supply/demand balance. Last year also saw a boom in investor activity, mainly driven by funds operating on futures exchanges and considerable buy side interest from high net-worth individuals.
In 2005, the silver price experienced a 10 percent increase over the average 2004 price of $6.65 per ounce, to an average of $7.31 per ounce.
In 2006, the silver price experienced a 58 percent increase over the average 2005 price of $7.31 per ounce. The silver price reached levels not seen in 26 years and was the leader when compared with gold (36 percent increase) and platinum (27 percent increase). The primary factor driving the stronger silver price was the continued strength of investment demand, which returned in earnest in 2005, was sustained in 2006. Much of the investment demand can be attributed to the successful launch of Barclays' Global Investors iShares Silver Trust Exchange Traded Fund (ETF), which was introduced in late April 2006.
The annual silver price, led by continued strong investor and industrial applications demand, averaged an impressive US$13.38 in 2007. This result represented a 16 percent price increase over 2006, and on a percentage basis was stronger than that enjoyed by gold, platinum and
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palladium last year. When looking at the 2007 silver price, the white metal posted a very solid performance to averages not seen since 1980. A key development in silver‘s recent fortune has been the pronounced shift in investor behavior, witnessed by the continued presence of investors on the demand side of the equation since 2004.
During the first half of 2008, investors drove the silver price up above the US$20/oz mark (a high of US$20.92 oz was recorded in March) against a backdrop of generally firm fabrication demand. The second half of 2008 was a different story as the economic outlook deteriorated rapidly, and silver, as well as other metal prices, slumped. However, silver‘s price in the first third of 2009 recovered a good part of the lost ground.
In 2008, a record inflow of over 93.1 Moz into the three main silver ETFs was instrumental in the high price average, as investors propelled silver to multidecade highs, in not only daily price terms but also in the annual average.
Coins and medals fabrication jumped by an astonishing 63 percent to a record of 64.9 Moz in 2008. The main reason for this was a surge in investment-related purchases of bullion coins, both in the United States and Europe. Notably, fabrication of the U.S. Silver Eagle bullion coin achieved a record 19.6 Moz last year, approximately double the 2007 figure, and would have been higher if the U.S. Mint had sufficient blanks to produce coins to meet demand. In 2009, physical silver investment demand has continued to increase, as the U.S. Mint has already achieved a nearly 70 percent year-on-year rise in the first quarter.
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Silver posted an average price of $14.67 in 2009, the second highest average since the high
reached in 1980. Strong gains in investment and a recovery in demand later in the year, were the prime reasons for the 53 percent intra-year rise. Much of 2009‘s strength in investment can be attributed to soaring demand for silver exchange traded funds (ETFs) as well as physical retail investment. This occurred on the heels of 2008‘s previous record ETF inflow of 265.3 million ounces (Moz) of silver. Total ETF holdings rose by 132.5 Moz over the course of 2009, ending the year at an impressive 397.8 Moz as new funds entered the marketplace from Australia and the United States.
In 2009, coins and medals fabrication rose by an impressive 21 percent to post a new record of 78.7 Moz, driven by a jump in retail demand, principally in the United States, although western European demand was also stronger in 2009. In the United States, the increase in its bullion coin sales was also accompanied by a surge in bar demand. Of note, demand for the U.S. Silver Eagle bullion coin reached record highs in 2009, with over 28 million Eagles sold. To put last year‘s performance into context, over the 1986-2008 period, U.S. Eagle minting averaged 7.7 Moz per year.
Silver posted an average price of $20.19 in 2010, a level only surpassed in 1980, and a marked increase over the $14.67 average price in 2009. World investment rose by an impressive 40 percent in 2010 to 279.3 million troy ounces (Moz), resulting in a net flow into silver of $5.6 billion, almost doubling 2009‘s figure.
Exchange traded funds (ETFs) registered another sterling performance in 2010, with global ETF holdings reaching an impressive 582.6 Moz, representing an increase of 114.9 Moz over the total
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in 2009. The iShares Silver Trust accounted for almost 40 percent of the increase, with other notable gains achieved by Zurcher Kantonalbank, ETF Securities, and the Sprott Physical Silver Trust.
A significant boost in retail silver investment demand paved the way for higher investment in both physical bullion bars and in coins and medals in 2010. Physical bullion bars accounted for 55.6 Moz of the world investment in 2010. Coins and medals fabrication rose by 28 percent to post a new record of 101.3 Moz. In the United States, over 34.6 million U.S. Silver Eagle coins were minted, smashing the previous record set in 2009 at almost 29 million. Other key silver bullion coins reaching milestones include the Australian Kookaburra, the Austrian Philharmoniker, and the Canadian Maple Leaf–all three posting record highs in 2010.
World Silver Demand in 2010
Total fabrication demand grew by 12.8 percent to a 10-year high of 878.8 Moz in 2010; this surge was led by the industrial demand category. Last year, silver‘s use in industrial applications grew by 20.7 percent to 487.4 Moz, nearly recovering all the recession-induced losses in 2009, and is now seeing pronounced advances in 2011. Jewelry posted a gain of 5.1 percent, the first substantial rise since 2003, primarily due to strong GDP gains in emerging markets and the industrialized world‘s improving economic picture. Photography fell by 6.6 Moz, realizing its smallest loss in nine years, as medical centers deferred conversion to digital systems. Silverware demand fell to 50.3 Moz from 58.2 Moz in 2009, essentially due to lower demand in India.
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World Silver Demand
World Silver Supply
Silver mine production rose by 2.5 percent to 735.9 Moz in 2010 aided by new projects in Mexico and Argentina. Gains came from primary silver mines and as a by-product of lead/zinc mining activity, whereas silver volumes produced as a by-product of gold fell 4 percent last year. Mexico eclipsed Peru as the world‘s largest silver producing country in 2010, and Peru is followed by China, Australia and Chile. Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 2010. Top 20 Silver Producing Countries in 2010 (millions of ounces) 1. Mexico 2. Peru 3. China 4. Australia 5. Chile 6. Bolivia 7. United States 8. Poland 9. Russia 10. Argentina 11. Canada 12. Kazakhstan 13. Turkey 14. Morocco 15. India 16. Sweden 17. Indonesia 18. Guatemala 19. Iran 20. South Africa
128.6 116.1 99.2 59.9 41.0 41.0 38.6 37.7 36.8 20.6 18.0 17.6 12.3 9.7 9.7 9.2 6.9 6.3 3.4 2.8
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silver mine cash costs remained relatively flat year-on-year, falling by less than 1 percent to $5.27/oz. from a revised $5.29/oz. in 2009.
Net silver supply from above-ground stocks increased to 142.9 Moz in 2010, primarily due to higher scrap supply, a shift of net-producer hedging to the supply side, and a considerable rise in net-government stock sales. Regarding scrap supply, 2010 witnessed a 14 percent increase over 2009 as gains in industrial and jewelry recycling exceeded an ongoing decline in recovery from photographic sources.
The swing to net-producer hedging of 61.1 Moz ended a four-year run of de-hedging and is attributed to higher silver prices and was limited to a group of by-product, rather than primary silver producers.
Net government sales of silver rose to 44.8 Moz, primarily the result of increased sales from Russia, with China and India remaining relatively silent for the second consecutive year. Supply from Above-Ground Stocks (Million ounces) 2009 2010 Bullion Implied Net -178.0 Disinvestment 120.7 Net Producer Hedging -22.3 61.1 Net Government Sales 15.5 44.8 -72.1 Sub-total Bullion 127.5 Old Silver Scrap 188.4 215.0 Total 60.9 142.9 World Silver Supply and Demand
To document these and other market fundamentals, each year the Silver Institute works with GFMS Limited, of London, a leading research company, to prepare and publish an annual
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report of worldwide silver supply and demand trends, with special emphasis on key markets and regions. This annual survey also includes current information on prices and leasing rates, mine production, investment and fabrication.
World Silver Supply and Demand (in millions of ounces) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Supply Mine Production 606.2593.9596.6613.0637.3641.7 665.4 681.9 718.3 735.9 Net Government Sales 63.0 59.2 88.7 61.9 65.9 78.5 42.5 28.9 15.5 44.8 Old Silver Scrap 189.0196.3194.0195.2198.6203.3 199.0 193.7 188.4 215.0 Producer Hedging 18.9 --9.6 27.6 ----61.1 Implied Net -18.9 1.6 -------Disinvestment Total Supply 877.1868.3881.0879.7929.5923.5 907.0 904.5 922.2 1,056.8 Demand Fabrication Industrial Applications 349.7355.3368.4387.4431.8454.2 491.1 492.7 403.8 487.4 Photography 213.1204.3192.9178.8160.3142.2 117.6 101.3 79.3 72.7 Jewelry 174.3168.9179.2174.8173.8166.3 163.5 158.3 158.9 167.0 Silverware 106.183.5 83.9 67.2 67.6 61.0 58.5 57.1 58.2 50.3 Coins & Medals 30.5 31.6 35.7 42.4 40.0 39.8 39.7 65.4 79.0 101.3 873.6843.5860.1850.6873.6863.5 870.3 874.7 779.2 878.8 Total Fabrication Producer De-Hedging -24.8 20.9 --6.8 24.2 11.6 22.3 -Implied Net Investment 3.6 --29.1 55.9 53.2 12.5 18.2 120.7 178.0 Total Demand 877.1868.3881.0879.7929.5923.5 907.0 904.5 922.2 1,056.8 Silver Price 4.3704.5994.8796.6587.31211.54913.38414.98914.67420.193 (London US$/oz) SOURCE: World Silver Survey 2011
Like all commodities, the precious metals market experiences price fluctuations as a result of the
metal—both for investing and for collecting. During the course of 2010, all that changed, as the spot silver price started to consistently outshine gold. The year started with prices at around $17
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influence of certain factors on the market. Traditionally, gold has been the preferred precious
an ounce and came to a close with prices having gone up to over $30 an ounce. The impressive jump of 79% in the spot price was far greater than gold‘s increase of around 25%.
There are various reasons for the jump in silver prices when compared to gold. On its own, the spot silver price is impressive. That is even truer when considering its increase when compared to the vastly more popular precious metal. One of the reasons silver jumped so dramatically is that the metal was greatly undervalued for many years. Historically, silver was seen as a metal with little value, which was reflected in its very low fixed price. In fact, the spot silver price didn‘t break $1 an ounce until the 1970s. Once the standard price was lifted, silver had a chance to be a real commodity, which would start to attract investors.
Price changes in the market would occur as a result of certain factors influencing it. Like all commodities, the spot silver price is affected the most by supply and demand. With investment demand up recently and physical supply decreasing, this is affecting prices dramatically. Throughout 2010, it became clear that silver was a much more viable investment option than gold, which further drove up demand for the metal. Increases in demand that can‘t be met by supply of the commodity will always result in a jump in prices. Investment demand isn‘t the only thing to look out for when keeping an eye on the spot silver price. Silver has become widely used in industrial markets as well, which plays a huge role in the growing demand and shrinking supply of the metal. Silver is used in electrical appliances, photography equipment, and medical supplies. These uses play a huge role in the increasing value of the metal.
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Silver Price Forecast of 2011
In recent years, gold and silver have outperformed equities and real estate. Due to the very bullish fundamentals, this trend is set to continue in the coming months.The forecast for silver prices in 2011 is based on
The increasing global macroeconomic, currency and geopolitical risks
Silver historic role as money and a store of value
The ever declining and very small remaining silver deposits
Significant industrial demand
Significant and growing investment demand
Gold, oil, potash, and other major commodities went over their record highs in recentyears because of growing demand and short supply, geopolitical risks and concerns regarding the emergence of inflation and stagflation – all pointing to higher silver prices in the long term.
Silver prices forecast considers declining supplies
According to a research, there were close to 2.2 billion ounces of silver in the world.While it may sound huge, the number of ounces stood at 12 Billion in 1900. Today,there is less than 1 billion ounces of above ground refined silver. More than 90% of all the silver that has ever been mined, has been consumed by the global photography,technology, medical, defense and electronic industries.While the birth of digital photography certainly diminished use of silver in the photo industry, based on current and projected supply and demand trends, the amount of
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above ground refined silver is to shrink to even lower levels in the coming years as demand has been outstripping mining supply for most of the last 20 years, driving above
ground supply to historically low levels. However few in the investment world and almost nobody in retail are aware of this important fact.
Why silver price has not gone up?
We do not believe in conspiracy theories. The increased demand has been met by silver ounces from inventories and official government stockpiles, which today are getting close to depletion. Those include U.S.,China, Russia and India reserves. Now 80% of silver has been mined as a byproduct of other base metals such as copper, nickel, zinc and lead. In the event of a global stagflationary or deflationary slowdown, you can not expect these base metal miners to increase production for the sake of silver as demand for their core product would likely fall, thus further decreasing the supply of mined silver.
There are only a few pure silver mines remaining, all with depleting reserves. This inflexible supply means that we cannot expect significant mine supply to depress the price rise. All these facts comprise a powerfully bullish picture which is unique to silver.
Increasing industrial demand is bullish for silver
Silver today is used more than ever in traditional applications such as mirrors, batteries,medical devices and other modern high tech devices. Increasingly, silver antimicrobialand antibacterial
projects on the use of silver based compounds for therapeutic and antibacterial purposes.
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qualities are being used in many types of medical applications. There are many ongoing research
Increasing industrial demand and application for silver forecast higher prices due to economic growth in China, India, Vietnam, and Brazil.
Increasing investment demand
With the recent hiatus in real estate and stock market and with gold being very
expensive, predictions of increasing investing demand for silver are coming to fruition.There has been a marked increase in investment demand for silver in recent years. The introduction of ETFs that track the price of silver, a new global liquidity bubble, the significant growth in the global money supply, the proliferation of wealthy people, hedge funds and the exponential growth in derivatives Investors in silver bullion coins and bars are hedging themselves against further deflation and falls in property and equity markets.
Advantages of Silver over Gold The average person can‘t afford to buy gold, so it is most suitable for wealthy people for investment and central banks. With silver being so much cheaper, the average person can buy some. The advantages of silver over gold as an inflation hedge are numerous and need to be considered: The silver market is much smaller, and it doesn‘t take as much money moving into silver as an investment to move the market up. Silver has outperformed gold dramatically over the last few years, going from $3 an ounce to over $49.83 an ounce.
Silver is also a very important industrial metal with over 3,000 industrial uses.
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The government has never seized silver, although they have seized gold.
Investor would feel safer with silver rather than gold.
The government actually has no stockpile of silver to unload. There is now more gold above ground than silver because of the silver industrial usage.
Who is Buying silver and Driving Prices Up?
In recent years there has been a large surge of interest amongst the commodity market
traders, but many others are buying silver too:-
Ordinary people can open up their trading platform and buy and sell future contracts
of silver.
Banks may add silver to their reserves as well. Stock traders can buy and sell silver based ETF‘s or exchange traded funds.
All of these sources create a buying and selling pressure that will ultimately drive up the
price of silver or crash it down.
10 Fundamental Reasons to Own Silver
One, the near-term emotional temperature of the market is low. There is no bullish fever where uninformed investors are driven to buy silver because of a sharply rising price. That will happen, but it‘s not true now. While silver is still above the price lows of last fall and higher than year-
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end prices, the recent price action is nothing to write home about. The price has been below most of the important moving averages, causing silver to be ―oversold.‖ This is a much better time to buy than when prices have already climbed and many are buying just because prices are rising. At those times the risk of a sharp sell-off is high. Now the
risk of a prolonged price decline is much lower. Now is the time to buy low. Also, Leveraged speculators who normally buy COMEX futures contracts and Over the Counter (OTC) derivatives do not hold a historically significant number of long contracts. The big dealers have been so successful at forcing long speculators out of the market that the speculative long position is at important low levels. This means that long speculators have already been forced to sell and no big selling from them appears probable. On any rise in price, they are likely to buy, adding a force to rising prices. Buy at lower levels of $31-33. Available wholesaleinventories appear to be tight. These physical silverinventories are falling into stronger hands. For decades the world‘s largest stockpiles of silver were the COMEX warehouse inventories. These COMEX inventories were considered mostly commercial in nature with some portion being held for investment purposes. The COMEX inventories peaked at around 280 million ounces in the early 1990‘s, and accounted for 90% of all visible silver inventories.
After the introduction of silver Exchange Traded Funds (ETFs), there was a profound shift in the location and structure of world visible silver inventories. Now,the combined inventories in the ETFs and other investment vehicles tower over the holdings in the COMEX by almost 4 to 1. (Over 400 million ounces in the ETFs compared to 120 million oz in COMEX inventories).
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Given the long-term nature of ETF investment holdings, this massive and historic shift in inventory composition means much less silver is now available to the market. This will exert a strong upward influence on price. All signs indicate that physical investment demand for silver on both a retail and wholesale basis is strong and could surge further given the above fact. Until a few years ago, there was no net silver investment buying for decades.
That pattern has changed with a vengeance. Clearly, the introduction of the ETFs has played a major role in this investment transformation. Silver production is tightening, given the byproduct-nature of silver mining. As written recently, base metals production like copper, lead and zinc appears to have fallen significantly, also reducing the production of silver as a byproduct.World economic and financial conditions appear lined up to favor higher silver prices, no matter what occurs. If financial conditions remain unsettled, flight to quality buying in silver appears likely. If the world does return to better economic
growth patterns, silver will benefit as a result of increased industrial consumption. Heads silver benefits, tails it also benefits. More investors than ever have come to realize that the silver market has been manipulated and the government regulators and exchange officials are unable to persuasively address the growing evidence of a silver manipulation. The manipulation debate has become widespread in metal circles. It isn‘t going away.
The best the regulators have been able to do is to stall and pretend to be investigating. Fewer people are being fooled by such actions. A scam like the silver manipulation can‘t continue when so many know about it. This scam will end suddenly and sharply in a price jump to the upside. Industrial demand for silver will continue to grow in the years ahead. New uses for
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silver appear regularly. A robust worldwide economy will initiate a new phase of silver demand. Higher prices will not diminish this demand because small amounts
of silver are used in each industrial application. Silver prices are cheap on several important objective measurements. Silver is cheap compared to its own recent price. It is down more than 40% from its highs of one year ago, in spite of the strongest physical demand in history. More investment silver has been purchased over the past year than at any other period in history.
At precisely the same time that prices have declined so sharply, more ETF-type buying has occurred than ever before and more Silver Eagles have been sold by the US Mint than ever before.
We have witnessed the highest premiums on all retail forms of silver in history. This isn‘t mean saying that silver is cheap, this is the investment world voting with itscollective wallet. Clearly, there is something wrong with this picture that can only beexplained by manipulation on the COMEX and the OTC market by a few giant financial institutions.
Executive summary
One may have their debt and equity funds in place, but investing incommodities could just be the one element to improve their portfolio.Commodity trading provides an ideal asset allocation, also helps one hedgeagainst inflation and also helps buy a piece of global demand growth.In 2003, the ban on commodity trading was lifted after 40 years inIndia. Now, more and more people are
rather volatiledepending on the category, returns are relatively higher. However, as this isnot a
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interested in investing in this newasset class. While price fluctuations in the sector could get
primary area of investment for most, there is a lot of apprehensionabout when and how to invest. The Report specifically takes up Silver and analyses thefundamental aspects of this commoditiy thereby highlighting the future price outlook for both the commodities.The Report examines the case for Silver as a long-term or strategicinvestment. The role of Silver in asset management is currently very topical.Much of the interest, however, is related to short-term issues such asinvesting in Silver as an asset. From a longer term perspective a fairly wideconsensus exists that Silver retains industrial demand despite considerablefluctuations in the shorter term.Report is based on the simple economics of ―supply and demand‖ thatis consistent with the view that Silver remains the industrial demand in thelong-run, yet at the same time allows the price of Silver to fluctuateconsiderably in the short run. In this model, the total supply of Silver is afunction of the production, mining of its base metals, price of gold, industrialdemand and currency fluctuation. The short-run demand for Silver ismodeled as a function of the price of base metals,
the US dollar/worldexchange rate, industrial demand, investment in metals and jewellery.
.
suggestions
This decade is termed as Decade of Commodities. Prices of all commodities are heading northwards due to rapid increase in demand for commodities. Developing countries like China are voraciously consuming the commodities. That’s why globally commodity market is bigger than the stock market.
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India is one of the top producers of large number of commodities and also has a long history of trading in commodities and related derivatives. The Commodities Derivatives market has seen ups and downs, but seems to have finally arrived now. The market has made enormous progress in terms of Technology, transparency and trading activity. Interestingly, this has happened only after the Government protection was removed from a number of Commodities, and market force was allowed to play their role. This should act as a major lesson for policy makers in developing countries, that pricing and price risk management should be left to the market forces rather than trying to achieve these through administered price mechanisms. The management of price risk is going to assume even greater importance in future with the promotion of free trade and removal of trade barriers in the world.
As majority of Indian investors are not aware of organized commodity market; their perception about is of risky to very risky investment. Many of them have wrong impression about commodity market in their minds. It makes them specious towards commodity market. Concerned authorities have to take initiative to make commodity trading process easy and simple. Along with Government efforts NGO’s should come forward to educate the people about commodity markets and to encourage them to invest in to it. There is no doubt that in near future commodity market will become Hot spot for Indian farmers rather than spot market. And producers, traders as well as consumers will be benefited from it. But for this to happen one has to take initiative to standardize and popularize the Commodity Market.
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THE STEEL CITY SECURITIES LIMITED
VISAKHAPATNAM
( Miss.Vandana Sethia.)
(2010-2012)
IN PARTIAL FULFILLMENT FOR
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THE AWARD OF THE DEGREE PGDBM
DECLARATION
I here by declare that the project entitled A study on ―ANALYSIS OF SILVER‖‖ in THE STEEL CITY SECURITIES LIMITED,Visakhapatnam is an original work done by me and the findings are collected during my study and submitted by me in partial fulfillment for the award of degree in ―PGDBM‖ from ―Integral Institute of Advanced Management‖ college of P.Gstudies affiliated to A.I.C.T.U.E
The findings in this report are based on information collected by me .
( Miss.Vandana Sethia)
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ACKNOWLEDGEMENT
I would like to express my sincere thanks to Mr.Satish Arya, DIRECTOR of STEEL CITY SECURITIES and Head of Compliance for permitting me to pursue this project and I am also very much thankful to Mr.Abhilash (Project guide ) at STEEL CITY SECURITIES LIMITED, staff and Employees of STEEL CITY for their support and advice in all stages of the project.
My sincere thanks to our Director Parvatishwara Rao. I express my gratitude to Mr.Srinivas for their constant encouragement and I would also like to thank my project guide of our college Mr.Aditya
( Miss.Vandana Sethia)
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CONTENTS
CHAPTER I
Objectives of the study
Scope of the study
Research methodology of study
CHAPTER II
Company profile
CHAPTER III
Brief description of commodity market:
Introduction
History of evolution of commodity market
Current scenario in indian commodity market
Trends in volume contribution on the three National Exchanges:-
Trade strategy
National commodity exchanges
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International commodity exchanges
4
Benefits of commodities future market
Working of Commodity Market
Regulated Market in India
Benefits of trading in Commodity
CHAPTER lV
Silver
History of silver
Mines of silver
Global scanario for silver
Silver producing countries
Silver consuming countries
Grading of silver
Contract specifications for silver futures
Indian scenario for silver
Production of silver in India
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Silver at MCX
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Appointment of clearing agents of buyers and sellers
Appointment of business rules
Uses of silver
CHAPTER V
Analysis of awareness of people about commodity market
Investment options
Factors that influence the prices of silver
Price analysis of silver
World Demand of silver in 2010
World Supply of silver in 2010
price analysis in 2011
CHAPTER Vl
CONCLUSION
SUGGESTION
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CHAPTER I
OBJECTIVES OF THE STUDY
A new energy is coursing through a very old industry : the commodity market has been bitten by the futures bug and its throbbing opportunity for professionals in research, business development and analysis.
At this juncture one can easily exploit a very good opportunity in this market within a short period.
To understand the basics of commodity market and to discover the emerging
prospects in the Indian commodity market.
To empathies trading and settlement mechanism for commodities in Indian stock
exchanges
To know various forms of investment options for silver . To know how the analysis for silver is done To know upto what percentage of people prefer commodity
Study aims at understanding the governance and regulatory frame work ofcommodity derivatives exchanges and analysis of commodity silver
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SCOPE OF THE STUDY
The study mainly focuses on silver commodity market, its history and latest
developments in the country in Commodities market.
The study also keeps a birds eye view on global commodity market and itsdevelopment
The study vastly covered the aspects of commodity trading, fundamental analysis of silver and predicting future trends in the market mechanisms in Indian commodity.
The study also provides regulatory framework for commodities market in India.
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RESEARCH METHODOLOGY
PRIMARY DATA :
Data Collected from Brokers and Members of steel city Securities
SECONDARY DATA :
Data Collected from various books and sites • NCFM Module on commodity markets. • NCDEX handbook for commodities.
DATA PROVIDED BY AS PART OF THE CLASSES UNDERTAKEN.
DATA COLLECTED FROM NEWS PAPER AND INTERNET.
http://en.wikipedia.org/wiki/Silver
http://www.mcxindia.com
http://www.ncdex.com MCX Certified Commodity Professional Reference Material http://trade.indiainfoline.com http://www.finance.indiamart.com
SAMPLE SIZE :30
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CHAPTER II
COMPANY PROFILE
HISTORICAL BACKGROUND OF THE COMPANY:Confidence As Strong as Steel Steel City Securities Limited was incorporated on 22nd February 1995 and raised equity of Rs.105 lakh on 24th June 1995 and obtained the membership of the largest and prestigious National Stock Exchange of H-Limited (NSE) and Bombay Stock Exchange (BSE) in 2000, in its capital market segment. The 1st VSAT for its trading workstation (TWS) at Hyderabad was installed in 1995 and the 2nd at Visakhapatnam in April 1996.
Presently, there are 64 VSATS installed at more than 50 centers in Andhra Pradesh, Orissa, Tamilnadu and Karnataka. There are 219 computer trading terminals put together connected to their VSAT at the centers (each VSAT can have 5 TWS connected). Since its inception the service of this organization is prompt and there is not a single instance of payout of funds / deliveries delay to any client, from the beginning the firm is committed to continue the same service in future also. Companies‘ basic principle is total commitment in service to all clients with all transparency and ensures that is it their sacred policy not to indulge in own trading, there are no self-motives or necessity to cancel or delay anything.
Every branch is fully equipped and independently connected to the NSE Hub at Mumbai, every branch is having 2 to 5 trading terminals connected to VSAT. The company
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Board of Directors of Steel City Securities Limited
1.
Mr. G. Sree Ram Murthy
Chairman Cum Managing Director
2. 3. 4. 5.
Mr. G. Raja Gopal Reddy Mr. K. Satyanarayana Mr. Satish Kumar Arya Mr. G. Satya Ram Prasad
Executive Director Executive Director (Surveillance) Director (Operations) Director
THE VARIOUS SERVICE DEPARTMENTS IN SCSL ARE:
Systems Departments Inspection Department H.R. Department, Research and Development Department Accounts Department Deliveries , Depository Participant
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STRUCTURE OF THE COMPANY
The total control of the organisation is under the Chairman who is also the Managing Director. Under him there are three Executive Directors for surveillance & operations and also a Sleeping Director.
Mr.G.Sree Ram Murthy is the Chairman cum Managing Director, Mr.G.Raja Gopal Reddy the Executive Director looks after the market development and opening of new franchisees. He also looks after requirements of new and existing branches. Mr.K.Satyanarayana the Executive Director, surveillance has an inspection team under him for the purpose of vigilance in branches and franchises.
Mr.Satish Kumar Arya is the Director Operations. He controls the trading limits, margins etc. All office related matters are dealt by him. He is also responsible for meeting the requirements and following the rules set by the stock exchanges. Mr.G.S.R.Prasad is the fourth Director who does not play any role in the day to day working of the company.
General Manager (Operations) is Mr.Murali is responsible for De-Mat with NSDL / CDSL. General Manager (Systems) is Mr.V.Srinivas who looks after the Networking, Software, Hardware and trading related requirements and VSAT connectivity. Finance and accounts were
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looked after by Mr.Ramu who is a Chartered Accountant.
Mr. Samba Murthy is responsible for the trading and registration of new clients. He is the Trading Manager. Mr. Krishna Naga Bhutan is the Marketing Manager. He is also responsible for conduction various awareness seminars. The legal section deals with the investor‘s problems and legal issues with the company. Even without relation to the company they render legal services.
CAPITAL:
The base capital is set up a trade center is 1 crore, SCSL raised equity of Rs.105 lakhs during its incorporation. Earlier, SCSL paid Rs.75 lakhs as base capital to NSE when it was set up. Every trade corporation has to maintain a reserve of some amount with NSE. At present, SCSL has 7.5 crores as margin with NSE.
WORKING STAFF:
There is 100 to 150 staff employed in SCSL. The staff draws a salary basing on the cadre they are employed. The salaries in SCSL vary from Rs.2000 to Rs.20000 per month basing on the cadre of the employee.
MARKET INFORMATION:
In SCSL, daily the research analyst collects the market information and it is analyzed. The market information is used to forecast the index movement, price movement of the shares and
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enables the clients to make use of the information in trading to get better results.
The research analyst in forecasting the market movement follows the technical analysis, fundamental analysis and efficient market hypothesis. The research analyst collects the information about the company, the industry and the economy through different media to know the company‘s position.
Since, the NSE & BSE are markets with strong form efficiency, as the market discounts the information itself very quickly and changes as per the information, the research analyst has only fewer jobs to do here.
EMPLOYEE RECRUITMENT:
In SCSL, the top managements select the candidate and the letter of appointment or rejection is sent to the Board of Directors. The Directors do the placement in SCSL. The placement can either be in the Head Office or in any other branches of SCSL.
The research analyst not only analyses the marketing information but, every day in SCSL an edition of the research analyst’s, suggestions on scrips that have to be bought and sold is also printed which helps the clients of SCSL to invest in shares that are profitable.
To know the trade position of the client, back-office is done in SCSL everyday immediately after the trade ends. ‗STEEL PACK‘ is the package used in back office system. Steel City Software team was designed and maintained this ―STEELPACK‖ Package.
Back office
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The main modules of back office system are:
1. Trading 2. ImportingExporting 3. Margins
4. Clearing 5. Business Controls 6. Finance 7. Payin-Payout In the back office, first the Import Export module is opened where the trade file of the day‘s trade is collected and the text file was imported to the system. There, the old closing prices are inserted by new prices from the Bhavcopy file. Bhavcopy is the average of last half-an-hour prices of the scrips.
To calculate the net mark to market value, Bhavcopy file is imported from NSE/BSE/NCDEX/MCX. Net mark to market value is to be known to know the profit or loss position of the client, basing on which the Trading Manager of SCSL will decide whether the client can trade or not for the next day on comparing it with the margin paid by the client.
After importing the Bhavcopy file, the trading module is opened. In trading module, the sauda status is known from the Sauda Manager‘. Sauda manager is the number of trade confirmations recorded. Confirmation of trading transaction with brokerage commission is known as ‗Sauda‘.
After Sauda Manager, Net positions process is done. In the net positions process, cumulative net position reports, client-wise net position reports and other reports are made and are given to clients and to the accounts department. The bills are prepared and sent to the respective clients.
REPORTS After selecting ‗REPORTS‘ option from main menu, the member has to specify the criteria for
Client Wise and Scrip Wise; Contract Note reports; Client Wise Confirmation reports; Bills
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which the report is needed. The types of reports that may be generated are: Net Position Reports
Summary reports; bad deliveries reports; auctions reports; objections reports; margins reports; securities reports and miscellaneous reports. The daily reports of various aspects relating to the trading activities are maintained.
CLEARING:
Settlement of trades transacted on an exchange requires smooth, preferably instantaneous, movement of securities and funds in accordance with the prescribed schedule of pay-in / pay-out. Movement of securities has been almost instantaneous in the dematerialized environment. Two depositories are in place to provide electronic transfer of securities. 10 major stock exchanges accounting for about 99% of turnover have been connected to depositories. All actively traded scrips are held, traded and settled in de-mat form. NSE follows a different model where a clearing corporation guarantees settlement obligations emanating from trades.
SETTLEMENT:
The trades accumulated over a trading cycle are clubbed together at the end of the trading cycle, positions (trades) are netted and the balance obligations are settled.
THE ONE TYPE OF SETTLEMENT
ROLLING SETTLEMENT:In a rolling settlement, each trading day is considered as a trading period and trades executed during the day are settled based on the net obligations for the day.
At NSE, trades in rolling settlement are settled on a T+2 basis i.e. on the 2nd working day. For
holidays, Saturdays and Sundays are excluded. Typically trades taking place on Monday are
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arriving at the settlement day all intervening holidays, which include bank holidays, NSE
settled on Wednesday, Tuesday's trades settled on hursday and so on.The following table and figure represent rolling settlement process.
A tabular representation of the settlement cycle for rolling settlement is given below:
Table-4.1 Activity Trading Clearing Settlement Rolling Settlement Trading Custodial Confirmation Delivery Generation Securities and Funds pay in Securities and Funds pay out Valuation Debit Post Settlement Auction Day T T+1 w.d T+1 w.d T+2 w.d T+2 w.d T+2 w.d T+3 w.d
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CHAPTER III
Introduction to commodity
Commodity:
Any product that can be used for commerce or an article of commerce which is traded on an authorized commodity exchange is known as commodity. The article should be movable of value, something which is bought or sold and which is produced or used as the subject or barter or sale. In short commodity includes all kinds of goods. Indian Forward Contracts (Regulation) Act (FCRA), 1952 defines ―goods‖ as ―every kind of movable property other than actionable claims, money and securities‖.
In current situation, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for commodity trading recognized under the FCRA. The national commodity exchanges, recognized by the Central Government, permits commodities which include precious (gold and silver) and non-ferrous metals, cereals and pulses, ginned and unginned cotton, oilseeds, oils and oilcakes, raw jute and jute goods, sugar and gur, potatoes and onions, coffee and tea, rubber and spices. Etc.
commodity exchange:
A commodity exchange is an association or a company or any other body corporate organizing futures trading in commodities for which license has been granted by regulating authority.
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Commodity Futures : A Commodity future is an option between two parties to buy or sell a standardized quantity of a commodity at a certain time in future at a price agreed upon at the time of entering into the contract on the commodity futures exchange.
The need for a futures market arises mainly due to the hedging function that it can perform. Commodity markets, like any other financial instrument, involve risk associated with frequent price volatility. The loss due to price volatility can be attributed to the following reasons:
Consumer Preferences:
- In the short-term, their influence on price volatility is small since it is a slow process permitting manufacturers, dealers and wholesalers to adjust their inventory in advance.
Changes in supply:
- They are abrupt and unpredictable bringing about wild fluctuations in prices. This can especially noticed in agricultural commodities where the weather plays a major role in affecting the fortunes of people involved in this industry. The futures market has evolved to neutralize such risks through a mechanism; namely hedging.
History of Evolution of commodity markets
Commodities future trading was evolved from need of assured continuous supply of seasonal agricultural crops. The concept of organized trading in commodities evolved in Chicago, in 1848. But one can trace its roots in Japan. In Japan merchants used to store Rice in warehouses
known as ―rice tickets‖. Eventually, these rice tickets become accepted as a kind of commercial
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for future use. To raise cash warehouse holders sold receipts against the stored rice. These were
currency. Latter on rules came in to being, to standardize the trading in rice tickets. In 19th century Chicago in United States had emerged as a major commercial hub. So that wheat producers from Mid-west attracted here to sell their produce to dealers & distributors. Due to lack of organized storage facilities, absence of uniform weighing & grading mechanisms producers often confined to the mercy of dealers discretion. These situations lead to need of establishing a common meeting place for farmers and dealers to transact in spot grain to deliver wheat and receive cash in return.
Gradually sellers & buyers started making commitments to exchange the produce for cash in future and thus contract for ―futures trading‖ evolved. Whereby the producer would agree to sell his produce to the buyer at a future delivery date at an agreed upon price. In this way producer was aware of what price he would fetch for his produce and dealer would know about his cost involved, in advance. This kind of agreement proved beneficial to both of them. As if dealer is not interested in taking delivery of the produce, he could sell his contract to someone who needs the same. Similarly producer who not intended to deliver his produce to dealer could pass on the same responsibility to someone else. The price of such contract would dependent on the price movements in the wheat market. Latter on by making some modifications these contracts transformed in to an instrument to protect involved parties against adverse factors such as unexpected price movements and unfavorable climatic factors. This promoted traders entry in futures market, which had no intentions to buy or sell wheat but would purely speculate on price movements in market to earn profit. That‘s why Chicago Board of Trade (CBOT) was established in 1848. In 1870 and 1880s the New York Coffee, Cotton and Produce Exchanges were born. Agricultural commodities were
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mostly traded but as long as there are buyers and sellers, any commodity can be traded. In 1872, a group of Manhattan dairy merchants got together to bring chaotic condition in New York market to a system in terms of storage, pricing, and transfer of agricultural products. In 1933, during the Great Depression, the Commodity Exchange, Inc. was established in New York through the merger of four small exchanges – the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange.
Current Scenario in Indian Commodity Market
Need of Commodity Derivatives for India:-
India is among top 5 producers of most of the Commodities, in addition to being a major consumer of bullion and energy products. Agriculture contributes about 22% GDP of Indian economy. It employees around 57% of the labor force on total of 163 million hectors of land Agriculture sector is an important factor in achieving a GDP growth of 8-10%. All this indicates that India can be promoted as a major centre for trading of commodity derivatives.
Trends in volume contribution on the three National Exchanges
Pattern on Multi Commodity Exchange (MCX):-
MCX is currently largest commodity exchange in the country in terms of trade volumes, further it has even become the third largest in bullion and second largest in silver future trading in the world.
commodities contribute for more than 80 percent of total trade volume. As per recent data the
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Coming to trade pattern, though there are about 100 commodities traded on MCX, only 3 or 4
largely traded commodities are Gold, Silver, Energy and base Metals. Incidentally the futures‘ trends of these commodities are mainly driven by international futures prices rather than the changes in domestic demand-supply and hence, the price signals largely reflect international scenario.
Among Agricultural commodities major volume contributors include Gur, Urad, Mentha Oil etc. Whose market sizes are considerably small making then vulnerable to manipulations.
Pattern on National Commodity & Derivatives Exchange (NCDEX):-
NCDEX is the second largest commodity exchange in the country after MCX. However the major volume contributors on NCDEX are agricultural commodities. But, most of them have common inherent problem of small market size, which is making them vulnerable to market manipulations and over speculation. About 60 percent trade on NCDEX comes from guar seed, chana and Urad (narrow commodities as specified by FMC).
Pattern on National Multi Commodity Exchange (NMCE):-
NMCE is third national level futures exchange that has been largely trading in Agricultural Commodities. Trade on NMCE had considerable proportion of commodities with big market size as jute rubber etc. But, in subsequent period, the pattern has changed and slowly moved towards commodities with small market size or narrow commodities.
Major volume contributors
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Majority of trade has been concentrated in few commodities that are
Non Agricultural Commodities (bullion, metals and energy)
Agricultural commodities with small market size (or narrow commodities) like guar, Urad, Mentha etc.
Trade strategy
It appears that speculators or operators choose commodities or contracts where the market could be influenced and extreme speculations possible.
In view of extreme volatilities, the FMC directs the exchanges to impose restrictions on positions and raise margins on those commodities. Consequently, the operators/speculators chose another commodity and start operating in a similar pattern. When FMC brings restrictions on those commodities, the operators once again move to the other commodities. Likewise, the speculators are moving from one commodity to other (from methane to Urad to guar etc) where the market could be influenced either individually or with a group.
Beneficiaries: - So far the beneficiaries from the current nature of trading are Exchangers,Arbitragers, Operators In order to understand the extent of progress the trading the trading in Commodity Derivatives has made towards its specified objectives (price discovery and price risk management), the current trends are juxtaposed against the specification
Prevailing trade pattern:- No wide spread participation of all stake holders of commodity markets. The actual benefits may be realized only when all the stake holders in commodity market including producers, traders, consumers etc trade actively in all major commodities like rice, wheat, cotton etc.
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NATIONAL COMMODITY EXCHANGES
Multi Commodity Exchange of India Limited (MCX)
MCX started of trade in Nov 2003 and has built strategic alliance with Bombay Bullion Association, Bombay Metal Exchange, Solvent Extractors Association of India, pulses Importers Association and Shetkari Sanghatana.MCX deals wit about 100 commodities.
Commodities Traded at MCX:-
Bullion:- Gold, Silver, Silver Coins
Minerals:- Aluminum, Copper, Nickel, Iron/steel, Tin, Zinc, Lead
Oil and Oil seeds:- Castor oil/castor seeds, Crude Palm oil/ RBD Pamolein, Groundnut oil, Mustard/ Rapeseed oil, Soy seeds/Soy meal/Refined Soy Oil, Coconut Oil Cake, Copra, Sunflower oil, Sunflower Oil cake, Tamarind seed oil,
Pulses:- Chana, Masur, Tur, Urad, Yellow peas
Grains:- Rice/ Basmati Rice, Wheat, Maize, Bajara, Barley,
Spices:- Pepper, Red Chili, Jeera, Cardamom, Cinnamon, Clove, Ginger,
Plantation:- Cashew Kernel, Rubber, Areca nut, Betel nuts, Coconut, Coffee,
Petrochemicals:- High Density Polyethylene (HDPE), Polypropylene (PP), Poly Vinyl Chloride (PVC)
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Fiber and others:- Kapas, Kapas Khalli, Cotton (long, medium,short staple), Cotton Cloth, Cotton Yarn, Gaur seed and Guargum, Gur and Sugar, Khandsari, Mentha Oil, Potato, Art Silk Yarn, Chara or Berseem, Raw Jute, Jute Goods, Jute Sacking,etc
Energy:- Brent Crude Oil, Crude Oil, Furnace Oil, Middle East Sour Crude Oil, Natural Gas
National Multi Commodity Exchange of India Limited (NMCEIL)
National Multi Commodity Exchange of India Limited (NMCEIL) is the first de-mutualised Electronic Multi Commodity Exchange in India. On 25th July 2001 it was granted approval by Government to organize trading in edible oil complex. NMCEIL Head Quarter is at Ahmedabad
National Commodities & Derivatives Exchange Limited (NCDEX)National Commodities & Derivatives Exchange Limited (NCDEX) promoted by ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank of Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSC). Punjab National Bank (PNB), Credit Ratting Information Service of India Limited (CRISIL), Indian Farmers Fertilizer Cooperative Limited (IFFCO), Canara Bank and Goldman Sachs by subscribing to the equity shares have joined the promoters as a share holder of exchange. NCDEX is the only Commodity Exchange in the country promoted by national level institutions. NCDEX is a public limited company incorporated on 23 April 2003. Commodities Traded at NCDEX:
Bullion:-Gold KG, Silver, Brent
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Minerals:-Electrolytic Copper Cathode, Aluminum Ingot, Nickel Cathode, Zinc Metal Ingot, Mild steel Ingots
Oil and Oil seeds:-Cotton seed, Oil cake, CrudePalmOil, Groundnut, Groundnut expeller Oil, Cotton, Mentha oil, RBD Pamolein, RM seed oil cake, Refined soya oil, Rape seeds, Mustard seeds, Caster seed, Yellow soybean, Meal
Pulses:-Urad, Yellow peas, Chana, Tur, Masoor, Grain:- Wheat, Indian Pusa Basmati Rice, Indian parboiled Rice (IR-36/IR-64), Indian Rice , Barley, Yellow red maize
Spices:-Jeera, Turmeric, Pepper Plantation:-Cashew, Coffee Arabica, Coffee Robusta
Fibers and other:-Guar Gum, Guar seeds, Guar, Jute sacking bags, Indian 28 Multi Commodity Exchange of India Limited (MCX) is an independent and de-mutulized exchange with permanent reorganization from Government of India, having Head Quarter in Mumbai. Key share holders of MCX are Financial Technologies (India) Limited, State Bank of India, Union Bank of India, Corporation Bank of India, Bank of India and Cnnara Bank. MCX facilitates online trading, clearing and settlement operations for commodity futures market across the country.
INTERNATIONAL COMMODITY EXCHANGES Futures‘ trading is a result of solution to a problem related to the maintenance of a year round supply of commodities/ products that are seasonal as is the case of agricultural produce. The
commodity futures exchanges in the world.
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United States, Japan, United Kingdom, Brazil, Australia, Singapore are homes to leading
The New York Mercantile Exchange (NYMEX):The New York Mercantile Exchange is the world‘s biggest exchange for trading in physical commodity futures. It is a primary trading forum for energy products and precious metals.
London Metal Exchange:The London Metal Exchange (LME) is the world‘s premier non-ferrous market, with highly liquid contracts.
The Chicago Board of Trade:-
The first commodity exchange established in the world was the Chicago Board of Trade (CBOT) during 1848 by group of Chicago merchants who were keen to establish a central market place for trade.
Tokyo Commodity Exchange (TOCOM):-
The Tokyo Commodity Exchange (TOCOM) is the second largest commodity futures exchange in the world. It trades in to metals and energy contracts.
Chicago Mercantile Exchange:-
The Chicago Mercantile Exchange (CME) is the largest futures exchange in the US and the largest futures clearing house in the world for futures and options trading. Formed in 1898 primarily to trade in Agricultural commodities, the CME introduced the world‘s first financial futures more than 30 years ago
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Benefits of Commodity Futures Markets:-
The primary objectives of any futures exchange are authentic price discovery and an efficient price risk management. The beneficiaries include those who trade in the commodities being offered in the exchange as well as those who have nothing to do with futures trading.
1. Price Discovery:-Based on inputs regarding specific market information, the demand and supply equilibrium, weather forecasts, expert views and comments, inflation rates, Government policies, market dynamics, hopes and fears, buyers and sellers conduct trading at futures exchanges. This transforms in to continuous price discovery mechanism. The execution of trade between buyers and sellers leads to assessment of fair value of a particular commodity that is immediately disseminated on the trading terminal. 2. Price Risk Management: - Hedging is the most common method of price risk management. It is strategy of offering price risk that is inherent in spot market by taking an equal but opposite position in the futures market. Futures markets are used as a mode by hedgers to protect their business from adverse price change. This could dent the profitability of their business. Hedging benefits who are involved in trading of commodities like farmers, processors, merchandisers, manufacturers, exporters, importers etc. 3. Import- Export competitiveness: - The exporters can hedge their price risk and improve their competitiveness by making use of futures market. A majority of traders which are involved in physical trade internationally intend to buy forwards. The purchases made from the physical market might expose them to the risk of price risk resulting to losses. The existence of futures market would allow the exporters to hedge their proposed
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purchase by temporarily substituting for actual purchase till the time is ripe to buy in physical market. In the absence of futures market it will be meticulous, time consuming and costly physical transactions. 4. Predictable Pricing: - The demand for certain commodities is highly price elastic. The manufacturers have to ensure that the prices should be stable in order to protect their market share with the free entry of imports. Futures contracts will enable predictability in domestic prices. The manufacturers can, as a result, smooth out the influence of changes in their input prices very easily. With no futures market, the manufacturer can be caught between severe short-term price movements of oils and necessity to maintain price stability, which could only be possible through sufficient financial reserves that could otherwise be utilized for making other profitable investments.
5. Benefits for farmers/Agriculturalists: - Price instability has a direct bearing on farmers in the absence of futures market. There would be no need to have large reserves to cover against unfavorable price fluctuations. This would reduce the risk premiums associated with the marketing or processing margins enabling more returns on produce. Storing more and being more active in the markets. The price information accessible to the farmers determines the extent to which traders/processors increase price to them. Since one of the objectives of futures exchange is to make available these prices as far as possible, it is very likely to benefit the farmers. 6. Improved product quality: - The existence of warehouses for facilitating delivery with grading facilities along with other related benefits provides a very strong reason to
exchange. It ensures uniform standardization of commodity trade, including the terms of
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upgrade and enhance the quality of the commodity to grade that is acceptable by the
quality standard: the quality certificates that are issued by the exchange-certified warehouses have the potential to become the norm for physical trade.
WORKING OF COMMODITY MARKET
There are two kinds of trades in commodities. The first is the spot trade, in which one pays cash and carries away the goods. The second is futures trade. The underpinning for futures is the warehouse receipt. A person deposits certain amount of say, good X in a ware house and gets a warehouse receipt. Which allows him to ask for physical delivery of the good from the warehouse. But some one trading in commodity futures need not necessarily posses such a receipt to strike a deal. A person can buy or sale a commodity future on an exchange based on his expectation of where the price will go. Futures have something called an expiry date, by when the buyer or seller either closes (square off) his account or give/take delivery of the commodity. The broker maintains an account of all dealing parties in which the daily profit or loss due to changes in the futures price is recorded. Squiring off is done by taking an opposite contract so that the net outstanding is nil.
For commodity futures to work, the seller should be able to deposit the commodity at warehouse nearest to him and collect the warehouse receipt. The buyer should be able to take physical delivery at a location of his choice on presenting the warehouse receipt. But at present in India very few warehouses provide delivery for specific commodities
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Today Commodity trading system is fully computerized. Traders need not visit a commodity market to speculate. With online commodity trading theycould sit in the confines of their home or office and call the shots.
The commodity trading system consists of certain prescribed steps or stages as follows:
TRADING
The trading system on the NCDEX provides a fully automated screen based trading for futures on commodities on a nationwide basis as well as online monitoring and surveillance mechanism. It supports an order driven market and provides complete transparency of trading operations. Order matching is essential on the basis of commodity, its price, time and quantity. All quantity fields are in units and price in rupees. The exchange specifies the unit of trading and the delivery unit for futures contracts on various commodities. The exchange notifies the regular lot size and tick size for each of the contracts traded from time to time. When any order enters the trading system, it is an active order. It tries to finds a match on the other side of the book. If it finds a match, a trade is generated. If it does not find a match, the order becomes passive and gets queued in the respective outstanding order book in the system. Time stamping is done for each trade and provides the possibility for a complete audit trail if required. NCDEX trades commodity futures contracts having one month, two month and three month expiry cycles. All contracts expire on the 20th of the expiry month. Thus a January expiration contract would expire on the 20th of January and a February expiry contract would cease trading on the 20th of February. If the 20th of the expiry month is a trading holiday, the contracts shall expire on the
the near month contract
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previous trading day. New contracts will be introduced on the trading day following the expiry of
CLEARING
National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of trades executed on the NCDEX. The settlement guarantee fund is maintained and managed by NCDEX. Only clearing members including professional clearing members (PCMs) only are entitled to clear and settle contracts through the clearing house. At NCDEX, after the trading hours on the expiry date, based on the available information, the matching for deliveries takes place firstly, on the basis of locations and then randomly, keeping in view the factors such as available capacity of the vault/warehouse, commodities already deposited and dematerialized and offered for delivery etc. Matching done by this process is binding on the clearing members. After completion of the matching process, clearing members are informed of the deliverable/ receivable positions and the unmatched positions. Unmatched positions have to be settled in cash. The cash settlement is only for the incremental gain/loss as determined on the basis of final settlement price.
SETTLEMENT
Futures contracts have two types of settlements, the MTM settlement which happens on a continuous basis at the end of each day, and the final settlement which happens on the last trading day of the futures contract. On the NCDEX, daily MTM settlement and the final MTM settlement in respect of admitted deals in futures contracts are cash settled by debiting/crediting the clearing accounts of CMs with the respective clearing bank. All positions of a CM, brought forward, created during the day or closed out during the day, are market to market at the daily
expiry, the final settlement price is the spot price on the expiry day. The responsibility of
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settlement price or the final settlement price at the close of trading hours on a day. On the date of
settlement is on a trading cum clearing member for all trades done on his own account and his client‘s trades. A professional clearing member is responsible for settling all the participants‘ trades, which he has confirmed to the exchange. On the expiry date of a futures contract, members submit delivery information through delivery request window on the trader workstations provided by NCDEX for all open positions for a commodity for all constituents individually. NCDEX on receipt of such information matches the information and arrives at delivery position for a member for a commodity. The seller intending to make delivery takes the commodities to the designated warehouse. These commodities have to be assayed by the exchange specified assayer. The commodities have to meet the contract specifications with allowed variances. If the commodities meet the specifications, the warehouse accepts them. Warehouse then ensures that the receipts get updated in the depository system giving a credit in thedepositor‘s electronic account. The seller the gives the invoice to his clearing member, who would courier the same to the buyer‘s clearing member. On an appointed date, the buyer goes to the warehouse and takes physical possession of the commodities.
REGULATED MARKET IN INDIA
There are three types of regulated markets in India: • Spot Markets: Direct purchases for immediate consumption. • Futures and Forward Markets: Agreements new to pay and received deliver later.
Forwards and Futures reduce the risks by allowing the trader to decide a price today for goods to
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be delivered in the future.
• Derivatives Market is Purely financial transactions based on physical trading.
The system includes following elements: • Hedgers, Speculators, Investors, Arbitragers • Producers - Farmers • Consumers, refiners, food processing companies, jewelers, textile mills, exporters & importers.
The biggest benefits of commodity trading will accrue to commodity traders, farmers and companies dealing in commodity-based products (like wheat and metals) by allowing them to hedge their risks. Then there are speculators, who are in the game only to make money out of the volatility in prices. But unlike in stocks, few retail investors are expected to trade in commodity futures since it
requires a fair bit of expertise. Even those who do will probably restrict themselves to trading in gold or silver.
BENEFITS OF TRADING IN COMMODITY: -
A future trading performs two important functions of price discovery and price risk management with reference to the given commodity. It is therefore useful to all the segments of the economy and particularly to all the constituents of the Commodity Market System.
Benefits to Consumer & user: -
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a It is useful for the consumer because he gets an idea of the price at which the commodity would be available at a future point of time. He can do proper costing and also cover his purchases by making forward contracts. Predictable pricing & transparency is an added advantage.
b. Hedging their risks if they are using some of the commodities as their raw materials in particular can benefit corporate entities. They can hedge the risk even if the commodity traded does not meet their requirements of exact quality / technical specifications. c. Futures trading is very useful to the exporters as it provides an advance indication of the price likely to prevail and thereby help the exporter in quoting a realistic price and thereby secure export contract in a competitive market
Benefits to Investors: -
a. High financial leverage is possible in commodity markets. In case of stocks, an investor needs to put up the full amount of the stock value to buy the stock. With commodities, you control commodity futures contracts with a margin, which is usually between 5% to 10% of the value of the commodity. Investor can effectively hedge the risk in price fluctuations of a commodity.
b. Investor can also hedge his risk on investments in stocks and debt markets since commodities provide a choice and provide one more alternative avenue in the investment port for. It may be mentioned here that the Commodities are less volatile compared to equity market, though more volatile as compared to G-Sec's c. Commodity markets are extremely transparent in the sense that the manipulation of prices of a commodity is extremely difficult. Given the knowledge of the commodity, the investor can be thus clear about what he can expect in foreseeable future.
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d. Business involves just you and the market.
e. With the rapid spread of derivatives trading in commodities, this route too has become an option for high net worth and savvy investors to consider in their overall asset allocation.
f. The fact that the stock indices and commodity indices are not correlated implies that the commodity markets can be used as an effective diversification tool, where investors can park their money.
g. A look at the performance of the commodities markets during the last year shows that the positive movement was witnessed during most parts of the year.
Benefits to Producers: -
a It is useful to the producer because he can get an idea of the price likely to prevail at a future point of time and therefore can decide between various competing commodities, the best that suits him. Farmers for instance, can get assured prices, decide on the crop that they want to take and since there is transparency in prices, he can decide when and where to sell.
Benefits to the Economy: -
As the constituents of the commodity market system get benefited Indian economy in turn is also expected to gain a Lot. Growth in the commodity markets implies that there could be tremendous benefits to the Indian economy in terms of business generation and employment opportunities.
General benefits & other advantages for all players: Page
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a Improved Product Quality: Since the contracts for commodities are standardized, it becomes essential for the producers / sellers to ensure that the quality of the commodity is as specified in the contract.
b. Credit Accessibility: Buyers and sellers can avail of the bank finances for trading in commodities. As mentioned here, some nationalized banks as also some banks in the private sector have come forward to offer credit facilities for commodity trading.
CHAPTER lV
SILVER
Silver is a soft white precious univalent metallic element that is highlyductile and malleable having the highest electrical and thermal conductivityof any metal. It is found in the metallic state and also in a large amount of minerals mainly in argentite free form and that is why it is
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called argentum in latin
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Silver has attracted man‘s fascination fo History of silverr many thousands of years. A major watershed of silver production was the discovery of the New World in 1492, which was followed by the opening of major silver mines in Mexico, Bolivia, and Peru, leading to a rapid rise in the annual world production of silver. This rise, coupled with improved techniques for extracting silver from ore, broadened both the quality and quantity of ore that could be exploited. Later improvements, particularly in the late 19th and early 20th centuries, vastly enhanced the base of silver production and accelerated the exploitation of silver as a byproduct of base-metal mining.
Only about 25 percent of cumulative world silver production occurred before the 1770s. Records remain incomplete for the periods before 1900, however they play a critical part in determining cumulative historical production. Ancient civilizations found silver deposits plentiful on or near the earth‘s surface. Relics of these civilizations, include jewelry, religious artifacts, and food vessels formed from the durable, malleable metal. This metal took on near mystical qualities in marking important historical milestones throughout the ages, and served as a medium of exchange. The Mesopotamian merchants were doing just that as early as 700 BC.
Today, silver is sought as a valuable and practical industrial commodity, as well as an appealing investment precious metal. Many countries now issue silver bullion coins, among them the Unites States, Canada and Mexico. Private issue silver bullion is also available from select private mints.
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Although silver is relatively scarce, it is the most plentiful and least expensive of the precious metals. The largest silver producing countries are Mexico, Peru, the United States, Australia and Chile. Sources of silver include; silver mined directly, silver mined as a by-product of gold, copper, lead and zinc mining, and silver extracted from recycled materials, primarily used photographic materials. Today, silver bullion stocks make up a significant component of silver supply.
The defining quality of silver bullion is that it is valued by its weight and purity. For investment purposes, silver is melted down to its purest form, then struck or cast into coins, rounds, bars, and ingots. The final product is then traded on the basis of its silver content. The most popular government minted silver bullion coins on the market today are the American Silver Eagle and the Canadian Silver Maple Leaf. As a trusted retailer for both, we offer these products at among the most competitive prices in the industry. Silver bags, also known as 90% silver, contain commonly circulated US coins minted 1964 or earlier, with a silver content of 90%, or approximately 715 troy oz..
Northwest Territorial Mint proudly mints its own private label silver bullion products available in popular 1 troy-ounce silver rounds and bars of various sizes. Northwest Territorial Mint proudly mints its own private label silver bullion products available in popular 1 troy-ounce silver rounds, ½-troy ounce rounds and bars of various sizes (5g to 100 troy oz).
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PanAmericanSilver Pan American Silver is a world leader in the production of new silver. Northwest Territorial Mint is the exclusive mint for the striking of Pan American Silver bullion that has been refined to .9995+ purity. This Pan American silver bullion is struck in rounds of ½-troy ounce and 1-troy ounce, as well as silver bullion bars of various sizes (5g to 100 troy oz).
StagecoachSilverBullion Stagecoach Silver bars and rounds from Northwest Territorial Mint are portable and tradable silver bullion coins and bars. Perfect for when you need to get out of Dodge fast! Whether .9995fine silver bar or round, each is scored into four divisible pieces, giving them the potential to be split up should the need arise.
History of silver mining
Silver has been known since ancient times. It is mentioned that heaps found in Asia minor and on the islands of the Aegean Sea indicate that silver was being separated from lead as early as the 4th millennium BCE. The silver mines at Laurium were very rich and helped provide a currency for the economy of Ancient Athens. It involved mining the ore in underground galleries, washing the ores and smelting it to produce the metal. Elaborate washing tables still exist at the site using rain water held in cisterns and collected during the winter months.
Extraction of silver from lead ore was widespread in Roman Britain as a result of Roman mining very soon after the conquest of the first century AD.
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From the mid-15th century silver began to be extracted from copper ores in massive quantities using the liquation process creating a boost to the mining and metallurgy industries of Central Europe.
Vast amounts of silver were brought into the possession of the crowns of Europe after the conquest of the Americas from the now Mexican state of Zacatecas (discovered in 1546)[1] and Potosí(Bolivia, also discovered in 1546), which triggered a period of inflation in Europe. The conquistador Francisco Pizarro was said to have resorted to having his horses shod with silver horseshoes due to the metal's abundance, in contrast to the relative lack of iron in Peru. Silver, which was extremely valuable in China, became a global commodity, contributing to the rise of the Spanish Empire. The rise and fall of its value affected the world market.
Silver is also produced during the electrolytic refining of copper and by application of the Parkes process on lead metal obtained from lead ores that contain small amounts of silver. Commercial grade fine silver is at least 99.9 percent pure silver and purities greater than 99.999 percent are available.
. Global scenario for Silver:
Silver producing countries:
The below-mentioned figures are the silver production figures of thecountries. Clearly, Mexico leads the list of silver producing countries. Itcontributes to about 15% of the world‘s total
comes from the primary silver mines and the rest from other sourceslike refining of other metals
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production. Alreadymentioned, only 25% of the world‘s total production (i.e. 615 millionounces)
and also from scrap recycling. World silver survey done in 1998 depicts that around 152.2 million ounces of silver wasseparated from the waste for recycling purposes. This percentage of separated silver has improved due to advanced methods of separation.United States is the major silver producing country through scrap and wastefollowed by Japan. •Mexico (99 millionounces) •Peru (98.4 millionounces) •Australia (71.9million ounces) •China (63.8 millionounces) •Poland (43.8million ounces) •Chile (42.8 millionounces) •Canada (40.6million ounces) •United States (40.2million ounces) •Russia (37.9million ounces) •Kazakhstan (20.6million ounces) •Bolivia (13.1million ounces) •Sweden (9.4million ounces) •Indonesia (8.6million ounces)
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•Morocco (6.3million ounces) •Argentina (5million ounces) •Turkey (3.7 millionounces) •South Africa (3.2million ounces) •Iran (2.6 millionounces) •Japan (2.4 millionounces) •India (2.1 millionounces)
Silver consuming countries:
The countries that are the major consumers of silver are: •United states •Canada •Mexico •Germany •Italy •Japan •India •United Kingdom •France
Grading of Silver:
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Silver that is found with some percentage of other elements in it is called impure silver. That is why itis graded upon its fineness. According to the Indianstandards, silver is graded into six categories
Grade: 999.9 999.5 999 970 925 916
Fineness : 999.9 999.5 999 970 925 916
World Markets: •London Bullion Market is the global hub of OTC (Over-The-Counter) trading in silver. •Comex futures in New York is where mostfund activity is focused
Contract specifications at Comexexchange:
There are two different contracts of Silver traded on this exchange; they are Silver Futures andSilver Mini Futures.
Contract specification for SilverFuture:
Trading Symbol:SI
Trading Unit:5,000 troy ounces.
Price Quotation:U.S. cents per troy ounce.
Trading Hours (All times are New York time):
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Open outcry trading is conducted from 8:25 AMuntil 1:25 PM.Electronic trading is conducted from 6:00 PM until5:15 PM via the CME Globex® trading platform,Sunday through Friday. There is a 45-minute break each day between 5:15PM (current trade date) and6:00 PM (next trade date).
Trading Months:
Trading is conducted for delivery during the currentcalendar month; the next two calendar months; anyJanuary, March, May, and September falling withina 23-month period; and any July and December falling within a 60-month period beginning with thecurrent month.
Minimum Price Fluctuation:
Price changes for outright transactions are inmultiples of one-half cent (0.5¢ or $0.005) per troyounce, equivalent to $25.00 per contract. Afluctuation of one cent (1¢ or $0.01) is equivalent to$50.00 per contract.
Last Trading Day:
Trading terminates at the close of business on thethird to last business day of the maturing deliverymonth.
Delivery:
Silver delivered against the futures contract mustbear a serial number and identifying stamp of arefiner's officially listed brand. Delivery must bemust be made from a warehouse or vault
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licensed or designated by the Exchange specifically for thestorage of silver.
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Delivery Period:
The first delivery day is the first business day of thedelivery month; the last delivery day is the lastbusiness day of the delivery month.
Exchange of Futures for Physicals (EFP):
The buyer or seller may exchange a futures positionfor a physical position of equal quantity bysubmitting a notice to the Exchange. EFPs may beused to either initiate or liquidate a futures position.
Grade and Quality Specifications:
In fulfillment of each contract, the seller mustdeliver 5,000 troy ounces (±6%) of refined silver,assaying not less than .999 fineness, in cast barsweighing 1,000 or 1,100 troy ounces each andbearing a serial number and identifying stamp of arefiner approved and listed by the Exchange. A listof approved refiners and assayers is available fromthe Exchange upon request.
Position Accountability Levels and Limits:
Any one month/all months: 6,000 net futuresequivalent, but not to exceed 1,500 in the spotmonth.
Margin Requirements:
Margins are required for open futures positions.
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Contract specification forSilverMiniFutures
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Trading Symbol:QI
Trading Unit:2,500 troy ounces
Price Quotation:U.S. dollars and cents per ounce.
Minimum Price Fluctuation:$0.0125 per ounce.
Trading Hours:
The contracts are available for trading on the CMEGlobex® trading platform from 6:00 PM Sundaysthrough 5:15 PM Fridays, Eastern Time, with a 45-minute break each day between 5:15 PM and 6:00PM.
Trading Months:
Trading is conducted during the same months as thefull-sized silver futures contract (SI), except thecurrent month.
Last Day of Trading:
Trading terminates at the close of business on thethird to last business day of the month preceding thenamed contract month.
Settlement:Financial.
Margin Requirements:
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Margins are required for open futures positions.
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Major trading centers of silver: •London •Zurich •New York (COMEX) •Chicago (CBOT) •Hong Kong •Tokyo Commodity Exchange (TOCOM)
Indian scenario for Silver:
India is primarily a silver importing country,as the production of India is not sufficient to satisfythe ever-growing domestic demand. The productionof silver in India stands out at the figure of around2.1 million ounces placing it at the 20th position inthe list of major silver producing countries. Theimport of silver in India hovers over 110 millionounces that shows the huge size of Indian domesticdemand.However, this import level fell sharply as aresult of the decline in demand due to rise in silver prices and inconsistent monsoon on which theincome of the rural sector depends. But, even this sharp decline could not affect India‘s reputation of being one of the largest consumer countries of silver in the world. India stands third after United Statesand Japan among the leading consumers of silver inthe world.
By contrast with United States and Japan,Indian industrial off take for fabrication in hardcoreindustrial applications like electronics and brazingalloys accounts for only 15 % and the rest being for foils for use in the decorative covering of food,plating of jewelry and silverware and jari.The countries from which India imports silver and maintain the flow of silver in the market are: •China
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•United Kingdom •European Union •Australia •Dubai
Over 50% share of import of silver in India isheld by Chinese silver. The major importing center of silver in India was Mumbai but now it has beenshifted to Ahmedabad and Jaipur due to high salestax and octroi charges.
Production of silver in India:
India hardly produces any silver and isbasically a silver importing country. It holds the 20thplace in the list of silver producing countries and thetotal production of silver in India in 2004 wasaround 2.1 million ounces. The three major silver producing states in India are: •Rajasthan •Gujarat •JharkhandRajasthan is the leading silver producing statein India with a production of around 32 thousand tons. Gujarat follows on the second place with aproduction of around 20 thousand tons.In India, silver is traded at the following places: •Delhi •Indore
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•Rajasthan •Madhya Pradesh •Mathura (Uttar Pradesh) •Rajkot (Gujarat)Also, silver is traded in the Indian commodityexchanges like
National Commodity &Derivatives Exchange ltd, Multi CommodityExchange of India ltd. and National MultiCommodity Exchange of India ltd.
Silver at MCX:
Though the silver futures are traded onNCDEX and MCX, bigger volumes are traded onMCX. So we will have a look on silver specificationon MCX. There are three different types of silver contracts traded on MCX; they are Silver future,Silver HNI Futures and Silver Mini Futures.
Specification of Silver Futures
Contract:Symbol:SILVER
Description:SILVERMMMYY
Contracts available for trading:
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March contract: 16th March of the previous year to5th March of the contract year May contract: 16th May of the previous year to 5thMay of the contract year July contract: 16th July of the previous year to 5thJuly of the contract year September contract: 16th September of the previousyear to 5th September of the contract year December contract: 16th December of the previousyear to 5th December of the contract year
Trading period:Mondays through Saturdays
Trading session: Mondays to Friday: 10.00 a.m. to 11.30 p.m.Saturday: 10.00 a.m. to 2.00 p.m.
Trading unit:30 kg
Quotation/Base Value:1 kg
Price Quote:
Ex-Ahmedabad (inclusive of all taxes and leviesrelating to import duty, customs , if applicable but excluding Sales Tax / VAT, any other additional taxor surcharge on sales tax, local taxes and octroi.
Maximum order size:600 kg
Tick size (minimum price movement):Re. 1 per kg
Daily price limit:4%
Initial margin:5%
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In case of additional volatility, a special margin atsuch percentage, as deemed fit, will be imposed immediately on both buy and sale side in respect of all outstanding position, which will remain in forcefor next 2 days, after which the special margin willbe relaxed.
Maximum Allowable Open Position: •For individual client: 50 MT collectively for allcontracts in Silver (i.e. including Silver M andSilver HNI contracts) •For a member collectively for all clients: 150 MTor 15% of the market-wide open position,whichever is higher.(As per FMC letter no. 6/3/2006/MKT-II (VOL II)dated August 18, 2006)
Delivery unit:30 kg
Delivery period margin:25%
Delivery center(s):Ahmedabad at designatedClearing House facilities.
Quality specifications:
Grade: 999 and Fineness: 999 (as per IS 2112: 1981) •No negative tolerance on the minimum finenessshall be permitted.
If it is below 999 purity it is rejected.It should be serially numbered silver bars suppliedby LBMA approved suppliers or other suppliers asmay be approved by MCX.
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Delivery and Settlement Procedure of Silver:Last Day of Trading:
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5th day of the contract expirymonth.
Tender Period:1st to 6th day of the contract expirymonth.
Delivery Period:1st to 6th day of the contractexpiry month. Buyer‘s intention:On 1st, 2nd, 3rd & 4th of thecontract expiry month by 6.00 p.m.
Tender Notice by Seller:
The seller will issue tender notice along withevidence of delivery to the Exchange in a specifiedformat by 6.00p.m. The seller is also required tosubmit the certificate issued by the supplier inoriginal.
Dissemination of information on tendereddelivery and buyers interest:
The Exchange will inform members through Trader Work Station (TWS) regarding tender and deliveryintentions of the buyer members and the seller members by 7.00 p.m. on the respective tender days.
Tender and Delivery Period Margin:
Tender and Delivery period margin of 25% will beimposed with effect from the beginning of the tender period.
Exemption from Delivery Period Margin:
Delivery Period Margin is exempted if goodstendered on designated tender days of the contract month and seller submits all the documentaryevidence.
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Delivery Logic:
Compulsory Delivery
. Any seller having openposition on the expiry date fails to deliver on thenext day then a penalty of 5% shall be imposed outof which 90% will be passed on to the buyer.
Delivery Pay-in:
On any tender days by 6.00 p.m.Funds Pay-inT+1 working day by 11.00 a.m. (T stands for tender day).Funds Pay-outT+1 working day by 05.00 p.m.
Delivery Pay-out:
T+1 working day after completion of pay-in funds.
Mode of Communication: Fax or Courier
Allocation of Delivery:On the respective tender days after the end of the day.
Delivery Order Rate:
Settlement/closing price onthe date of allocation and the due date rate on expirydate.
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Buyer‘s obligation:
The buyer shall not refuse taking delivery and suchrefusal will entertain 5% penalty out of which 90%of the penalty amount shall be passed on to theseller.10% will be retained by the Exchange.
Close out of outstanding positions:
All outstanding positions on the expiry of contractnot settled by way of delivery in the aforesaidmanner, will be settled as per the due date rate withpenalty of 5% and out of which 90% shall be passedon to the buyer.
Verification by the buyer at the time of release of delivery:
At the time of taking delivery, the buyer can openthe sealed packets in front of Group 4 personnel. If he is satisfied with the quantity, weight and qualityof material, then he will issue receipt of the metalsinstantly. If he is not satisfied with the metal, he caninsist for assaying by any of the approved assayersavailable at that center.
Legal obligation:
The members will provide appropriate tax formswherever required as per law and as customary andneither of the parties will unreasonably refuse to doso.
Duties, Cess and Levies:
Ex-Ahmedabad, inclusive of all charges / leviesrelating to import duty, customs to be borne bySeller. But excluding Sales Tax / VAT, any other additional tax or surcharge on sales tax, local taxesand octroi to be borne by the Buyer.
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Vault, Insurance and Transportation charges
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:Borne by the seller upto Funds Pay-out date.Borne by the buyer after Funds Pay-out date.
Evidence of Stocks in Possession:
At the time of issuing the Delivery order, theMember must satisfy MCX that he holds stocks of the quantity and quality specified in the DeliveryOrder at the declared delivery center by producingwarehouse receipt.
Validation Process:
On receipt of delivery, the Group 4 personnel willdo the following validations:a. whether the person carrying Silver is thedesignated clearing agent of the member;b. whether the selling member is listed in thestatement forwarded by the Exchange as a deliveringmember c. whether the quantity being delivered by the seller is exactly the same quantity as communicated by theExchange;d. whether the serial no of all the bars is mentionedin the seller‘s bill;e. whether the original certificates are accompaniedwith the Silver Bars
whether the serial nos listed in the certificate tallywith the nos written inscribed on the barsg. whether the seller has issued individual bills of relevant quantity in favour of each of the buyer Any other validation checks, as they may desire.
Delivery Process:
In case any of the above validation fails, the Group 4Securitas will contact the Exchange office and takeany further action, only as per instructions receivedfrom the Exchange in writing. If all
in front of thecustomer with unique tamper-proof seal/s. Then thecustodian of Group 4 will cut a
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validations arethrough, then the Group 4 personnel will put theSilver in bag/s and seal the same
serially numberedGroup 4 receipt (in triplicate consisting of White,Pink and Yellow slips), get the signature of theseller‘s clearing agent and signing the same for authorization, hand over the Pink slip to seller‘sclearing agent, send by courier the third copy(Yellow Colour slip) while retaining the White for the records of Group 4 Securitas. The receipt detailsin full are then entered into the package supplied byMCX and is uploaded to MCX server for authorization and further processing. Group 4 infront of the selling member‘s clearing agent depositthe said metal into a bag and seal it with a tamper-proof unique numbered Group 4 seal and give acopy of the same to the customer, send the secondone to MCX for its records and third copy of thereceipt for its record. The sealed bag will be vaultedin the same condition with Group 4 Securitas untilfurther delivery to MCX customer. Even in case if the metal has to be sent to various destinations, itshall be done in same bag only. Each bag shall notcontain not more than 30 kg of Silver and where thedepository is more than 30 kg, the same will bestored in multiple bags with each having individualseals with unique number. If the metal delivered bya seller has to go to 10 different buyers, 10
individual packets will be made for each buyer andunique numbers will be assigned to each packet.
Quality adjustment:
The price of Silver is on the basis of 999 purity.If the quality is less than 999, it is rejected.
Quantity adjustment:
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The tolerance limit will be +/- 3 kg. The weight of Silver bar must be between 27 kg to 33 kg.
Appointment of Clearing Agent of Buyer‘s andSellers:
For the purpose of effecting delivery of Silver, everymember will be entitled to appoint a maximumnumber of two Clearing Agents, who will be entitledto receive and deliver precious metals on behalf of such member. These Clearing members have tosubmit requisite form, four photographs, a copy of their ration card / driving license or other document,as may be specified by the Exchange. The Exchangewill issue a photo identity card for each ClearingAgent, which will be duly signed and stamped bythe Exchange and the member with lamination. Atthe time of giving or receiving delivery of preciousmetal, the Clearing Agent will be required to showthis Card to Group 4 Securitas persons. A list of allsuch Clearing agents will be forwarded by theExchange to Group 4 Securitas in advance.
Intimation about the Clearing Agents:
On last day of contract maturity, the buyer will berequired to inform name of the Clearing agent, whowill visit Group 4 Securitas office for liftingdelivery. This information will be compiled by theExchange and will be forwarded to Group 4Securitas by 12.00 noon on 1st day of the contractmaturity month.
Endorsement of Delivery Order:
The buying member can endorse delivery order to aclient or any third party with full disclosure given toMCX. Responsibility for contractual liability wouldbe with the original assignee.
Extension of Delivery Period:
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As per Exchange decision due to a force majeure or otherwise.
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Due Date Rate:
Due Date Rate is calculated on 5th day of thecontract month. This is calculated by way of takingsimple average of last 5 days of the spot market of Ahmedabad.
Applicability of Business Rules:
The general provisions of Business Rules anddecisions taken by FMC / Board / ExecutiveCommittee in respect of matters specified above willapply mutatis mutandis. The Exchange may further prescribe additional measures relating to deliveryprocedures, warehousing, quality certification,margining, risk management from time to time. Incase of any interpretational dispute or clarificationsthe decision of the Exchange shall be final andbinding on the members and others.
Specification of Silver HNI Futures
ContractSymbol:SILVER
Description:SILVERHNIMMMYY
Trading unit:50 kg
Quotation/Base Value:1 kg
Maximum order size:600 kg
Tick size (minimum price movement):Re. 1 per kg
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Daily price limits:6%
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Initial margin:5 %
Maximum Allowable Open Position:For individual client: 50 MT collectively for allcontracts in Silver (i.e. including Silver andSilver Mini contracts)
For a member collectively for all clients: 200 MTor 20 % of the market‘s open position in acontract at any point of time
Delivery unit:150 kg
Delivery margin:25%
Delivery logic:Both Option
Delivery period margin:25% margin will beimposed during tender and delivery period on bothbuyers and sellers on matched quantity.
Delivery pay-in:On tender days
Delivery pay-out:E+3 working day by 11.00 a.m.(E stands for expiry date of the contract)
Pay-in of funds:
E+2 working day by 11.00 a.m.
Pay-out of funds:
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E+3 working day by 11.00 a.m.In case the buyer opts for second sampling, he has toinform the Exchange on E+2 working day by6.00p.m and in such case the pay-out of funds willbe released only after completion of samplingprocedure.
Specification of Silver Mini Futures
ContractSymbol:SILVERM
Description:SILVERM MMMYY
Trading unit:5 kg
Quotation/Base Value:1 kg
Maximum order size:600 kg
Tick size (minimum price movement):Re. 1 per kg
Daily price limits:4%
Initial margin:5%
Maximum Allowable Open Position •For individual client: 50 MT collectively for allcontracts in Silver (i.e. including Silver andSilver HNI contracts)
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•For a member collectively for all clients: 150 MTor 15% of the market-wide open position,whichever is higher.(As per FMC letter no. 6/3/2006/MKT-II (VOL II)dated August 18, 2006)
Delivery unit:30 kg
Delivery center(s):Office of Group 4 Securitas atAhmedabad.
Delivery logic:Both Option
Delivery period margin;
25% margin will be imposed during tender anddelivery period on both buyers and sellers onmatched quantity.
Exemption from delivery period margin:
Delivery period margin is exempted if the Seller provides with documentary evidence of the deliveryat the Exchange‘s designated delivery center.
Delivery allocation:
- Date- RateOn expiry date of the ContractAt due date rate (DDR)
Delivery pay-in:On tender days
Delivery pay-out:E+3 working day by 11.00 a.m.
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Pay-in of funds:E+2 working day by 11.00 a.m.
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Pay-out of funds:E+3 working day by 11.00 a.m.
USES OF SILVER
Demand for silver is built on three main pillars: industrial and decorative uses, photography, and jewelry & silverware. Together, these three categories represent more than 95 percent of annual silver consumption. In 2010, 487.4 million ounces of silver were used for industrial applications, 167.0 million ounces were consumed in the jewelry market, 50.3 million ounces were used in the silverware market and over 101.0 million ounces were used in coins and medals.
Traditional
o o o o
Coinage photography jwellery silverware and table settings
Industrial
o o o o
batteries bearings Brazing and soldering Catylst
Emerging
o
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Medical Applications
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o o o
Mirrors and coatings Solar Energy Water Purification
Silver has been used as a medium of exchange since earliest recorded history, but silver coins – those minted by an authority either public or private – came on the scene in the eastern Mediterranean during 550 BC. By 269 BC, the Roman Empire adopted silver as part of its standard coinage and it was used throughout the trading world.
Silver jewelry is highly prized for its brilliant luster and its ease of fabrication, properties that it shares with gold, a precious metal also used extensively in jewelry. Pure silver, also known as 999 fineness, is quite tarnish resistant, but it is too soft for use in jewelry. Silversmiths often alloy it with other metals, such as copper, to harden it. Sterling silver, for example, is 92.5 percent silver and 7.5 percent copper. Sterling silver is a standard in many countries for silver jewelry and has been since the 14th century.
The same properties that make silver ideal for jewelry also cross over into silverware – its reflective brilliance, beauty and tarnish resistance. Copper is mixed with silver to toughen it for use as cutlery, bowls and decorative items such as picture frames.
Sterling silver (or 925 fineness) has been the standard since the 14th century, particularly for hollowware and flatware, but sometimes less-expensive tableware is plated with a silver coating of 20 to 30 microns thick.
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Photography Through use of chemical ‗developers‘ the differences in light intensity form negative images which can then be processed into paper pictures by using silver-imbedded paper. Approximately 5,000 color photographs can be taken using one ounce of silver.
batteries
The most common of these batteries is the small button-shaped silver-oxide cell - used in cameras, toys, hearing aids, watches and calculators - which is approximately 35 percent silver by weight.
bearings
Steel ball bearings electroplated with silver have greater fatigue strength and load carrying capacity than any other type. These bearings are used in continuous, heavy-duty applications such as in jet engines. Because steel has a poor coefficient of friction, placing a layer of silver between the steel ball bearing and the housing reduces friction between the two, increasing the performance and longevity of the engine.
Brazing and soldering
Silver brazes and solders combine high tensile strength, ductility and thermal conductivity. Silver-tin solders are used for bonding copper pipe in homes, where they not only eliminate the
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use of harmful lead-based solders, but also provide the piping with silver‘s natural antibacterial action
Catylst
Silver, because of its unique chemical properties is an important catalyst in the production of two major industrial chemicals. Because there is no net chemical change undergone by silver, it is almost completely recovered after such uses.
electronics
Silver membrane switches, which require only a light touch, are used in buttons on televisions, telephones, microwave ovens, children‘s toys and computer keyboards. These switches are highly reliable and last for millions of on/off cycles. Silver is also used in conventional switches likes those used for controlling room lights.
Medical Applications Silver‘s anti-bacterial powers have been tested and proven scientifically even though its power as a bactericide has been known for centuries. The ancient Phoenicians, for example, knew that water, wine or vinegar kept in silver vessels stayed fresh during long sea voyage
mirrors and coatings
increasing use of silver is in paints. Silver ions offer an anti-bacterial shield that keeps the coating germ and fungus free. This is particularly important in health care facilities, jails,
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schools, food and beverage factories and other places in which bacteria growth can be dangerous to health.
Solar Energy
Silver paste is used in 90 percent of all crystalline silicon photovoltaic cells, which are the most common type of solar cell. Around the world, solar arrays are being tested for large and smallscale electricity production. In Europe, photovoltaic systems commonly are used to power private homes and local businesses
Water Purification In building water supply systems, silver ions can destroy Legionnaires‘ Disease, which is caused by bacteria building up in pipes, connections and water tanks. In pools and spas, silver ions, usually held in canisters within filters, are activated by water to spread a biocide blanket to all components, keeping the water pure and disease free.
Silver is also finding its way to personal water purification devices that are short, easy-to-carry tubes inserted into suspect water. With several different methods of water purification in the tube, often including a charcoal filter, silver‘s role is to prevent the growth of bacteria and fungi that could overwhelm the system and render it useless.
Factors that Influence Silver Prices
DemandAnd supply:
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demand for silver is the leading aspect of prices. If there‘s currently a high demand for scrap silver from multiple industries, junk silver prices might get higher to attract more customers turning in their scrap silver pieces.Silver supply is an important factor influencing junk silver prices. Junk silver suppliers are mostly individuals turning in their and major manufacturing businesses that use silver during their technological process.
The Effect of Silver Stockpiling:
Silver is one the best conductors of energy which makes it an important component in most electrical devices. It is also a very good reflector of light making it valuable to producers of mirrors, windows, and other glass products. When silver prices rise, large companies that are dependent on the metal tend to horde it.This can further drive up demand, as was the case with palladium. In 2000, the Russian supply of palladium was disrupted causing prices to rise. In response, companies who used palladium in their products began to stockpile the metal.This drove prices up to $1,100/oz from $330/oz previously. 1. Silver is a Byproduct Metal: 2. About 80% of mined silver is gathered as a byproduct of other metals, such as copper, nickel, zinc, and lead.. Most of this metal comes from mines outside of the U.S. When the dollar falls against other currencies, the cost for importing these metals rise and demand falls, driving down silver production.. 3. Shorting Silver: 4. On the Commodity Exchange (COMEX), the silver short position is very large. In fact, silver is the world's only commodity that has a short position which is larger than both its global production and inventories.[16] The extent of this position has been created by
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naked short selling, which means shares are sold without an arrangement or promise of a borrower. This large short position helps to keep silver prices lower than they may be otherwise. 5. Countries Buying and Selling Silver: 6. When countries sell their reserves of silver in the market they increase the supply of silver available. However, in 2007, sales from countries dropped 46% because China and India did not sell as much silver as they did in the past. 7. Mine Production: 8. Although the majority of silver is produced as a byproduct of other metals, 20% comes from actual silver deposits. Mine production grew only 4% in 2007 to 670.6M oz and additional silver deposits are becoming increasingly difficult to find
VALUE OF DOLLAR COMPARED TO RUPEE
Xia Bin, a member of the monetary policy committee of the central bank,said that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.
Interest Rates, Price Inflation and Silver
Most people don't pay too much attention to the price of silver or the consumer price index, and
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they might not pay too much attention to interest rates. However, they do pay attention when
they see prices going up around them. If their grocery bill goes up or if their electric bill goes up they notice that.
In periods of time where they see that prices are going up much more than what they can earn by putting their money into the bank they realize that their money is being devalued. They want to seek out ways to preserve the wealth they have because nobody wants to save money to lose money. That‘s not the goal. So they seek out ways to preserve their wealth. Gold and silver are two obvious ways but you might go to real estate or invest in stocks or invest in commodities. They basically want to get out of the dollar so they are not losing this battle where inflation is out pacing what they can earn in interest on their dollars.
The only sure fire way to stop the devaluation of your money is to trade in Fiat Currencies for hard tangible assets like Gold and Silver. These hard assets will preserve the buying power of your money both now and way, way into the future.
This is evident when you look at the statistics of the consumer price index, the price of silver, and also the going rates of interest on the one year and ten year bonds. You see that in periods of time in the early seventies the interest rate was lower than the rate of inflation and so people sensed their money was being devalued and that is kind of the time when you started seeing the steep upward trend in the price of silver. Those conditions of lots of inflation and small interest rates probably had a large impact on how high the price of silver went. Similarly, with in the past decade silver has more than tripled in price and you can kind of see that we have had these low interest rates and any time you get a little inflation is has that impact where the purchasing power
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of your dollars are being lost because price inflation is larger than what you can earn in interest at the bank.
If you actually thought about it and you were in charge of the Fed and your goal was to make the price of silver go way up and you could control interest rates and how money you printed and if you only objective was to increase the price of silver you would keep interest extremely low and you would just print out as much money as you can to create as much price inflation as you could and that would cause the price of silver to go through the roof.
And if you look at what our government is currently doing there is a lot of pressure for them to keep interest rates low and there is pressure print up a bunch of money. Maybe they shouldn't do any of those things, but that is kind of the direction where they are going. For example, they want this housing bubble to come down into this soft landing. They don't want to raise interest rates because it might not help with their soft landing approach. If they did raise interest rates it would be more like a crash. Also they have so many unfunded liabilities they are going to have to default in those things in some way and probably the easiest way is to just print up a bunch of money.Based on their current debt and unfunded liabilities they are bound into a little box of keeping interest rates low and printing up a bunch of money which is eventually going to result in a lot of inflation. It is almost looks like it is that recipe for making silver go through the roof.If you have money saved in the bank, then that money is actually decreasing in value, so you should really be worried about inflation because it affects the prices of everything that you use
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on a daily basis.
ANALYSIS OF AWARENESS
Survey was conducted in steel city (in areas like Andheri, Santacruz, Bandra Church gate) to judge the awareness of peoples regarding investment in Commodity Market.
Quantitative Analysis
Analysis of data revels that majority of people prefer investment in Real Estate (28.81% of total sample) which specified in other category investment and it is greater than share market investment preference. 2. People‘s knowledge about Commodity Market: Page
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Very few people heard of commodity market. Vast majority of people are unaware about Commodity Market. 3. Investor‘s interested to invest in Commodity Market: -
(Out of those, who know Commodity Market)
Though some people heard of commodity market due to lack of complete knowledge about it half of then are not interested in investing in Commodity Market.
Above data revels that majority of commodity investors like to invest in Bullion (Gold & Silver).
5. Perception about Commodity Market
Analysis of data shows that majority of people who are aware about commodity market; feel that investment in commodity market is very risky. So efforts should be done to minimize the risk in commodity investment and make peoples about minimum risk in commodity investment.
6. Opinion about Commodity Market Advertisements
(Expressed by those who know commodity market)
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There is no second opinion amongst commodity investors, that commodity market advertisements do not give all the necessary information.
Qualitative Analysis
1. Investment preferences: -
Most of the investors prefer least risky investment which gives higher returns. That is why majority (70% of sample) of people interested in investments other than Share and commodity market.
Very less number of people (only 7%) showed their interest in investment in commodity market.
2.Commodity Exchanges: -
People who are interested in commodity investment showed more concern towards NCDEX; for its brand name and people think there might be surety of transaction at NCDEX.
3.Commodities: -
Bullion is most preferred commodity for investment. Because one can expect maximum returns from such investment.
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Commodity market Advertisements should be more informative. And it is the failure of commodity market‘s advertisement campaign to attract people‘s attention; as majority of people are not aware about commodity market.
Investment options Silver is a commodity that is traded 24 hours a day in the world‘s market centers – London, Zurich, New York, Chicago and Hong Kong. The London market started trading in the 17th century, and it – like other major markets – provides a vehicle for those who wish to trade in physical silver on a spot basis, or on a forward basis for hedging purposes.
The London market has a "fix" which offers the chance to buy or sell silver at a single price. The fix begins at 12:15 p.m. and is a balancing exercise; the price is fixed at the point at which all the members of the "Fixing" can balance their own, plus clients‘, buying and selling orders.
Although London remains the true center of the physical silver trade for most of the world, the most significant paper contracts trading market for silver in the United States is the COMEX division of the New York Mercantile Exchange. Spot prices for silver are determined by levels prevailing at the COMEX; and although there is no equivalent to the London fix, Handy & Harman, a precious metals company, also publishes a price at noon each working day.
A primary factor affecting the price of silver is the available supply versus fabrication demand. In recent years, fabrication demand has greatly outpaced mine production forcing market participants to draw down existing stocks to meet demand. As these available sources continue to
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decline, silver's fundamentals continue to strengthen. However, since silver is a tangible asset, and is recognized as a store of value, its price can also be affected by changes in things such as inflation (real or perceived), changing values of paper currencies, and fluctuations in deficits and interest rates, to name a few.
After disscussing with the financial advisor we must decide upto which certain percent of our investment portfolio should be in silver, we should choose the silver investment vehicle that is in accord with your own preferences and investment philosophy.
As with any investment, we should judge the merits of our silver investments as they relate to our investment needs. The following are some of the advantages and disadvantages of particular silver investments. Exchange - Traded Funds (ETFs) Advantages: For investors who seek exposure to the physical silver market, but have no desire to possess the metal or pay direct insurance, assay, and storage costs, ETFs offer an alternative. They have major exchange listings and trade like equities. Investors can buy shares in a trust that owns the silver bullion. Silver Bullion Bars of Approved Refiners Advantages: Usually the least expensive Convertible into cash...Internationally negotiable...Price is widely quoted. Silver Mining Stocks Advantages: Offers capital appreciation opportunities...Dependent on the company's management and operating strength...May yield a dividend. Silver Mutual Funds Advantages: Many mutual funds offer investment
Disadvantages: Because the ETFs are created to reflect the price of the silver, the market price can be as unpredictable as the price of silver on any given trading day.
Disadvantages: Must be stored securely...Possible need for assay at time of sale...Yields no interest.
Disadvantages: May require greater investment than small physical bullion purchases...Requires knowledge of equity market.
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Disadvantages: May require greater investment than small
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programs in silver and precious physical bullion purchases...Requires metals...Diversified holdings among dozens knowledge of equity market. of companies. Silver Bullion Coins Advantages: Disadvantages: Relatively inexpensive, some less than Must be stored securely...Yields no US$10.00...Small and easy to store...Instant interest...Premium over bullion bar prices. convertibility into cash...Easy to transport...Internationally negotiable...Prices quoted widely. Silver Medallions Advantages: Disadvantages: Prices can range from least expensive to most Similar to coins, but not always easily expensive...Small and easy to store...Easy to convertible to cash unless they bear the mark transport. of a reputable refiner. Silver Certificates or Storage Accounts Advantages: Disadvantages: High liquidity...But at competitive prices...No Several days' delay in delivery of silver...Silver storage risk...No sales tax...Prices widely not in physical possession of owner. quoted...Invest by dollar amount. Silver Accumulation Plans Advantages: Disadvantages: Invest as little as $100...Discounted Silver not in physical possession of owner commission rates...Highly liquid...No sales although some firms will deliver the metal if tax...Offers dollar cost averaging...No storage requested. fees. Silver Futures Contracts Advantages: Disadvantages: Speculative appeal...Leverage reduces capital Many trading limitations...High risk tie-up...Liquidity...Contracts widely factors...Unlimited loss potential...Requires quoted...No storage risk. market expertise. Silver Options Advantages: Disadvantages: Speculative appeal...Leverage reduces capital Trading limitations...Highest risk...Less tie-up...No storage risk...clearly defined risk. negotiable and less liquid...Investor must be willing to sustain the loss of their entire investment in a commodity option...High degree of knowledge required.
Price Analysis
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In order to fully understand how silver came to be where it is today, and where it might be going, it is useful to review silver market trends since the 1950s. By looking at the larger trends that have swept silver supply, demand, and prices upward and downward since 1950, a much fuller understanding emerges of where silver stands today.
Price Analysis from 1950-1960
(yearly average prices based on London PM Fix)
After the end of World War II until the early 1960s, fabrication demand for silver rose strongly. This period witnessed the rebuilding of Europe and Japan, and a tremendous push worldwide toward electrification, housing construction, and consumer durables. Many electrical appliances, as well as electrical generation and transmission systems, use silver, which was one of the major factors behind this extended boom in industrial silver usage. At least as important was the advent of mass market photographic products, which sharply increased the use of silver in photographic films and papers.
There was another reason why fabricators were eagerly turning to silver during this period. The U.S. Treasury had a silver inventory that, as of 1950, stood at 2 billion ounces. Furthermore, Treasury policy was to buy domestically mined silver at 90.5 cents per ounce and sell silver at 91 cents, effectively putting a cap on the United States market price of silver.
In this way, the U.S. Treasury was the buyer or seller of last resort in the silver market, by virtue of the Silver Purchase Act of 1934 (itself one of a series of such laws extending back to the
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1870s). The 1934 law authorized the Treasury to buy silver either until:
the market price reached $1.29 (the monetary value of silver) or the monetary value of Treasury silver stocks reached one-third of the monetary value of the Treasury‘s gold stocks
This purchase program remained in effect, in essence, until 1961. During the intervening 28 years, the Treasury acquired 3.2 billion ounces of silver. About half was acquired in the first four years, from 1934 through 1937, and the other half between 1937 and 1955.
A good portion of this silver was acquired from U.S. mines: 880 million ounces, or nearly all domestic production from 1937 to 1955. About 110 million ounces were purchased during the first three months following passage of this legislation in 1934. The law prohibited Americans from owning non-monetary silver, and directed them to sell it to the Treasury. A great deal of silver was also imported. Between 1934 and 1939, nearly 2 billion ounces of silver came from other countries. Market prices ranged between 25 cents and the ceiling created by the Treasury‘s set price of 90.5 cents during these years, but spent most of the time below 75 cents. U.S. fabrication demand (excluding coinage), which totaled 1.8 billion ounces from 1935 through 1955, was met by imported silver. By 1955, the demand for silver was great enough to push market prices above the Treasury‘s 90.5 cents purchase price. Since the Treasury was a seller at 91 cents, the price remained around this level for several more years, as the Treasury‘s reserves were depleted. While the 1934 law directed the Treasury to buy silver with an eye on boosting the silver price to $1.29, the Treasury‘s policy during the late 1950s was designed to keep silver prices below the point at
silver market.
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which coins would be melted down, to allow time for the Treasury to extricate itself from the
Treasury reserves peaked in 1959, when the U.S. Treasury had 2,060,000,000 ounces on hand, and another 1,331,000,000 ounces were outside the Treasury in circulating coinage, for a total of 3,391,000,000 ounces.
In summary, the post-war period saw silver demand rise sharply, while mine production and other supplies were relatively stable. The U.S. Treasury sold tremendous amounts of stockpiled silver during the years after 1955, in order to keep the price of silver below its "monetary value." Additionally, the actual growth of the overall economy increased the need for circulating coinage. One reason for the Treasury‘s sales was straightforward: if silver‘s market value rose above its monetary value, $1.29 per ounce, holders of U.S. silver certificates, one form of currency in circulation at the time, could trade in these $1, $5, and $10 bills in exchange for silver bullion. Also, there would be an enormous incentive for individuals to melt down the silver coins in circulation.
Had the Treasury not been present as a seller of silver, market supplies from other sources would have been hard pressed to keep pace with the growth of fabrication demand, and the price of silver most likely would have risen sharply during the late 1950s and early 1960s.
Price Analysis from 1960-1965
(yearly average prices based on London PM Fix)
After decades, the Treasury had been a net buyer of silver. By 1960, it had become a net seller. In 1960, the Treasury sold 22 million ounces of silver in bullion form, and used another 46
and use another 56 million ounces to replace silver coins that had been taken out of circulation
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million ounces in coinage. The next year the Treasury had to sell 63 million ounces of bullion
by investors. That year, 1961, the Treasury realized that it would run out of silver for use in coinage and as a reserve against silver certificates unless it took drastic measures to begin phasing silver out of currency. In 1961, the Treasury ordered $5 and $10 silver certificates out of circulation, freeing silver reserves held against these bills and reducing the public‘s call on Treasury silver. In November 1961 the government also suspended silver bullion sales by the Treasury at the formerly fixed price of 91 cents.
Once the Treasury stopped selling at that price, market quotes for silver quickly rose. In June 1963 the Treasury also replaced the $1 silver certificate with Federal Reserve notes. By 1963, silver prices reached $1.29, the monetary value of silver in coinage. At prices above this level, holders of silver certificates would have been able to redeem them for more valuable silver, under the now-defunct silver certificate legislation. (The other trigger price the Treasury worried about was $1.38, at which level it was profitable to recycle coinage for its silver content.)
During this transition period, the U.S. Treasury still had to keep the silver market well supplied, in order to keep the silver market relatively calm until it had completed the withdrawal of silver form its currency. In late 1963 the Treasury resumed its silver bullion sales, as part of this effort. Over the six years between 1960 and 1965, the Treasury sold a total of 342 million ounces of silver bullion. It used another 814 million ounces of silver in coinage during this same time. In total, the Treasury used 1,156,000,000 ounces of its silver reserves. Much of this silver, especially the bulk of it used in coins, found its way quickly into the hands of investors. Government steps to remove silver from the currency led investors to conclude that the price of silver would rise sharply once the Treasury no longer was supplying the market with such large volumes of the metal.
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Fabrication demand continued to rise sharply. Industrial use, excluding coinage, rose at a 9 percent per annum pace, from 212.9 million ounces in 1959 to 355.8 million ounces in 1965. Including coinage, which grew rapidly during this same time due to the investor run on coins, total fabrication demand rose 16% per annum. Mine production, in contrast rose only 1.9% per year from 195.6 million ounces in 1959 to 218.4 million ounces in 1965.
Secondary recovery of silver was starting to expand, in part spurred by the realization that with the passing of Treasury silver sales and coinage programs the market would need to recover increasing amounts of silver from scrapped items. It was clear to market participants that silver prices had been restrained by the Treasury‘s willingness to fill the gap between market supplies and industrial demand, and that once the Treasury‘s silver was gone, additional supplies would have to be found elsewhere. Coin melt rose from 10 million ounces in 1960 to 30 million ounces in 1965. Silver recycling from other items rose from 40 million ounces in 1960 to 57 million ounces in 1965.
Price Analysis from 1966-1970
(yearly average prices based on London PM Fix) By 1966 the Treasury‘s program of eliminating silver from coinage was in place. The Treasury continued to use some silver in coins from then until 1969, but the annual average during these four years was 38.5 million ounces, down from 178 million ounces per year on average during the previous four years. Austria, France, and West Germany continued to use silver in some circulating coins until the late 1970s.
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The U.S. government also continued to sell silver bullion. From 1966 through November 1970, 674 million ounces of bullion were sold. (In 1967 the bullion sales program was transferred from the Treasury to the General Services Administration. Ownership of the bulk of the remaining silver were transferred from the Treasury stocks to the National Defense Stockpile.)
Industrial demand meanwhile remained strong, although there was a period of weakness in the mid-1960s. The higher silver prices had some limiting effect on use, although the major factor was slowing overall economic growth and a shift in the economy away from the manufacture of goods that used silver. Industrial use peaked in 1966 at 414.9 million ounces. It declined 10 percent over the next two years, before stabilizing between 372 and 387 million ounces on an annual basis in the late 1960s and early 1970s.
Investors remained keenly interested in silver, absorbing around 620.5 million ounces of silver from 1964 through 1970. Interestingly, the price of silver rose from $1.29 to a peak of $2.57 in 1968, before falling back. The rise and fall in silver prices was coincidental with the volume of these investor purchases: As investor demand decreased over the next three years, prices softened commensurately.
The weighted average price paid in these investor acquisitions, using annual average prices, was $1.88 per ounce. This figure will be important in understanding the next phase of the silver market, from 1971 into 1979, when the new supply of silver fell short of industrial requirements and the resulting deficit was accommodated by investor selling.
While investor demand was strong and industrial demand remained at healthy levels, Mine production rose at a 3.4 percent per annum rate, from 218.4 million ounces in 1965 to 258.5
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million ounces in 1970. (Actually, mine output of silver was not as vibrant as these figures suggest, since 1965 was a year of stable output and 1970 represented a cyclical peak in silver production. Output fell back the following year, and did not regain its 1970 level until 1977.) Secondary supply also continued to expand, in part due to the rise in silver prices, which made recycling much more attractive. Bloated by continued U.S. government sales, total supply remained high throughout this period.
Price Analysis from 1971-1977
(yearly average prices based on London PM Fix)
By 1971 U.S. government stocks had fallen from their 1959 peak of 2.1 billion ounces to around 170 million ounces. The U.S. government had removed silver entirely from its currency, and ceased to intervene in the silver market. Total silver supplies had reached a record 747.4 million ounces in 1965, of which 54 percent, or 400 million ounces, came from the U.S. Treasury. From that point onward, the Treasury was backing out of the silver market, and total supply declined steadily, and never has approached that 1965 record again.
Total silver supplies had declined to 381.3 million ounces by 1971, their lowest level since 1960. New mine production accounted for 65 percent of this total, or 247.3 million ounces. Secondary and other supplies totaled 134.0 million ounces. Throughout the 1970s, mine production remained rather static, fluctuating between 236.6 million ounces in 1974 and 272.0 million ounces in 1979. Secondary supply rose from 1972 to 1974, in line with silver prices, and then fell back to 152.0 million ounces in 1978.
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Fabricating demand rose sharply in the early 1970s, from 414.4 million ounces in 1971 to 545.0 million ounces in 1973. Demand then dropped for two years, as a worldwide recession reduced consumer demand for silver-using end products and as higher silver prices led to some reductions in silver use. Demand fell to 497.9 million ounces in 1974 and 437.9 million ounces in 1975. Use rebounded the next year, to 511.0 million ounces, before stabilizing between 488.6 million ounces and 491.3 million ounces in 1977 and 1978.
Total new silver supplies fell far short of meeting these requirements. From 1971 through 1978 there was a cumulative deficit of new supply over demand of 415.8 million ounces. The silver that filled this gap came from the 620.5 million ounces of silver inventories – many held by investors – built up during the previous seven years. By becoming net sellers of silver, investors replaced the U.S. Treasury as the source of silver to make up for a major, ongoing shortage of silver. The difference was that in the early 1960s the U.S. Treasury had sold at a fixed price because it was acting to restrain silver prices. In contrast, investors wanted increasingly higher prices for this service. The weighted average price of the investor silver sales from 1971 through 1978 was $3.21, 71 percent higher than the price they had paid for this metal in the late 1960s. The average price of silver was $1.55 in 1971. The average price rose to $4.71 in 1974, and then spent the next four years between $4.35 and $5.40.
Price History 1978-1980
(yearly average prices based on London PM Fix)
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By 1979, investors and other market participants had come to the strong conviction that the silver market was facing a severe shortage of metal, and that prices were likely to rise sharply at some point. The market had been living off of investor selling for seven years. Prices had risen from the beginning of the decade, but there were serious questions as to how much longer investors would be willing and able to continue supplying silver to fabricators, at least at the prices seen in the mid-1970s.
World economic and political events also were coming to bear on the silver market, most notably in the form of a major cyclical upward surge in inflation throughout the industrialized world. Sensing that silver prices should be adjusting upward to compensate for these inflationary trends, many investors decided that silver prices between $4.00 and $5.50, which had prevailed during most of the late 1970s, were too low. Investors ceased selling their old silver holdings, and instead began adding to their holdings. This added further upward pressure to the price of silver. Simplistic retrospectives of the silver market in late 1979 tend to focus on the high-profile purchases of large amounts of silver and silver futures by various wealthy individuals; in reality, there was a tremendously broad-based rush to buy silver by investors worldwide at the time.
By the final quarter of 1979, silver prices had risen to levels between $15.00 and $25.00 per ounce. At these levels several physical market forces combined to act against higher prices.
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force those with margined long positions to liquidate their positions. During the Hunt brothers' accumulation of the silver, prices of silver bullion rose from $11 an ounce in September 1979 to $49.45 an ounce in January 1980 based on London PM Fix. Silver prices ultimately fell to below $11 an ounce two months later.
As silver prices rose above $15.00 in September 1979, fabrication demand began to be affected. On an annual average basis, industrial silver use fell a relatively mild 0.9 percent to 445.1 million ounces in 1979. Demand had held up reasonably well during the first three quarters of the year. However, a sharp cut-back in demand in the fourth quarter led to overall annual decreases in silver use. By some estimates, industrial use of silver was 40 percent lower in the last quarter of 1979 than it had been in the first quarter of that year.
When silver prices rose sharply in 1973-1974, manufacturers began searching for ways to reduce their need to use silver. Several substitutes for silver and methods to reduce per-unit silver use were developed, but they were too expensive to implement as long as silver was around $5.00 per ounce. When silver rose to $15.00 and more however, fabricators were able to introduce these measures rapidly. Demand also quickly declined for jewelry and sterlingware.
Investors began to sell large amounts of silver especially old coins from the 1960s. Other sold large amounts of sterlingware and jewelry for its silver content.
A host of political events, including the continuous U.S. hostage crisis in Iran and the Soviet invasion of Afghanistan, motivated investment demand, helping keep silver prices high and volatile through 1980. High inflation, high nominal interest rates, and negative real interest rates further stimulated investor interest in silver and other tangible assets. Prices dropped as low as
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$10.80 in March, but rose back to $25.00 in September, as the Iran-Iraq war erupted. By the end of 1980 silver prices had subsided once more to around $16.00.
These high silver prices meanwhile were having a dramatic effect on the physical silver market conditions. Total supply rose form 434.8 million ounces in 1978 to 505.0 million ounces in 1979, and then to 584.6 million ounces in 1980. The bulk of this increase occurred in secondary recovery. Total secondary recycling of silver doubled, from 152.0 million ounces in 1978 to 302.0 million ounces in 1980. The recovery of silver from old coins, those holdings taken in by investors during the 1960s, increased from 21 million ounces in 1978 to 45 million ounces the next year, and then to 94 million ounces in 1980. Refiners faced substantial backlogs, sometimes of 6-12 months in processing these materials.
Mine production remained almost unchanged during this time, and actually was lower in 1980, at 264.6 million ounces, than it had been in 1978. (A U.S. copper industry strike, along with a strike at a major U.S. silver mine, were major factors behind the low output.) Mine developments have long lead times, and the increases in output that came about in response to the 1979-1980 jump in silver prices did not appear until the mid-1980s.
Prices also were having a dramatic effect on fabrication demand, compounded in 1980 by the onset of the deepest post-war recession. Industrial silver use fell from 449.1 million ounces in 1978 to 362.5 million ounces in 1980, a level fully 25 percent below the 1976 cyclical peak of 481.0 million ounces. The last countries using silver in circulating coinage, Austria, France and West Germany, withdrew from that activity, reducing silver use in coinage on a worldwide basis
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from 39.5 million ounces in 1978 to 15.0 million ounces in 1980.
The combination of higher secondary recovery and lower fabrication demand brought an abrupt end to the eight years of silver market supply deficits. In 1978 new supply had fallen 53.8 million ounces short of fabrication requirements. In 1979 there was a 28.9 million ounce surplus.
In 1980 this surplus reached 207.1 million ounces, nearly as high as the 228.9 million ounce surplus that had resulted from the 1968 run-up in silver prices and the Treasury‘s sales programs. The increase in the recovery of silver from old coins accounted for nearly half of the surplus.
Price Analysis from 1981-1991
(yearly average prices based on London PM Fix)
By the beginning of 1981 the silver market was starting to adjust after the traumatic events of 1980. Industrial silver demand was declining, both because of the worldwide recession that had set in, and in reaction to high silver prices. Investment demand for silver also fell sharply. Investors were aware of the reduced fabrication demand for silver, and of the amount of silver backed up at refineries Other investors had lost money in 1979-1980, and were wary of returning to the market. Still others were distracted from silver by more attractive financial markets.
Supply also fell, as the surge of old scrap and coin melt subsided. Total supply dropped 101.1 million ounces from 1980's level to 483.5 million ounces.
The worldwide recession persisted until late 1982, continuing to restrain fabrication demand and discourage investment absorption. Silver mine production, meanwhile, had begun to rise, as some mines developed in reaction to the higher prices since 1979 came onstream. Much mine output of silver remained profitable even as silver prices subsided to around $8.00 in the early
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1980s, so that expanding existing operations and developing new mines remained an attractive proposition for many miners. Secondary recovery of silver, meanwhile, continued to decline.
Silver prices reached a cyclical nadir of $4.98 in June 1982, 10% of the $48 peak just 30 months earlier. June 1982 also proved to be the trough of the recession in the United States. During 1982 serious problems erupted in the international debt market, in particular relating to the debt repayment problems of certain countries in Eastern Europe and Latin America.
In late 1982 investor interest in silver was rekindled by several forces, all of which emerged at roughly the same time. The international financial market panic led some investors to turn to silver. Others were attracted by what they saw as unsustainably low prices. Investment demand also was encouraged by a rapid easing of credit market conditions by monetary authorities in most industrialized nations; this easing led to an immediate revival of inflation fears. As a result of all of these forces coming to bear at once, investment demand picked up during the second half of 1982 and the first quarter of 1983. This influx of investor buying helped take silver prices from the June 1982 low of $4.98 to a peak of $14.72 in March 1983.
In March 1983, several trends came into play reversing the rise in silver prices. First, the price had nearly tripled in nine months. Such a fast ascent led to profit-taking by investors; it also constricted industrial use. On the supply side, secondary recovery of silver from scrap and coinage increased in response to the higher prices. OPEC lowered its official benchmark oil price, for the first time in the cartel's history. The sudden decline in petroleum prices quickly reduced inflation expectations. Silver prices had averaged $13.96 in February 1983. In March
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they averaged $10.62.
Prices recovered slightly during the summer months, but from 1983 until 1986 the trend in prices was downward. This downward trend served an important purpose in the physical market, in that it discouraged new developments of primary silver mines, except where high ore grades or other factors made for extremely efficient plants. It also served to reduce secondary recovery of silver. On the demand side of the market, relatively low silver prices removed the incentives to using less silver or substituting away from silver in products.
Total fabrication demand fell sharply at the beginning of the 1980s, in response to higher silver prices, and worldwide recession. Longer term demographic and technological trends had been pointing to a decline in use, which the price rise and recession accelerated.
For example, silver use in sterlingware in the United States actually had peaked in the early 1970s, and was clearly going through a secular loss of markets due to changing demographics and consumer tastes. By 1979 U.S. sterlingware use of silver had fallen 55% from its 1973 peak of 29.3 million ounces. The decline that followed 1979 was a continuation of this longer term trend, exacerbated by the rise in silver prices and the economic recession.
Other industries, including the important photographic and electronics uses for silver, were able to reduce their per-unit silver requirements in some instances, and in other cases to substitute other materials for silver. As silver prices subsided later in the 1980s, some of these trends reversed. In the color film photographic market, for example, competition for higher film speeds led to an increase in per-unit silver use, to levels higher than those seen in the late 1970s.
Fabrication demand, including coinage, reached a low of 363.1 million ounces in 1981, the lowest level since 1960. During the early 1980s, fabrication demand remained weak, but in 1984
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it began rising once more, stimulated by low silver prices and strong growth in industrial activity.
Silver supply followed a more erratic pattern during the 1980s, which partly reflected the high degree of price responsiveness of secondary recovery. Total supply fell 101.1 million ounces from 1980 to 1981. This decline was entirely a function of the scaling back of secondary recovery, after the rush of material in late 1979 and 1980. Total supply continued to slump in 1982, falling to 455.1 million ounces. While this was happening, in late 1982, silver prices staged a rally from $4.98 to nearly $15.00. This surge in prices brought out significant quantities of scrap in 1983, which boosted total supply to 531.1 million ounces. As prices decreased from early 1983 into 1986, total supply once more fell back, to 449.7 million ounces in 1986. Mine production was restricted by the low prices at this time, with silver reaching a low for this period of $4.85 in May 1986. Secondary recovery also was constricted by these low prices. Since 1986 total supply rose once again, reaching 514.0 million ounces in 1990.
Since 1979 there was a surplus of total silver supply over fabrication demand every year. On a cumulative basis, this surplus totaled 927 million ounces from 1979 through 1990.
It appears that most of this surplus was bought by bona fide investors, individuals who have accumulated these silver positions in the expectation of being able to liquidate them at some later date at a profit. Minor surpluses and deficits can be accounted for by changes in reported market inventories and investor coin purchases. Most of the silver coins produced in this decade were bullion coins, designed for investors and collectors and not intended by their mints for use as
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circulating currencies. Silver coinage since 1979 totaled 241.6 million ounces.
Accounting for these factors, it still seems that investors acquired around a billion ounces of silver since the late 1970s, one quarter of this in coins. The period of heaviest silver purchases occurred in 1980 and 1981. Simple logic bears this out: Strong investment demand was keeping prices high at this time. As investor buying waned later in the decade, prices slipped down. The weighted average acquisition cost of the silver added to investor inventories during this past past decade was $11.25 per ounce.
Price Analysis from 1990-1999
(yearly average prices based on London PM Fix)
Throughout the 1990's, the main question for the silver market was the rate at which aboveground stocks of bullion and coins were being consumed by the widening gap between fabrication demand and conventional supply, and when this erosion of stocks might begin to significantly impact the price of the metal. Mine production of new silver rose by only 4 percent from 1990 to 1999, while total fabrication demand increased by 22 percent during the same period.
While the fundamentals for silver strengthened during the past decade, the price of silver slowly climbed from an average price of $4.83 in 1990 to an average price of $5.22 in 1999.
In 1999, silver's price performance was subdued following an eventful 1998, and was off 5.8 percent from the previous year, but it did finish the year up 6.7 percent from its starting level (ending the year at $5.33 having begun it at $4.99). It traded in a narrow range between $4.88
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and $5.79.
Substantial flows of silver out of China helped to keep the price in check in 1999, and had similar impacts in the early 2000s.
The gold/silver ratio (the number of ounces of silver it takes to buy one ounce of gold) is another market indicator some analysts watch. This ratio has at times been a closely followed indicator of the relative trends in the two markets and in the past has been used by investors as signals for buying, selling, or exchanging gold and silver. The ratio for 1999 was 53.37, versus 53.08 in 1998. The average for the period 1968-1999 is 50.18
Price Analysis from 2000-2010
(yearly average prices based on London PM Fix)
Silver prices remained under pressure for most of 2000, averaging $4.95 per troy ounce. The trading range did manage to increase marginally year-on-year, recording a high of $5.45 in February of 2000 and a low of $4.57 in December. The silver price softened throughout the year, largely because of continued Chinese government sales and ongoing private disinvestment.
In 2001, silver prices averaged $4.37 per troy ounce. The metal ended the year on a muchbrighter note, with silver fixing at $4.52 on December 31, only 7 cents down from the year's first trading day.
In the face of an enduring global economic slowdown, the silver price demonstrated resilience in 2002. With an average price of $4.60 per ounce in 2002, silver recorded a 5-percent year-on-year increase over 2001. Silver retained its characteristics as a precious metal, rising in value during periods of crisis last year.
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The average silver price in 2003 was $4.85 per ounce - a 5.4-percent increase over 2002. Much stronger investment interest and the improved fabrication demand scenario, which picked up strongly from the third-quarter onwards, propelled the silver price to $5.97 per ounce at year's end.
The silver price in 2004 staged a dramatic rally, rising a robust 36 percent to average $6.66 per ounce. This compared to an average price of $4.85 in 2003. This stunning price performance reflects fundamental changes in silver's supply/demand balance. Last year also saw a boom in investor activity, mainly driven by funds operating on futures exchanges and considerable buy side interest from high net-worth individuals.
In 2005, the silver price experienced a 10 percent increase over the average 2004 price of $6.65 per ounce, to an average of $7.31 per ounce.
In 2006, the silver price experienced a 58 percent increase over the average 2005 price of $7.31 per ounce. The silver price reached levels not seen in 26 years and was the leader when compared with gold (36 percent increase) and platinum (27 percent increase). The primary factor driving the stronger silver price was the continued strength of investment demand, which returned in earnest in 2005, was sustained in 2006. Much of the investment demand can be attributed to the successful launch of Barclays' Global Investors iShares Silver Trust Exchange Traded Fund (ETF), which was introduced in late April 2006.
The annual silver price, led by continued strong investor and industrial applications demand, averaged an impressive US$13.38 in 2007. This result represented a 16 percent price increase over 2006, and on a percentage basis was stronger than that enjoyed by gold, platinum and
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palladium last year. When looking at the 2007 silver price, the white metal posted a very solid performance to averages not seen since 1980. A key development in silver‘s recent fortune has been the pronounced shift in investor behavior, witnessed by the continued presence of investors on the demand side of the equation since 2004.
During the first half of 2008, investors drove the silver price up above the US$20/oz mark (a high of US$20.92 oz was recorded in March) against a backdrop of generally firm fabrication demand. The second half of 2008 was a different story as the economic outlook deteriorated rapidly, and silver, as well as other metal prices, slumped. However, silver‘s price in the first third of 2009 recovered a good part of the lost ground.
In 2008, a record inflow of over 93.1 Moz into the three main silver ETFs was instrumental in the high price average, as investors propelled silver to multidecade highs, in not only daily price terms but also in the annual average.
Coins and medals fabrication jumped by an astonishing 63 percent to a record of 64.9 Moz in 2008. The main reason for this was a surge in investment-related purchases of bullion coins, both in the United States and Europe. Notably, fabrication of the U.S. Silver Eagle bullion coin achieved a record 19.6 Moz last year, approximately double the 2007 figure, and would have been higher if the U.S. Mint had sufficient blanks to produce coins to meet demand. In 2009, physical silver investment demand has continued to increase, as the U.S. Mint has already achieved a nearly 70 percent year-on-year rise in the first quarter.
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Silver posted an average price of $14.67 in 2009, the second highest average since the high
reached in 1980. Strong gains in investment and a recovery in demand later in the year, were the prime reasons for the 53 percent intra-year rise. Much of 2009‘s strength in investment can be attributed to soaring demand for silver exchange traded funds (ETFs) as well as physical retail investment. This occurred on the heels of 2008‘s previous record ETF inflow of 265.3 million ounces (Moz) of silver. Total ETF holdings rose by 132.5 Moz over the course of 2009, ending the year at an impressive 397.8 Moz as new funds entered the marketplace from Australia and the United States.
In 2009, coins and medals fabrication rose by an impressive 21 percent to post a new record of 78.7 Moz, driven by a jump in retail demand, principally in the United States, although western European demand was also stronger in 2009. In the United States, the increase in its bullion coin sales was also accompanied by a surge in bar demand. Of note, demand for the U.S. Silver Eagle bullion coin reached record highs in 2009, with over 28 million Eagles sold. To put last year‘s performance into context, over the 1986-2008 period, U.S. Eagle minting averaged 7.7 Moz per year.
Silver posted an average price of $20.19 in 2010, a level only surpassed in 1980, and a marked increase over the $14.67 average price in 2009. World investment rose by an impressive 40 percent in 2010 to 279.3 million troy ounces (Moz), resulting in a net flow into silver of $5.6 billion, almost doubling 2009‘s figure.
Exchange traded funds (ETFs) registered another sterling performance in 2010, with global ETF holdings reaching an impressive 582.6 Moz, representing an increase of 114.9 Moz over the total
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in 2009. The iShares Silver Trust accounted for almost 40 percent of the increase, with other notable gains achieved by Zurcher Kantonalbank, ETF Securities, and the Sprott Physical Silver Trust.
A significant boost in retail silver investment demand paved the way for higher investment in both physical bullion bars and in coins and medals in 2010. Physical bullion bars accounted for 55.6 Moz of the world investment in 2010. Coins and medals fabrication rose by 28 percent to post a new record of 101.3 Moz. In the United States, over 34.6 million U.S. Silver Eagle coins were minted, smashing the previous record set in 2009 at almost 29 million. Other key silver bullion coins reaching milestones include the Australian Kookaburra, the Austrian Philharmoniker, and the Canadian Maple Leaf–all three posting record highs in 2010.
World Silver Demand in 2010
Total fabrication demand grew by 12.8 percent to a 10-year high of 878.8 Moz in 2010; this surge was led by the industrial demand category. Last year, silver‘s use in industrial applications grew by 20.7 percent to 487.4 Moz, nearly recovering all the recession-induced losses in 2009, and is now seeing pronounced advances in 2011. Jewelry posted a gain of 5.1 percent, the first substantial rise since 2003, primarily due to strong GDP gains in emerging markets and the industrialized world‘s improving economic picture. Photography fell by 6.6 Moz, realizing its smallest loss in nine years, as medical centers deferred conversion to digital systems. Silverware demand fell to 50.3 Moz from 58.2 Moz in 2009, essentially due to lower demand in India.
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World Silver Demand
World Silver Supply
Silver mine production rose by 2.5 percent to 735.9 Moz in 2010 aided by new projects in Mexico and Argentina. Gains came from primary silver mines and as a by-product of lead/zinc mining activity, whereas silver volumes produced as a by-product of gold fell 4 percent last year. Mexico eclipsed Peru as the world‘s largest silver producing country in 2010, and Peru is followed by China, Australia and Chile. Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 2010. Top 20 Silver Producing Countries in 2010 (millions of ounces) 1. Mexico 2. Peru 3. China 4. Australia 5. Chile 6. Bolivia 7. United States 8. Poland 9. Russia 10. Argentina 11. Canada 12. Kazakhstan 13. Turkey 14. Morocco 15. India 16. Sweden 17. Indonesia 18. Guatemala 19. Iran 20. South Africa
128.6 116.1 99.2 59.9 41.0 41.0 38.6 37.7 36.8 20.6 18.0 17.6 12.3 9.7 9.7 9.2 6.9 6.3 3.4 2.8
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silver mine cash costs remained relatively flat year-on-year, falling by less than 1 percent to $5.27/oz. from a revised $5.29/oz. in 2009.
Net silver supply from above-ground stocks increased to 142.9 Moz in 2010, primarily due to higher scrap supply, a shift of net-producer hedging to the supply side, and a considerable rise in net-government stock sales. Regarding scrap supply, 2010 witnessed a 14 percent increase over 2009 as gains in industrial and jewelry recycling exceeded an ongoing decline in recovery from photographic sources.
The swing to net-producer hedging of 61.1 Moz ended a four-year run of de-hedging and is attributed to higher silver prices and was limited to a group of by-product, rather than primary silver producers.
Net government sales of silver rose to 44.8 Moz, primarily the result of increased sales from Russia, with China and India remaining relatively silent for the second consecutive year. Supply from Above-Ground Stocks (Million ounces) 2009 2010 Bullion Implied Net -178.0 Disinvestment 120.7 Net Producer Hedging -22.3 61.1 Net Government Sales 15.5 44.8 -72.1 Sub-total Bullion 127.5 Old Silver Scrap 188.4 215.0 Total 60.9 142.9 World Silver Supply and Demand
To document these and other market fundamentals, each year the Silver Institute works with GFMS Limited, of London, a leading research company, to prepare and publish an annual
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report of worldwide silver supply and demand trends, with special emphasis on key markets and regions. This annual survey also includes current information on prices and leasing rates, mine production, investment and fabrication.
World Silver Supply and Demand (in millions of ounces) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Supply Mine Production 606.2593.9596.6613.0637.3641.7 665.4 681.9 718.3 735.9 Net Government Sales 63.0 59.2 88.7 61.9 65.9 78.5 42.5 28.9 15.5 44.8 Old Silver Scrap 189.0196.3194.0195.2198.6203.3 199.0 193.7 188.4 215.0 Producer Hedging 18.9 --9.6 27.6 ----61.1 Implied Net -18.9 1.6 -------Disinvestment Total Supply 877.1868.3881.0879.7929.5923.5 907.0 904.5 922.2 1,056.8 Demand Fabrication Industrial Applications 349.7355.3368.4387.4431.8454.2 491.1 492.7 403.8 487.4 Photography 213.1204.3192.9178.8160.3142.2 117.6 101.3 79.3 72.7 Jewelry 174.3168.9179.2174.8173.8166.3 163.5 158.3 158.9 167.0 Silverware 106.183.5 83.9 67.2 67.6 61.0 58.5 57.1 58.2 50.3 Coins & Medals 30.5 31.6 35.7 42.4 40.0 39.8 39.7 65.4 79.0 101.3 873.6843.5860.1850.6873.6863.5 870.3 874.7 779.2 878.8 Total Fabrication Producer De-Hedging -24.8 20.9 --6.8 24.2 11.6 22.3 -Implied Net Investment 3.6 --29.1 55.9 53.2 12.5 18.2 120.7 178.0 Total Demand 877.1868.3881.0879.7929.5923.5 907.0 904.5 922.2 1,056.8 Silver Price 4.3704.5994.8796.6587.31211.54913.38414.98914.67420.193 (London US$/oz) SOURCE: World Silver Survey 2011
Like all commodities, the precious metals market experiences price fluctuations as a result of the
metal—both for investing and for collecting. During the course of 2010, all that changed, as the spot silver price started to consistently outshine gold. The year started with prices at around $17
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influence of certain factors on the market. Traditionally, gold has been the preferred precious
an ounce and came to a close with prices having gone up to over $30 an ounce. The impressive jump of 79% in the spot price was far greater than gold‘s increase of around 25%.
There are various reasons for the jump in silver prices when compared to gold. On its own, the spot silver price is impressive. That is even truer when considering its increase when compared to the vastly more popular precious metal. One of the reasons silver jumped so dramatically is that the metal was greatly undervalued for many years. Historically, silver was seen as a metal with little value, which was reflected in its very low fixed price. In fact, the spot silver price didn‘t break $1 an ounce until the 1970s. Once the standard price was lifted, silver had a chance to be a real commodity, which would start to attract investors.
Price changes in the market would occur as a result of certain factors influencing it. Like all commodities, the spot silver price is affected the most by supply and demand. With investment demand up recently and physical supply decreasing, this is affecting prices dramatically. Throughout 2010, it became clear that silver was a much more viable investment option than gold, which further drove up demand for the metal. Increases in demand that can‘t be met by supply of the commodity will always result in a jump in prices. Investment demand isn‘t the only thing to look out for when keeping an eye on the spot silver price. Silver has become widely used in industrial markets as well, which plays a huge role in the growing demand and shrinking supply of the metal. Silver is used in electrical appliances, photography equipment, and medical supplies. These uses play a huge role in the increasing value of the metal.
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Silver Price Forecast of 2011
In recent years, gold and silver have outperformed equities and real estate. Due to the very bullish fundamentals, this trend is set to continue in the coming months.The forecast for silver prices in 2011 is based on
The increasing global macroeconomic, currency and geopolitical risks
Silver historic role as money and a store of value
The ever declining and very small remaining silver deposits
Significant industrial demand
Significant and growing investment demand
Gold, oil, potash, and other major commodities went over their record highs in recentyears because of growing demand and short supply, geopolitical risks and concerns regarding the emergence of inflation and stagflation – all pointing to higher silver prices in the long term.
Silver prices forecast considers declining supplies
According to a research, there were close to 2.2 billion ounces of silver in the world.While it may sound huge, the number of ounces stood at 12 Billion in 1900. Today,there is less than 1 billion ounces of above ground refined silver. More than 90% of all the silver that has ever been mined, has been consumed by the global photography,technology, medical, defense and electronic industries.While the birth of digital photography certainly diminished use of silver in the photo industry, based on current and projected supply and demand trends, the amount of
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above ground refined silver is to shrink to even lower levels in the coming years as demand has been outstripping mining supply for most of the last 20 years, driving above
ground supply to historically low levels. However few in the investment world and almost nobody in retail are aware of this important fact.
Why silver price has not gone up?
We do not believe in conspiracy theories. The increased demand has been met by silver ounces from inventories and official government stockpiles, which today are getting close to depletion. Those include U.S.,China, Russia and India reserves. Now 80% of silver has been mined as a byproduct of other base metals such as copper, nickel, zinc and lead. In the event of a global stagflationary or deflationary slowdown, you can not expect these base metal miners to increase production for the sake of silver as demand for their core product would likely fall, thus further decreasing the supply of mined silver.
There are only a few pure silver mines remaining, all with depleting reserves. This inflexible supply means that we cannot expect significant mine supply to depress the price rise. All these facts comprise a powerfully bullish picture which is unique to silver.
Increasing industrial demand is bullish for silver
Silver today is used more than ever in traditional applications such as mirrors, batteries,medical devices and other modern high tech devices. Increasingly, silver antimicrobialand antibacterial
projects on the use of silver based compounds for therapeutic and antibacterial purposes.
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qualities are being used in many types of medical applications. There are many ongoing research
Increasing industrial demand and application for silver forecast higher prices due to economic growth in China, India, Vietnam, and Brazil.
Increasing investment demand
With the recent hiatus in real estate and stock market and with gold being very
expensive, predictions of increasing investing demand for silver are coming to fruition.There has been a marked increase in investment demand for silver in recent years. The introduction of ETFs that track the price of silver, a new global liquidity bubble, the significant growth in the global money supply, the proliferation of wealthy people, hedge funds and the exponential growth in derivatives Investors in silver bullion coins and bars are hedging themselves against further deflation and falls in property and equity markets.
Advantages of Silver over Gold The average person can‘t afford to buy gold, so it is most suitable for wealthy people for investment and central banks. With silver being so much cheaper, the average person can buy some. The advantages of silver over gold as an inflation hedge are numerous and need to be considered: The silver market is much smaller, and it doesn‘t take as much money moving into silver as an investment to move the market up. Silver has outperformed gold dramatically over the last few years, going from $3 an ounce to over $49.83 an ounce.
Silver is also a very important industrial metal with over 3,000 industrial uses.
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The government has never seized silver, although they have seized gold.
Investor would feel safer with silver rather than gold.
The government actually has no stockpile of silver to unload. There is now more gold above ground than silver because of the silver industrial usage.
Who is Buying silver and Driving Prices Up?
In recent years there has been a large surge of interest amongst the commodity market
traders, but many others are buying silver too:-
Ordinary people can open up their trading platform and buy and sell future contracts
of silver.
Banks may add silver to their reserves as well. Stock traders can buy and sell silver based ETF‘s or exchange traded funds.
All of these sources create a buying and selling pressure that will ultimately drive up the
price of silver or crash it down.
10 Fundamental Reasons to Own Silver
One, the near-term emotional temperature of the market is low. There is no bullish fever where uninformed investors are driven to buy silver because of a sharply rising price. That will happen, but it‘s not true now. While silver is still above the price lows of last fall and higher than year-
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end prices, the recent price action is nothing to write home about. The price has been below most of the important moving averages, causing silver to be ―oversold.‖ This is a much better time to buy than when prices have already climbed and many are buying just because prices are rising. At those times the risk of a sharp sell-off is high. Now the
risk of a prolonged price decline is much lower. Now is the time to buy low. Also, Leveraged speculators who normally buy COMEX futures contracts and Over the Counter (OTC) derivatives do not hold a historically significant number of long contracts. The big dealers have been so successful at forcing long speculators out of the market that the speculative long position is at important low levels. This means that long speculators have already been forced to sell and no big selling from them appears probable. On any rise in price, they are likely to buy, adding a force to rising prices. Buy at lower levels of $31-33. Available wholesaleinventories appear to be tight. These physical silverinventories are falling into stronger hands. For decades the world‘s largest stockpiles of silver were the COMEX warehouse inventories. These COMEX inventories were considered mostly commercial in nature with some portion being held for investment purposes. The COMEX inventories peaked at around 280 million ounces in the early 1990‘s, and accounted for 90% of all visible silver inventories.
After the introduction of silver Exchange Traded Funds (ETFs), there was a profound shift in the location and structure of world visible silver inventories. Now,the combined inventories in the ETFs and other investment vehicles tower over the holdings in the COMEX by almost 4 to 1. (Over 400 million ounces in the ETFs compared to 120 million oz in COMEX inventories).
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Given the long-term nature of ETF investment holdings, this massive and historic shift in inventory composition means much less silver is now available to the market. This will exert a strong upward influence on price. All signs indicate that physical investment demand for silver on both a retail and wholesale basis is strong and could surge further given the above fact. Until a few years ago, there was no net silver investment buying for decades.
That pattern has changed with a vengeance. Clearly, the introduction of the ETFs has played a major role in this investment transformation. Silver production is tightening, given the byproduct-nature of silver mining. As written recently, base metals production like copper, lead and zinc appears to have fallen significantly, also reducing the production of silver as a byproduct.World economic and financial conditions appear lined up to favor higher silver prices, no matter what occurs. If financial conditions remain unsettled, flight to quality buying in silver appears likely. If the world does return to better economic
growth patterns, silver will benefit as a result of increased industrial consumption. Heads silver benefits, tails it also benefits. More investors than ever have come to realize that the silver market has been manipulated and the government regulators and exchange officials are unable to persuasively address the growing evidence of a silver manipulation. The manipulation debate has become widespread in metal circles. It isn‘t going away.
The best the regulators have been able to do is to stall and pretend to be investigating. Fewer people are being fooled by such actions. A scam like the silver manipulation can‘t continue when so many know about it. This scam will end suddenly and sharply in a price jump to the upside. Industrial demand for silver will continue to grow in the years ahead. New uses for
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silver appear regularly. A robust worldwide economy will initiate a new phase of silver demand. Higher prices will not diminish this demand because small amounts
of silver are used in each industrial application. Silver prices are cheap on several important objective measurements. Silver is cheap compared to its own recent price. It is down more than 40% from its highs of one year ago, in spite of the strongest physical demand in history. More investment silver has been purchased over the past year than at any other period in history.
At precisely the same time that prices have declined so sharply, more ETF-type buying has occurred than ever before and more Silver Eagles have been sold by the US Mint than ever before.
We have witnessed the highest premiums on all retail forms of silver in history. This isn‘t mean saying that silver is cheap, this is the investment world voting with itscollective wallet. Clearly, there is something wrong with this picture that can only beexplained by manipulation on the COMEX and the OTC market by a few giant financial institutions.
Executive summary
One may have their debt and equity funds in place, but investing incommodities could just be the one element to improve their portfolio.Commodity trading provides an ideal asset allocation, also helps one hedgeagainst inflation and also helps buy a piece of global demand growth.In 2003, the ban on commodity trading was lifted after 40 years inIndia. Now, more and more people are
rather volatiledepending on the category, returns are relatively higher. However, as this isnot a
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interested in investing in this newasset class. While price fluctuations in the sector could get
primary area of investment for most, there is a lot of apprehensionabout when and how to invest. The Report specifically takes up Silver and analyses thefundamental aspects of this commoditiy thereby highlighting the future price outlook for both the commodities.The Report examines the case for Silver as a long-term or strategicinvestment. The role of Silver in asset management is currently very topical.Much of the interest, however, is related to short-term issues such asinvesting in Silver as an asset. From a longer term perspective a fairly wideconsensus exists that Silver retains industrial demand despite considerablefluctuations in the shorter term.Report is based on the simple economics of ―supply and demand‖ thatis consistent with the view that Silver remains the industrial demand in thelong-run, yet at the same time allows the price of Silver to fluctuateconsiderably in the short run. In this model, the total supply of Silver is afunction of the production, mining of its base metals, price of gold, industrialdemand and currency fluctuation. The short-run demand for Silver ismodeled as a function of the price of base metals,
the US dollar/worldexchange rate, industrial demand, investment in metals and jewellery.
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suggestions
This decade is termed as Decade of Commodities. Prices of all commodities are heading northwards due to rapid increase in demand for commodities. Developing countries like China are voraciously consuming the commodities. That’s why globally commodity market is bigger than the stock market.
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India is one of the top producers of large number of commodities and also has a long history of trading in commodities and related derivatives. The Commodities Derivatives market has seen ups and downs, but seems to have finally arrived now. The market has made enormous progress in terms of Technology, transparency and trading activity. Interestingly, this has happened only after the Government protection was removed from a number of Commodities, and market force was allowed to play their role. This should act as a major lesson for policy makers in developing countries, that pricing and price risk management should be left to the market forces rather than trying to achieve these through administered price mechanisms. The management of price risk is going to assume even greater importance in future with the promotion of free trade and removal of trade barriers in the world.
As majority of Indian investors are not aware of organized commodity market; their perception about is of risky to very risky investment. Many of them have wrong impression about commodity market in their minds. It makes them specious towards commodity market. Concerned authorities have to take initiative to make commodity trading process easy and simple. Along with Government efforts NGO’s should come forward to educate the people about commodity markets and to encourage them to invest in to it. There is no doubt that in near future commodity market will become Hot spot for Indian farmers rather than spot market. And producers, traders as well as consumers will be benefited from it. But for this to happen one has to take initiative to standardize and popularize the Commodity Market.
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