Silver Futures, Diversifying Precious Metal Exposure
With growing interest in precious metal investment, the focus on silver futures is likely to become a lot sharper.
The start of this century is considered to be a bull market for natural resources and silver seems certain to be a key metal for those keen to enter the commodity trading arena. Electronic trading has increased the global opportunities to trade silver on two major US commodities exchanges, one in New York and the other in Chicago.
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Silver has always been associated with high-value jewellery and tableware, but a significant proportion of its use is found in industrial applications.
In fact, industry accounts for about 73% of silver consumption.
Interestingly, silver coins and associated investments account for only about 3% of the total output of the metal.
Silver futures are traded on NYMEX using the open cry method and through the CME Comex electronic trading platform, two effective ways of gaining exposure to the growing interest in this precious metal.
The advantage of the Comex trading platform is that trading hours are from 6.00 pm on a Sunday until 5.15 pm on Friday, with a 45 minute break each day from 5.15 pm to 6.00 pm; all times are Eastern Standard Time. The silver futures contract is priced in US cents per troy ounce, and each trading unit is 5,000 troy ounces.
Minimum price fluctuation is $0.005 which means $25 per contract. As for the trading months for silver, there can be delivery in the current month as well as the next two calendar months.
It is also possible to trade for delivery for a January, March, May or September falling within a 23 month period.
There is also a Comex miNY Silver Futures contract which has 2,500 troy ounces of silver as the trading unit, and a minimum price change of $0.0125 per troy ounce.
If you no longer wish to hold a silver futures contract then one way of liquidating your position is by purchasing an Exchange of Futures for Physicals (EFP) note.
In effect you notify the exchange that you wish to purchase physical silver of equal quantity. An EFP can also be sold, in which case you would use it to open a futures position.
Here we can see that silver is in contango, that is, prices for delivery further out (December) are higher than for near term or immediate cash settlement (April).
Just consider again that of all the elements on earth, silver has the highest electrical conductivity (even greatr than copper), so its use in electronics is still in great demand.
Computer connections, printed circuits, soldering are just a few applications.
And its catalytic role in an important chemical reaction, the conversion of ethylene to ethylene oxide, as this product is used as an anti-microbial agent with big implications in healthcare.
With demand for these industrial and new technology applications expected to remain strong, the opportunity to gain some exposure to this popular precious metal through futures contracts is worth a closer look.
And remember! Voracious demand from the fast emerging economies of China and India will keep silver at the forefront of the commodity boom, and so silver futures will be followed very closely over the coming years.
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