Silver is a precious metal used widely in industry, dentistry, jewelry, coin mintage and as an alternative to paper money. Most traders purchase and sell silver on a futures exchange such as the Commodities Exchange, or COMEX, which is a subsidiary of the Chicago Mercantile Exchange (CME). The COMEX sets stringent rules regarding which silver bars you can trade on the exchange.
A silver futures contract describes a standard quantity and quality of silver that the seller delivers to the buyer for a set price at a specified time and place. The COMEX silver contract calls for the delivery of 5,000 troy ounces of the metal. Contracts have delivery dates stretching from one to 60 months into the future. The CME also trades a 2,500 troy ounce contract that settles with cash rather than physical delivery of silver. When silver prices rise, the contract buyer profits; lower silver prices favor the seller.
The COMEX silver standard demands that the delivered bars weigh 1,000 ounces each, within a 10-percent tolerance, and contain silver that is at least 99.9 percent pure. Producers of acceptable bars must incise each with its weight, an identification number and a brand name or hallmark. The weight can be expressed in grams, but all the paperwork requires the gram weight be converted to troy ounces by dividing the weight by 31.1035 and rounding to the nearest tenth of a troy ounce.
The CME keeps a list of approved silver refiners -- only silver from these producers satisfies futures contract delivery requirements. The futures exchange is serious about the silver’s quality and performs surprise assays to ensure the metal is fine enough. If a refiner’s silver fails the assay, it may have to produce a certificate of analysis for each delivery and the exchange might kick it off the list entirely.
The CME deals with only certain licensed depositories. At the time of writing, the approved depositories included Brinks Inc., HSBC, Bank USA, Manfra Tordella & Brookes Inc., Scotia-Mocatta, Delaware Depository Service Company and J.P. Morgan Chase. The depositories issue warrants to silver owners describing in detail the contents of any delivery, including the weight and serial number of each bar. If the weight is not incised on a silver bar, a licensed weightmaster can weigh and mark the bar, then sign a certificate describing his operating procedure. On Jan. 17, 2013, there were 114.027 million ounces of silver warehoused at CME-approved depositories.
Based in Greenville SC, Eric Bank has been writing business-related articles since 1985. He holds an M.B.A. from New York University and an M.S. in finance from DePaul University. You can see samples of his work at ericbank.com.