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GOLD AND SILVER.
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739
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to
satisfy buying orders, higher prices are suggested until the offerings
balance the demand. As a rule, two prices are agreed upon at "fixing,"
one for a cash delivery, which implies delivery within seven days, at
the option of the seller, and the other for delivery in two months'
time—that is to say, exactly after two calendar months' interval. A
period_ of two months is selected, because it is found the most
convenient interval at which smelters can undertake to deliver the
silver which they have purchased in the form of ore. These two periods
of delivery—cash and two months— are obligatory as between brokers; but
brokers can, as a rule, make arrangements with their clients so as to
suit the latter's convenience with regard to shipping, etc. It should
be remembered, however, that any request on the part of a client for
arrangements differing widely from brokers' rules as between
themselves may involve expense to the broker in loss of interest, etc.,
and also some risk of failure to keep engagements which he has
contracted with another broker in order to execute his client's
business.
The
difference, if any, between the price of forward delivery and that for
cash depends upon several circumstances. A strong demand for delivery
ahead can carry the forward price to a premium, equal to the loss in
interest which would be incurred by paying for the silver at once and
holding until the due date; or, on the other hand, an absence of such
demand and pressure to sell can bringabout a veryheavy discount upon
the price for silver deliverable within a week. In the former case the
premium is limited to the rate of interest, but in the latter case the
only check to the amount of discount is the view taken by the market as
to the future prospects of silver. This matter of delivery is of
extreme importance to all who operate in silver. Sales for forward
delivery, appearing safe and reasonable at the time when they are made,
may yet involve extremely serious losses to the seller, owing to causes
beyond his control. For instance, a smelter may sell 100,000 ounces for
delivery in two months, and a strike may break out, or his consignment
of ore may be delayed either in shipment or process just when the
market happens to be denuded of spot supplies Or a bank may buy a
quantity of eastern exchange bills payable in silver, and may sell a
quantity of silver as a "hedge.'' When the paper is redeemed by the
drawee in silver, and the bank may desire to buy back the silver, the
market may prove unfavorable through circumstances quite beyond its
control. Against the risk of such losses may be set off opportunities
of gain which may occur. It is possible for dealers in forward silver
to obtain a profit by a saving in interest, or on account of an
alteration in the relation of the prices fixed for the two deliveries.
In other words, a holder of silver for forward delivery may find it
advance from a discount to a premium. The existence of a price for
forward delivery is necessarily an incentive to speculation, but its
chief utility is to afford to smelters, and to the eastern exchange
banks, or to merchants connected with China trade, facilities to carry
out their legitimate operations. By legitimate it is desired to denote
operations which are germane to the discharge of their ordinary
commercial business. In normal times cautious speculation in silver is
a useful feature of the market. There are sometimes periods when the
silver market falls into the doldrums, and acute operators, who may
have special means of gauging the situation, are quite justified in
taking_ supplies off the market when it is temporarily overburdened and
giving out when it is short of stocks.
The
remuneration of brokers consists of one-eighth per cent, which is paid
by the buyer. Silver is sold free of charge, and thus only a mere 2s.
6d. per £100 separates the buyer from the seller. As between brokers
themselves the brokerage is divided, that is to say, a broker sells to
another plus one-sixteenth per cent, and buys from another plus
one-sixteenth per cent. Business is done occasionally in "options,"
which are based, as a rule, on the forward price. Demand for
accomodation of this character is fitful, and is usually a symptom of
speculative interest. In the ordinary way this method does not enter
into the normal business life of the market. The period fixed is
usually for two months, but sometimes an arrangement is made for three
to six months, rarely for longer. When no wide fluctuations are
expected, an option for two months to "call" or "put" silver costs
about 2 per cent of the price, plus a brokerage of one-eighth per cent
calculated upon the value of the silver. To give a concrete
illustration—when the price of silver for forward delivery is fixed at
24d. per ounce standard, and it is desired to buy the " call," or an
option of demanding at the end of two months from the date of the
contract, £10,000 worth of bar silver at 24d. per standard ounce
against payment of £10,000, the outlay would be £208 6s. 8d., plus £12
10s. brokerage. The reverse operation, the. "put" or the right to
compel the grantor of the option to accept silver at basis price, would
cost the same sum.
GOLD AND SILVER AND THE WAR.
It
is not surprising that the world's production of gold decreased about
$38,500,000 in 1918, but the increase of more than 23,000,000
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