Silver price fix off by 5% from spot market!

[Market Harmony]

Did anyone else notice the London fix price of silver for yesterday? $13.58 was the fix. Yet, on the market it never traded at that price. 6 banks get together for the daily auction... this is unprecedented!

http://www.bulliondesk.com/silver-news/ ... te-108129/

London 28/01/2016 – The silver market was thrown into disarray on Thursday after the LBMA Silver Price was set 84 cents below the spot and futures price this morning.

The LBMA Silver Price – the crucial daily benchmark used by producers and traders around the world to settle silver products and derivatives contracts – was set at $13.58 per ounce.

At the time of the auction, which begins at 12 noon London time, the spot price was at $14.42 per ounce while the futures price on the CME was at $14.415, leaving a number of market participants extremely confused as to what has happened.

“The LBMA Silver Price is established through a transparent electronic auction mechanism designed to adjust the price until there is equilibrium between buy and sell orders,” a CME spokesman said.

CME and Thomson Reuters won the battle to provide the methodology and price platform for the daily process back in July 2014, replacing the 117-year old fix in August that year under sweeping reforms of the entire precious metals complex.

“Given the orders placed in the auction today by five participants, the buy and sell orders became balanced after 29 rounds and the LBMA Silver price was established at a price of $13.58,” CME added.

The difference between silver price and futures prices was nearly six percent but the benchmark cannot be changed, a second person familiar with proceedings told FastMarkets.

“Unfortunately, it’s not [a mistake],” Ole Hansen, head of commodity strategy for Saxo Bank, told FastMarkets. “This could be the end of the fix. It took 14 minutes to find a fix – they obviously found a fix way off of the market.”

Another source also suggested that the continued existence of the fix has been put in jeopardy by the huge discrepancy in today’s price, adding that many producers – who still use the price as their daily reference – may have lost significant amounts of money if any contracts have been settled according to the fix.

“A huge number of contracts are still settled on that price,” another said. “This will no doubt cause significant problems.”

The ‘fix’ or ‘benchmark’, as it is now known, is still the global benchmark reference price used by central banks, miners, refiners, jewellers and the surrounding financial industry to settle silver-based contracts.

While some traders continue to use the 24-hourly traded spot price, larger players prefer the snapshot-style daily benchmark to settle bulkier contracts on a traditionally over-the-counter (OTC) market.

The price is set every day by six participants – HSBC, JPMorgan Chase Bank, Mitsui & Co Precious Metals, The Bank of Nova Scotia, Toronto Dominion Bank and UBS – using a system run by CME and Thomson Reuters.

[68Camaro]

Hadn't seen this til now. Thanks for reporting it!

[Cu Penny Hoarder]

Does it matter or change anything?... probably not.

[Rodebaugh]

Does it matter or change anything?... probably not.

It does on the larger scale. I had an order in yesterday to sell at London Fix. Ounce intent was locked in the day before as usual. Traditionally these prices hang tight with Spot's bid. My lot wasn't huge, but it still cost me about $350 in profit. I and my assayer took the hit. Someone else pocketed that money.

They need to get their act together or they will loose faith of folks trading at fix.....and subsequently loose that control. My trade didn't hurt that bad because I purchased my metal "right".....but I know that my assayer wasn't a happy camper.

[Market Harmony]

Does it matter or change anything?... probably not.

It does matter. Perhaps a smaller sized transaction of a few hundred ounces might not be a big deal, but if you own a mine and sell 10's of thousands of ounce based on the fix, then you got fleeced!

If you were a buyer of silver based on the fix, then you instantly made a lot of money if you immediately sold onto the futures market.

It MAY change something if there is action taken by the losers of this transaction to see if the winners colluded.

To me, it seems quite peculiar that the book was able to be run for 14 minutes to find the fix and not one of the 5 banks which make the fix stood up and tried to be a player at a certain price... I mean that is the point of a market- find the buyers at certain price levels for certain quantities. Anyone in the fix worth their salt should have been able to see the arbitrage opportunity and pounce on it. 6% is a HUGE margin with tens of millions at your disposal.

[beauanderos]

I thought that I saw the same thing occur maybe a week and a half ago. The system seems not only manipulated, but now broken.

[johnbrickner]

. . . If you were a buyer of silver based on the fix, then you instantly made a lot of money if you immediately sold onto the futures market . . . Anyone in the fix worth their salt should have been able to see the arbitrage opportunity and pounce on it . . .

Ok, I think I recognize the word arbitrage. This then is playing the spread or the difference between prices for the same product or commodity?

[Market Harmony]

. . . If you were a buyer of silver based on the fix, then you instantly made a lot of money if you immediately sold onto the futures market . . . Anyone in the fix worth their salt should have been able to see the arbitrage opportunity and pounce on it . . .

Ok, I think I recognize the word arbitrage. This then is playing the spread or the difference between prices for the same product or commodity?

Precisely. But this game is fixed among just 5 players. They use software by Thompson Reuters and the CME to determine the fixed price based on an order book: They enter in the amount of buy orders (price and quantity) and sell orders (price and quantity) and the software sorts out the rest, and spits out the "fixed price" for the transactions. Even if you are not actually part of the order book at the beginning, many people use the fix price for daily calculations of silver transactions / valuations.

My second statement in the quote that you reference is in regards to making a ton of money by knowing in advance the order book, entering in orders based on the calculated fix, and then placing secondary orders (off the fix order book) to buy at the fix and subsequently sell at the futures market... thus capturing the discrepancy between the prices. These guys are no small fish. They can make a big order happen with hundreds of thousands or millions of ounces. Even if the transaction costs eat up .04, they can still make 80 cents an ounce on this type of arbitrage... in less than a minute!

[beauanderos]

Or, if as it's alluded... JPMorgan is the big buyer right now (even though they are clearly suspected as the big short behind the manipulations)... they could
just use the low price to amass more tons without having to bother with the usual short and buy back process.