Silver Futures Contract on CME
The CME (Chicago Mercantile Exchange) Silver futures contract is the most liquid silver futures contract globally, and provides a market place where producers and consumers can hedge their silver exposure. Silver is a precious metal, but it is also used as an industrial metal in several circumstances.
Silver mining began about 5,000 years ago and continues to be a sought-after measurement of wealth and valued as money, jewelry and for decorative objects. Because of its distinctive characteristics, silver has numerous applications in as an industrial metal, in technology and as an investment vehicle. Silver used to be used to be a medium to create and develop film, but this has been greatly reduced given the advent of digital photography.
The contract requires physical delivery upon settlement, and the grade and quality under this contract shall assay to a minimum of 99.9% fineness.
The CME Sliver Futures contract is traded on the Chicago Mercantile Exchange and is considered one of the global benchmarks for silver prices, along with LIBOR Silver. Silver is traded in dollar and cents per troy ounce. There are 5,000 troy ounces per silver contract, and the minimum price move on outright transactions is $0.005 per troy ounce, which is equivalent to $5 per contract.
Trading in the Silver Futures contract, according to the CME web site, is conducted for delivery during the current calendar month; the next two calendar months; any January, March, May, and September falling within a 23-month period; and any July and December falling within a 60-month period beginning with the current month.
CME Silver contract trades Sunday – Friday 6:00 p.m. – 5:00 p.m. (5:00 p.m. – 4:00 p.m. Chicago Time/CT) with a 60-minute break each day beginning at 5:00 p.m. (4:00 p.m. CT). Trading in the contract terminates on the third last business day of the delivery month.
The silver that is physically delivered needs to be 99.9% pure silver and is assayed by a registered warehouse of the Chicago Mercantile Exchange. Delivery may take place on any business day beginning on the first business day of the delivery month or any subsequent business day of the delivery month, but not later than the last business day of the current delivery month according to the CME web site.
How to Trade Silver
Approximately 90% of silver production comes from mining, while less than 10% comes from scrap and stockpiles. The largest contributor to demand is the investment space where bullion and coins are purchase. Globally, the top silver-producing countries are Mexico, Peru, China, Chile, Russia and Australia.
The price of silver is largely driven by industrial demand. This includes demand for jewelry, silver bars and coins, medals, and silverware. Like gold, silver trades as a currency against the U.S. dollar, and therefore as the strength of the dollar rises, the price of silver becomes more expensive in other currencies.
Monetary policy has a strong influence on the price of silver, given its relationship with the U.S. dollar. Higher U.S. yields tend to increase the value of the U.S. dollar and therefore weigh on silver prices. When the U.S. Federal Reserve is tightening interest rates, precious metals tend to underperform other commodities, and when the Fed is easing rates, precious metals generally outperform other commodities. Silver is also used as a hedge to higher inflation as higher inflation erodes the value of fixed price assets, making hard assets like silver attractive.
Silver is part of the precious metal complex, along with gold, platinum and palladium. These metals generally move in tandem, but when globally economies tend to expand, the price of silver generally outperforms gold, platinum and palladium.