When the London Bullion Market Association (LBMA) adopted a more transparent system for global spot market silver settlement prices in August 2014, it signaled a modernizing of precious metals markets. Gone was the 117-year old “silver fix” in which a small group of banks met each day at noon to set the spot settlement price for silver. In its place is a system that is transparent, electronic and invites market participants to be part of the process.
The new LBMA price mechanism, an electronic auction administered daily by CME Group and Thomson Reuters, allows participants in the silver market to enter orders for a proposed starting price and see volumes of bids and offers. Under the new LBMA system, CME Group provides the auction platform where the price is calculated, and Thomson Reuters is responsible for administration of the benchmark and data distribution.
Once a price is determined, it will be used by producers and consumers of silver as the price they will trade at for that day.
As the largest U.S.-based producer of silver, Coeur Mining is one of the companies that aims to benefit from the new system. In 2014, Coeur produced over 17 million ounces of silver, much of which came from two of the world’s largest primary silver mines, which they operate – the San Bartolomé mine in Bolivia and the Palmarejo mine in Mexico. In an interview, Courtney Lynn, Coeur’s Vice President and Treasurer, spoke about the advantages to having a more open mechanism for setting the silver price.
“The transition from the silver fix to the LBMA Silver Price has not only created transparency, but it’s given Coeur Mining and our industry peers a voice in a market where we had no influence previously,” she says.
When Lynn speaks of a voice, it could be taken literally. Under the silver fix system, the few participating banks would make their discussion available via telephone. Market participants could listen in, but could not offer input into the price. They were essentially on mute.
“While these calls where they set the price were open to the general public, there was still a lack of real transparency and clarity around the price discovery process,” says Lynn.
Clear price discovery is a welcome change for a producer as big as Coeur.
“We’re excited about being an active participant in industry discussion,” she says. “The partnership we have with CME Group and the LBMA is vital to our business, and we’re happy to have a seat at the table.”
Watch the full video of our interview with Courtney Lynn above. You can learn more about the LBMA Silver Price here.