Chinese Silver Investment Going Parabolic

When 1.3 Billion people start investing in something…you might want to pay attention.

Chinese investment in silver has exploded since last year, with the trading volume going exponential. The China Daily reported today that the trading volume of silver forwards on the Shanghai Gold Exchange (SGE), China's only exchange for the precious metal, surged 751 percent year-on-year in 2010. Meanwhile, the volume in September of this year was more than six times that of the same period in 2010.

Chinese commercial banks are now selling silver to investors in the hundreds of tons. One example is the Industrial and Commercial Bank of China Ltd (ICBC), China's biggest lender which launched paper silver trading for individual investors in August of last year. The other large Chinese Banks have also introduced silver trading. The trading volume of ICBC's paper silver products alone reached 300 tons in the first half of 2011, almost four times the figure for the whole of 2010. That's right, one Chinese bank alone sold 300 tons or over 10.5 million ounces of silver in only 6 months. In only their first year of trading, ICBC bank alone will sell over 20 million ounces of silver which alone would represent over 2% of the total amount of silver mined on earth for the entire year.

The key factor to pay attention to is that most of these silver purchases are forward contracts and not the actual physical silver. What happens when Chinese investors demand physical silver instead of paper silver?
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More: http://www.financialsense.com/contr.../01/chinese-silver-investment-going-parabolic

Indeed, when the Chinese investors start demanding physical metal, the tight supplies in the physical market are going to cause a decoupling from the paper markets.

They've got most of the gold they need - time for silver.

The Chinese govt. needs a lot more gold in order to compete with the US Govt. I wouldn't be surprised at all if the Chinese public already has more gold than the US public.

dereksatkinson said:

The Chinese govt. needs a lot more gold in order to compete with the US Govt. I wouldn't be surprised at all if the Chinese public already has more gold than the US public.

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IMO the Chinese govt may not need much more gold to surpass the US, there are reports saying that Ft Knox could be empty. The public hasn't been allowed inside for longer then I have been alive. Most of the other US govt reserves are in bullion banks or the NY fed but not all of the gold in those vaults, belongs to the US. They house some other nations gold reserves, as well as some of the ETFs leveraged reserves, and large private investors stashes, other central banks reserves, etc. So that day could come a lot sooner especially if Ft Knox is empty. As far as the public, about 1% of US citizens invest PM's. 1% of apx 300 million is 3 million, China has 1.3 billion citizens, even if only 1% of them invest in PM's that's at least 13 million people, I don't think I need to explain any further because as you can see the numbers speak for themselves. If 25 percent of them started to invest in physical PM's we would see physical markets dry up, and physical prices would soar. You also must keep in mind with silver that most of the worlds annual production goes into manufacturing and jewelry, only a small percentage is made available in the form of bullion and coins.

I haven't been able to locate any firm numbers on the subject yet, but India, which also has a rather large 1 billion+ population, also has a cultural inclination to investing in gold. The demand for physical bullion over there is also strong.

I can't help but wonder what is going to happen when the paper markets eventually collapse and the great unravelling of multiple ownership claims on whatever gold is held in Ft. Knox, NY Fed vaults, etc. are finally being called out. I'm guessing that each bar of gold has been sold, leased and resold, etc. to the point where there are at least 5-10 claims of ownership on them. When people find out their paper claims are worthless - that the gold cannot be delivered - it's going to get crazy (and dangerous).

Some of you might think I'm crazy, but I believe Silver has HUGE potential in the next few years, possibly starting in the next few months.
It is a commonly known fact (among silverbugs) that Silver is more rare than Gold!!

For years now the world silver mining production is not enough to cover the annual silver global demand, so world silver stockpiles are drawn down more and more every year.

With Silver being more rare than Gold the current 50 to 1 silver to gold ratio will someday be blown up and Silver price could be EQUAL to Gold price.

I know this sounds crazy (right now) but I believe silver could sell for $2000 to $3000 per ounce!!

You're my kind of crazy 57. Unless some intrepid entrepreneur figures out how to reclaim industrial silver from trash in landfills in a cost effective and environmentally sound manner, industrial silver use is effectively lost silver.

Gold doesn't have this issue. Most gold every mined is still in bullion, coin or jewelry form. There is some lost to industrial use, but not even close to the same scale as with silver.

Should silver ever be remonetized, I think we see a your theory tested and likely proven true.

PMBug said:

You're my kind of crazy 57. Unless some intrepid entrepreneur figures out how to reclaim industrial silver from trash in landfills in a cost effective and environmentally sound manner, industrial silver use is effectively lost silver.

Gold doesn't have this issue. Most gold every mined is still in bullion, coin or jewelry form. There is some lost to industrial use, but not even close to the same scale as with silver.

Should silver ever be remonetized, I think we see a your theory tested and likely proven true.

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Agreed with pretty much everything said. Even the thought of how much silver could eventually go would not surprise me all that much.

It doesn't even matter how silver is valued in terms of sentiment or common usage. The beauty of the value is not in how a commodity performs while everyone is tossing it about in the air, inflating, speculating and madly trading based on all the nebulous relativities of papered supplies and equally papered demands. For every one that is offering physical goods for sale, there are ten more offering "another way to buy and own it". Idiots. Have we learned nothing about multiple paper claims to the same physical unit of a commodity, and why it is never wise to trust in paper?

Funny how value is determined through its relative 'known' scarcity, and how every paper claim gets counted as if it was in fact real. Just ignore all the hard numbers and facts that guarantee otherwise, and go by the market numbers instead, and somehow that says something. If I went by what is happening in the market, I would have to conclude that silver exists in amazing abundance, especially in light of the absolutely unprecedented number of people on Earth staking equal claims - and yet it price is still within everybody's reach.

It's the same reason currencies stay strong, even while banks get away with multiplying all the claims on the same physical money for so long - and only because the real scarcity simply isn't known. Once the real scarcity is revealed, however, it gets tested with a run. Everyone desperately demands immediate possession, as every paper bluff is called, and all possessions are sorted out. Once that happens, and a much better feel of the true scarcity is revealed, the value adjusts accordingly.

It's funny, I could have played a game and did some profit-taking when silver went close to $50, and then bought yet more when it went back to $30. I knew it would play out the way it did, and yet I wasn't even tempted. Not because I didn't want to tempt fate or take an unnecessary risk, or anything along those lines. It's because that is the mindset that got us where we are today, one I don't want any part of.

Silver is not an investment or source of profits or losses to me. It is not even a source of excitement - but only a store of hard-earned wealth, and nothing more - something I feel everyone should be able to take, ho-hum, for granted as a matter of right. Not as "an advantage", but only as a means by which others cannot take advantage.

So even the idea that silver could hit some unimaginable ceiling is something I find disconcerting in a way. I find it more sad than exciting, to be honest - a testament to the shame I think everyone in Congress should feel for what they've done to this nation, that we should feel giddy about what should have been the equivalent of business as usual for everyone.

I also find all the "get rich with precious metals" schemes annoying - irritating even. Especially when companies that know I'm interested want to peddle their "investment strategies", including everything under the sun they see as an "inside tip", like oil or solar or some other such crap that has nothing to do with why I am interested in precious metals...as a foundation we should all be able to take for granted.

Steven Douglas said:

It's funny, I could have played a game and did some profit-taking when silver went close to $50, and then bought yet more when it went back to $30. I knew it would play out the way it did, and yet I wasn't even tempted. Not because I didn't want to tempt fate or take an unnecessary risk, or anything along those lines. It's because that is the mindset that got us where we are today, one I don't want any part of.

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Not to mention whatever taxes you might have to pay on it.

Steven Douglas said:

Silver is not an investment or source of profits or losses to me. It is not even a source of excitement - but only a store of hard-earned wealth, and nothing more - something I feel everyone should be able to take, ho-hum, for granted as a matter of right. Not as "an advantage", but only as a means by which others cannot take advantage.

So even the idea that silver could hit some unimaginable ceiling is something I find disconcerting in a way. I find it more sad than exciting, to be honest - a testament to the shame I think everyone in Congress should feel for what they've done to this nation, that we should feel giddy about what should have been the equivalent of business as usual for everyone.

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I can relate to this since I got into metals, not to make a quick buck or be the next financial wizard, but mostly because I'm scared of my savings evaporating. As much as I like the idea of my investments doing well, astronomical metal prices (even compared to now) would mean that the situation surrounding us is very miserable one.

The thought that no matter how well educated you are, no matter how hard you work, no matter how much money you make, and no matter how much of that money you save it could all vanish in nearly an instant is terrifying. That makes a part of me want to go screaming through the streets, but I don't. Metals can't be printed, they don't care if a computer crashes somewhere, they are real.

Welcome to the board!

Kind of funny when you think about it - how backwards-thinking the fiat Keynesian mindset, that taxes are tantamount to lies piled upon lies piled upon yet more lies, each one in the form of a tax.

You get invisibly taxed for saving in the form of inflation, for which you must later be taxed in order to pay for the inflation that already cost you. And if you try to avoid this tax by substituting fiat money with real money, you are taxed once again for the privilege of having the currency fall, and this will be referred to as a capital "gain", when in fact nothing was gained in the process. Nonetheless price is conflated as if it means value, and a currency fall is reckoned as "rise" in everything else.

On a Keynesian skydiver's tombstone:
"If it wasn't for that Fast Rising Earth I'd still be alive."

57silverbull said:

Some of you might think I'm crazy, but I believe Silver has HUGE potential in the next few years, possibly starting in the next few months.
It is a commonly known fact (among silverbugs) that Silver is more rare than Gold!!

For years now the world silver mining production is not enough to cover the annual silver global demand, so world silver stockpiles are drawn down more and more every year.

With Silver being more rare than Gold the current 50 to 1 silver to gold ratio will someday be blown up and Silver price could be EQUAL to Gold price.

I know this sounds crazy (right now) but I believe silver could sell for $2000 to $3000 per ounce!!

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Has there ever been a time in world history when silver equaled or surpassed gold in price?
I firmly believe that silver is undervalued vis a vis gold, but parity is not likely. Perhaps a 10% of the gold price would be the most that can be hoped for in our lifetime. But then again, that is not so bad, right now the ratio is 51:1 to there is scope for a lot of rise in price for silver.

Many people say above ground silver is less than gold, but i never saw any data to support that. I came across this link http://usdebtclock.org/gold-precious-metals.html which seems to indicate that there is 10 times more silver than gold.

I own a coupld of 1000 oz bars, physical, not paper, so i have all the reasons to hope that your parity of price theory plays out.

Three things to note about silver versus gold:

1 - current disparity with gold in terms of above ground quantities of each
2 - ratio with which each exists in the Earth and can be mined.
3 - the time it takes for disparity to be corrected once real values are known (e.g., derivatives implode)

Based on what I believe are the fundamentals of both gold and silver, including the above ground scarcity of the latter, it would not surprise me at all if silver indeed approached the value of gold. I seriously doubt that it could ever surpass gold in price (each relative to other commodities), not that speculation couldn't drive it there, given future shock at how devalued it really has been, but that would be a giant bubble that would soon correct.

What isn't considered by many silver bugs is that once our derivative-inflated, completely distorted market reveals the ratio disparity of gold to silver, it will be somewhat short-lived, and it is precisely because silver really does exist in the Earth at about a 16:1 ratio. And I worked in the mineral exploration side of geophysics - don't listen to anyone tell you that "all the really good ore deposits" have been found. That's presumptuous ignorance and arrogance on someone's part, as we have barely scratched the surface of the Earth.

As the ratio of silver to gold moves away from 16:1, (e.g., 10:1, 8:1, 4:1, 2:1) coming closer to the value of gold, it also becomes that much more economical to mine than gold, that's all. Silver exploration and silver mines would be the new gold mines for a while, and in for a major windfall until the ratio is finally corrected, and gold and silver once again are at parity with their ratios as they exist in the Earth.

So in the beginning, silver will start out with massive value, based on a very real, albeit temporal scarcity. However, that value, like any fiat currency, will continue to erode from there as new silver is pumped into the economy.

What does that mean for my long term strategy? My steps are as follows:

1) Wait until I am confident that all the paper derivatives for both PM's have imploded and are destroyed, and that the market has finished with some extremely volatile corrections, which give a much better idea of the fundamentals.
2) Once the fundamentals are more or less known, make sure that it is even safe to own gold. (e.g., it's not being confiscated by governments as backing to some new fiat currency, and/or gold ownership is no longer being taxed to death or punished)
3) Convert most of the silver into gold (or land, or even platinum or other PM if these are safe to own) at the peak of the gold/silver disparity, long before mining and recycling operations kick into mad gear and begin to to re-inflate the silver supply. Any other store of wealth will be better than silver at that time, because that market will correct itself in due time.

When I was a kid, the silver gold ratio was 27:1. Historically the ratio has hovered in the area of 16:1. In the last 50 years we have seen 10:1 and 100:1 silver.

I think 16:1 is the probable level silver will eventually go to, which in today's market would be about $100 per ounce.

PMBug - I have *tried* to recover Ag from scrap a few times, just to see how difficult it really is. I have concluded:

- You need a s**tload of scrap before you'll see any metal from it. It could really only be done on an industrial scale to be worthwhile. i.e. a dedicated recovery agent.

- Ag recovered from such scrap is a byproduct of attempts to recover Ag, but only at additional expense (it's not worth trying to go for the Ag, unless there's a proportional amount of Au/Pt in there to make the stuff worth processing at all).

- Ag is not recovered 'beside' Au. It has to be done first as a separate step, using different chemicals - similar to recovery of Pt and Pd.

- It normally relies on nitric acid. It's hard to find any silver that is not also bound up in some way with an excess of copper. Copper + nitric means oxides of nitrogen, and that's a toxic pollutant - it *must* be scrubbed out really well before release into the atmosphere.

- Silver is currently way too cheap to be worth doing all this for it alone. Even on an industrial scale, it's secondary to Au, Pt recovery. This may shift with adoption of silver to replace lead solder - but that was a relatively recent shift.

So in general, Ag is going into the ground and staying there. It's also going to be hard to find it again later when the price goes up, because it will be thinly distributed in landfill etc.

With regards to the GSR, while hard facts are difficult to find, there are a few points that seemingly are not in dispute:

• Use of silver has exceeded mining capacity for several decades now depleting world stocks (above ground supply).
• The paper/futures markets are pricing silver based upon a massive naked short position - effectively "fractionally reserving" the price well below what true supply and demand would yield.
• New investment into gold and silver is occurring at a roughly 1:1 ratio (according to Sprott/Turk).

If we continue to use more than is mined and the futures markets implode (thanks MF Global), new investment is going push the GSR close to parity. $.02