Silver
Gold and Silver Dealer Hedging
Gold and Silver Dealer Hedging
Gold, silver, and platinum prices have been known to fluctuate significantly. Just last year, for example, the gold price dropped $110 in just one day (April 15th). Later on in 2014, the typically more volatile silver jumped 17% from its intraday lows in the course of a day (Dec 1st).
The largest precious metals dealers buy and sell millions of ounces of bullion each month, which means they have to be careful that they are not on the wrong side of one of these big price swings. Large price movements, both up and down, can potentially wipe out or endanger smaller dealers that aren’t careful with their inventory.
Over time, bullion dealers have developed a way to hedge against these market risks, to make business safer and more predictable for both them and their customers.
What is Hedging?
Hedging is the process of playing both sides of a market to provide protection against the market’s fluctuations.
For bullion dealers, hedging means that the dealer has to offset all of their long positions with short positions, and vice versa. By ensuring they never have a long or short overall position in the market, the dealer ensures they are immune to market movements, and lock in their margins between their purchase premiums and sale premiums.
Long positions: Any inventory the bullion dealer holds or has priced/ordered from a supplier. The dealer benefits from upwards price movement in the gold or silver price.
Short positions: Any orders that the bullion dealer has yet to fulfill. The dealer benefits from downwards price movement in the gold or silver price.
Net house position: Equal to the bullion dealer’s long position minus short position.
A Sample Situation
A gold dealer holds 5,000 ounces of physical inventory bought at a spot price of $1,200/oz plus wholesale premium. The dealer has 3,000 ounces worth of open customer orders, sold at a spot price of $1,200/oz plus retail premium. This leaves the dealer with a net long position of 2,000 ounces bought at $1,200/oz spot.
With no hedging, the dealer has a net long house position of 2,000 oz.
With hedging, the dealer offsets this position by shorting 20 gold futures contracts for 100 oz gold each, for a total short of 2,000 oz.
If the price of gold swings $200, it will have an unanticipated $400,000 positive or negative effect on the dealer who does not hedge. For the dealer that hedges the net long position with short futures contracts, everything will be a wash. This allows the dealer to not have to worry about swings, and instead to focus on making margin on premiums alone.
A Sample Situation
Since markets are not open on weekends, online dealers typically estimate their weekend sales and take an offsetting long position into the closing bell on Friday, with the hopes of selling exactly that much metal between closing Friday and opening Sunday evening.
Some larger wholesalers will make weekend markets with widened spreads to allow dealers to buy or sell metal on the weekend as needed. The market maker in this scenario takes additional price exposure into the Sunday open, in exchange for the widened spreads throughout the weekend.
To Hedge or Not to Hedge
Dealers hedge to ensure that even if spot plunges very quickly, they are still financially stable and secure.
Dealers that do not hedge, or are not big enough to trade futures contracts, run the risk of being wiped out by big and unanticipated market movements.
Hedging large bullion inventories is not the norm for all silver and gold retailers. Many local coin dealers and even online sellers do not fully hedge their positions.
Energy
Mapped: Solar Power by Country in 2021
In 2020, solar power saw its largest-ever annual capacity expansion at 127 gigawatts. Here’s a snapshot of solar power capacity by country.
Mapped: Solar Power by Country in 2021
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The world is adopting renewable energy at an unprecedented pace, and solar power is the energy source leading the way.
Despite a 4.5% fall in global energy demand in 2020, renewable energy technologies showed promising progress. While the growth in renewables was strong across the board, solar power led from the front with 127 gigawatts installed in 2020, its largest-ever annual capacity expansion.
The above infographic uses data from the International Renewable Energy Agency (IRENA) to map solar power capacity by country in 2021. This includes both solar photovoltaic (PV) and concentrated solar power capacity.
The Solar Power Leaderboard
From the Americas to Oceania, countries in virtually every continent (except Antarctica) added more solar to their mix last year. Here’s a snapshot of solar power capacity by country at the beginning of 2021:
Country | Installed capacity, megawatts | Watts* per capita | % of world total |
---|---|---|---|
China 🇨🇳 | 254,355 | 147 | 35.6% |
U.S. 🇺🇸 | 75,572 | 231 | 10.6% |
Japan 🇯🇵 | 67,000 | 498 | 9.4% |
Germany 🇩🇪 | 53,783 | 593 | 7.5% |
India 🇮🇳 | 39,211 | 32 | 5.5% |
Italy 🇮🇹 | 21,600 | 345 | 3.0% |
Australia 🇦🇺 | 17,627 | 637 | 2.5% |
Vietnam 🇻🇳 | 16,504 | 60 | 2.3% |
South Korea 🇰🇷 | 14,575 | 217 | 2.0% |
Spain 🇪🇸 | 14,089 | 186 | 2.0% |
United Kingdom 🇬🇧 | 13,563 | 200 | 1.9% |
France 🇫🇷 | 11,733 | 148 | 1.6% |
Netherlands 🇳🇱 | 10,213 | 396 | 1.4% |
Brazil 🇧🇷 | 7,881 | 22 | 1.1% |
Turkey 🇹🇷 | 6,668 | 73 | 0.9% |
South Africa 🇿🇦 | 5,990 | 44 | 0.8% |
Taiwan 🇹🇼 | 5,817 | 172 | 0.8% |
Belgium 🇧🇪 | 5,646 | 394 | 0.8% |
Mexico 🇲🇽 | 5,644 | 35 | 0.8% |
Ukraine 🇺🇦 | 5,360 | 114 | 0.8% |
Poland 🇵🇱 | 3,936 | 34 | 0.6% |
Canada 🇨🇦 | 3,325 | 88 | 0.5% |
Greece 🇬🇷 | 3,247 | 258 | 0.5% |
Chile 🇨🇱 | 3,205 | 142 | 0.4% |
Switzerland 🇨🇠| 3,118 | 295 | 0.4% |
Thailand 🇹🇠| 2,988 | 43 | 0.4% |
United Arab Emirates 🇦🇪 | 2,539 | 185 | 0.4% |
Austria 🇦🇹 | 2,220 | 178 | 0.3% |
Czech Republic 🇨🇿 | 2,073 | 194 | 0.3% |
Hungary ðŸ‡ðŸ‡º | 1,953 | 131 | 0.3% |
Egypt 🇪🇬 | 1,694 | 17 | 0.2% |
Malaysia 🇲🇾 | 1,493 | 28 | 0.2% |
Israel 🇮🇱 | 1,439 | 134 | 0.2% |
Russia 🇷🇺 | 1,428 | 7 | 0.2% |
Sweden 🇸🇪 | 1,417 | 63 | 0.2% |
Romania 🇷🇴 | 1,387 | 71 | 0.2% |
Jordan 🇯🇴 | 1,359 | 100 | 0.2% |
Denmark 🇩🇰 | 1,300 | 186 | 0.2% |
Bulgaria 🇧🇬 | 1,073 | 152 | 0.2% |
Philippines 🇵🇠| 1,048 | 9 | 0.1% |
Portugal 🇵🇹 | 1,025 | 81 | 0.1% |
Argentina 🇦🇷 | 764 | 17 | 0.1% |
Pakistan 🇵🇰 | 737 | 6 | 0.1% |
Morocco 🇲🇦 | 734 | 6 | 0.1% |
Slovakia 🇸🇰 | 593 | 87 | 0.1% |
Honduras ðŸ‡ðŸ‡³ | 514 | 53 | 0.1% |
Algeria 🇩🇿 | 448 | 10 | 0.1% |
El Salvador 🇸🇻 | 429 | 66 | 0.1% |
Iran 🇮🇷 | 414 | 5 | 0.1% |
Saudi Arabia 🇸🇦 | 409 | 12 | 0.1% |
Finland 🇫🇮 | 391 | 39 | 0.1% |
Dominican Republic 🇩🇴 | 370 | 34 | 0.1% |
Peru 🇵🇪 | 331 | 10 | 0.05% |
Singapore 🇸🇬 | 329 | 45 | 0.05% |
Bangladesh 🇧🇩 | 301 | 2 | 0.04% |
Slovenia 🇸🇮 | 267 | 128 | 0.04% |
Uruguay 🇺🇾 | 256 | 74 | 0.04% |
Yemen 🇾🇪 | 253 | 8 | 0.04% |
Iraq 🇮🇶 | 216 | 5 | 0.03% |
Cambodia 🇰🇠| 208 | 12 | 0.03% |
Cyprus 🇨🇾 | 200 | 147 | 0.03% |
Panama 🇵🇦 | 198 | 46 | 0.03% |
Luxembourg 🇱🇺 | 195 | 244 | 0.03% |
Malta 🇲🇹 | 184 | 312 | 0.03% |
Indonesia 🇮🇩 | 172 | 1 | 0.02% |
Cuba 🇨🇺 | 163 | 14 | 0.02% |
Belarus 🇧🇾 | 159 | 17 | 0.02% |
Senegal 🇸🇳 | 155 | 8 | 0.02% |
Norway 🇳🇴 | 152 | 17 | 0.02% |
Lithuania 🇱🇹 | 148 | 37 | 0.02% |
Namibia 🇳🇦 | 145 | 55 | 0.02% |
New Zealand 🇳🇿 | 142 | 29 | 0.02% |
Estonia 🇪🇪 | 130 | 98 | 0.02% |
Bolivia 🇧🇴 | 120 | 10 | 0.02% |
Oman 🇴🇲 | 109 | 21 | 0.02% |
Colombia 🇨🇴 | 107 | 2 | 0.01% |
Kenya 🇰🇪 | 106 | 2 | 0.01% |
Guatemala 🇬🇹 | 101 | 6 | 0.01% |
Croatia ðŸ‡ðŸ‡· | 85 | 17 | 0.01% |
World total 🌎 | 713,970 | 83 | 100.0% |
*1 megawatt = 1,000,000 watts.
China is the undisputed leader in solar installations, with over 35% of global capacity. What’s more, the country is showing no signs of slowing down. It has the world’s largest wind and solar project in the pipeline, which could add another 400,000MW to its clean energy capacity.
Following China from afar is the U.S., which recently surpassed 100,000MW of solar power capacity after installing another 50,000MW in the first three months of 2021. Annual solar growth in the U.S. has averaged an impressive 42% over the last decade. Policies like the solar investment tax credit, which offers a 26% tax credit on residential and commercial solar systems, have helped propel the industry forward.
Although Australia hosts a fraction of China’s solar capacity, it tops the per capita rankings due to its relatively low population of 26 million people. The Australian continent receives the highest amount of solar radiation of any continent, and over 30% of Australian households now have rooftop solar PV systems.
China: The Solar Champion
In 2020, President Xi Jinping stated that China aims to be carbon neutral by 2060, and the country is taking steps to get there.
China is a leader in the solar industry, and it seems to have cracked the code for the entire solar supply chain. In 2019, Chinese firms produced 66% of the world’s polysilicon, the initial building block of silicon-based photovoltaic (PV) panels. Furthermore, more than three-quarters of solar cells came from China, along with 72% of the world’s PV panels.
With that said, it’s no surprise that 5 of the world’s 10 largest solar parks are in China, and it will likely continue to build more as it transitions to carbon neutrality.
What’s Driving the Rush for Solar Power?
The energy transition is a major factor in the rise of renewables, but solar’s growth is partly due to how cheap it has become over time. Solar energy costs have fallen exponentially over the last decade, and it’s now the cheapest source of new energy generation.
Since 2010, the cost of solar power has seen a 85% decrease, down from $0.28 to $0.04 per kWh. According to MIT researchers, economies of scale have been the single-largest factor in continuing the cost decline for the last decade. In other words, as the world installed and made more solar panels, production became cheaper and more efficient.
This year, solar costs are rising due to supply chain issues, but the rise is likely to be temporary as bottlenecks resolve.
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