Pricing of commodities all around the world, of every type, are calculated in relatively similar ways. Beyond this, their end user pricing is also somewhat similar. Whether you are determining the price of silver, rubber, or orange juice, you will use some of the same metrics on a continual basis.
Futures and Contracts
When it comes down to it, the spot price of silver is a product of commodities contracts bought in a way similar to how you would buy stock in a company. These silver (and gold) contracts are bought for future delivery, meaning that the price is technically representative of the delivery price months away.
Though it is a rarity, buying a contract of silver as a commodity (thousands of ounces minimum) does enable the owner to take delivery of the physical metal at a future date. In these events, delivery of the metal is usually made via 100 oz. bars approved by the COMEX (Commodity Exchange).
Physical Silver Pricing
The price of silver and most other commodities is not exactly the same as what it is trading for on “paper” markets. Just as gasoline for your car usually costs more at the pump than it does to buy a barrel as a commodity, physical silver is also more expensive. This is due to a handful of reasons, namely production costs, delivery costs, and transactional costs.
If silver, gold, or any other commodity sold to the end physical user at the same price they are trading for on paper, every business that retailed these items would only be able to make money if the price increased from the time of purchase. Since the goal is to make only a small margin and not pay particular attention to pricing movements for the seller, items are sold with pricing relative to current spot, but with a small mark up.
Using Spot Price When Selling
If you are intending to sell physical silver bullion either now or at any point in the future, it is a good idea to know what you should reasonably expect. In most instances, the majority of silver bullion will be sold back to retailers and dealers at a price around spot. Sometimes this price will be just a bit under spot, a bit over, or right at spot.
A few factors that come into play when selling back hard silver include market demand, the item in question, and quantity. Dealers will generally be willing to pay a slightly larger premium on coins than they will on standard bars and rounds. This comes into play during the buying process, however the added or reduced costs are usually compensated for when selling.
The reasons that silver prices move are practically infinite. Everything from world events, governmental actions, monetary policies, worldwide economic conditions and so on can all affect silver and other commodities pricing. For most people, investing in silver is a long-term proposition. The swings in price can certainly be significant on an hourly, daily or even monthly basis, so it is important to keep the price of silver in context at all times.