Spot price is the price you would have to shell out at this moment to buy the commodity. Therefore, spot price is in essence the 'right now'. Spot price is affected by the market trends and does not operate in isolation. The future spot price strongly affects a non perishable commodity such as silver. An increase in spot price does not necessarily indicate a high demand of silver. The silver spot price may be high as the traders are expecting a rise in the future. The predictions or the sentiments of the traders in such cases is a strong indicator of what to expect in the silver market.
The future price is as important as the current price in the commodity market. Speculation plays an important role in this market. This importance exists as it gives suppliers and purchasers a hedge against future changes on silver prices. The prices on silver are decided beforehand, even before the silver is bought. This is called a commodity contract. A silver commodity contract is an agreement to buy a specific amount of silver at a decided price at a particular time. The silver price decided in the contract remains binding regardless of it rising or falling in the meantime.
The main advantage for suppliers is that they are guaranteed a customer for their commodity at a certain price even though the of the commodity may rise or fall in the future. The supplier is certain of a sale in this instance. The buyer on the other hand is hoping that the commodity price will rise. The buyer will be able to purchase at a low price and later sell it at the current high price. He will then be able to pocket the difference from the contractual price and the real.
The actual situation is somewhat more complex than this. In reality the investor never really buys the contract but actually sells it to a third party. The third party wants the contract before it matures. There is also the 'put' option, which is actually a form of selling short. It means selling a contract before you actually own it on the assumption that the price will fall. In this way you will be able to buy the contract at a lower price and pocket the difference between the price you sold it at before owning and the actual price you were able to buy it for.
The author is a knowledgeable journalist in silver market, mining & stocks, who periodically writes articles related to silver prices, silver spot price including tips on investment in silver. Please visit silverprices.com for more details.
