Chinese Silver Demand Surges Four Fold in Just One Year

Tyler Durden's picture

Courtesy of GoldCore

Chinese Silver Demand Surges Incredible Four Fold in Just One Year

Gold is flat and silver marginally lower despite dollar weakness this morning. Some market participants are blaming the precious metal sell off on speculation that China may take more monetary action to curb surging inflation. This is unlikely to be the reason for the sharp selloff, rather it looks like another paper driven sell off in the futures market by leveraged players on Wall Street with various motives.

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The fact that silver is again in backwardation at the front end of the curve suggests that tightness in the physical bullion market continues and may even be deepening. Indeed, the massive increase in silver bullion demand from China (confirmed overnight - see below) suggests that silver’s bull market remains very much intact despite becoming overvalued in the short term towards the end of 2010.

Table Courtesy of Mitsui

Surging inflation in China, India, wider Asia and much of the world is of course positive for gold and silver as it will likely lead to an even greater appetite for the precious metals in order to protect against the ravages of inflation and the further depreciation of paper currencies.

China, Gold, Silver and the Western Financial and Monetary System

A theme we have written about for many years is China’s growing importance to global financial markets and the global economy. As the most populous and largest creditor nation in the world, China’s influence and power continues to grow. Chinese power is being seen in currency, bond, commodity and other financial markets.

It is particularly seen in China’s huge appetite for precious metals and this is only being appreciated gradually. Many in western markets and finance continue to not realise the profound changes and long term ramifications of China’s emergence as a global superpower.

The world has changed and we are not reverting to the financial, economic and geopolitical conditions of the late 20th Century.

 

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Silver in US Dollars – 40 Years (Quarterly)

China’s influence and massive appetite for precious metals is important both from a monetary and a geopolitical perspective. We warned of this some years ago – specifically writing about how the Chinese would gradually attempt to position the yuan as the global versus reserve currency, thereby replacing the petrodollar. We also wrote how the Chinese could use precious metals, and gold in particular, as a geopolitical weapon against the US and the west. Recently analysts, including the respected Jim Rikards, have eloquently outlined this real and growing risk.

China’s impact on the gold and silver markets will likely have ramifications for the western monetary and financial system and that is why China’s impact on the silver market is increasingly important. This is something we have wrote about for some time and one of the important factors driving silver’s bull market (see Money Week, August, 2007 article 'Why the Silver Price is Set to Soar'.

Silver’s Supply and Demand in China

Importantly and unknown to most analysts and people in the world is the fact that China was a net exporter of silver for many years – indeed China was a major component of global silver supply. This changed in 2007 when China became a net importer of silver.

The demand figures released by the General Administration of Customs in China overnight show the massive turnaround in China from large silver exporter to large silver importer.

China has gross exports of 1,575 tons of silver last year, down 58 percent from a year earlier, said customs. China’s gross imports of silver increased 15 percent to 5,159 tons in 2010, the customs agency said.

A longer term perspective is as ever important as are the net figures.

In 2005, China was a net exporter of nearly 3,000 tonnes (3 million kilogrammes) of silver. Last year, in 2010, China imported more than 3,500 tonnes of silver.

Incredibly, Chinese net imports of silver surged four fold in just one year from 2009 to 2010 (see table above).

Demand for silver in China has risen sharply in recent months and years. Growing middle classes and savers in China, India and other Asian countries have been turning to “poor man’s gold” and using silver as a store of value. Gold has risen above its historical nominal high in local currency terms internationally and silver is seen by many as a cheaper alternative.

Today buyers in China, Asia and internationally can buy some 50 ounces of silver for every one ounce of gold. The gold silver ratio today is 49.3 (gold at $1,342 per ounce divide by silver at $27.20 per ounce) meaning that 49.3 ounces of silver can be bought with every one ounce of gold.

Gold is increasingly unaffordable to the “man in the street” in China and wider Asia and this is leading to increased purchases of silver as a store of value, rather than gold. With the price of gold set to remain high in the coming years, this will continue.

Chinese and most Asians have experienced the decimation of their life savings through currency debasement and hyperinflation and unlike westerners understand the importance of owning gold and silver.

Besides huge demand for silver as a savings vehicle and a store of value in China, there is also very significant industrial demand in China and internationally.

There remain a huge range of industrial applications for silver. While demand from the photography sector has declined, demand from the medical, solar energy, water purification and many other sectors continue to rise significantly.

Today industrial uses account for 44% of worldwide silver consumption and in conjunction with investment and store of value demand, industrial demand continues to grow.

Conclusion

Investors and savers in the western world should familiarise themselves with monetary history and why paper currencies always depreciate over the long term and why gold (and also silver) are vital in order to protect and preserve savings and wealth over the long term.

The ‘GoldNomics Cash or Gold Bullion?’ video is a valuable tool in this regard.

It has gone viral with over 55,000 Views in just over two weeks. It is the most watched YouTube video on gold bullion in 2011.

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Xibalba's picture

Apparently, silver isn't priced in terms of supply and demand.

quasimodo's picture

True that, it is priced in terms of whatever the fuck "they" need it to be at

Temporalist's picture

It is priced in Bernank Bux and Blythe Bullion.

Temporalist's picture

Don't you worry Mr. Funny Hat I have your blog on my RSS.

SilverIsKing's picture

It's not about price, it's about ounces.  For real silver bugs, a lower price is better.

unwashedmass's picture

 

i do hope these guys don't want the real, actual thing? they really aren't expecting to get this for the comex price, are they?

jtmo3's picture

Ah, this must explain why both silver and gold are down again today.

Math Man's picture

The iShares trust lost 527 tons in the last 3 weeks.

bigdumbnugly's picture

another reason for them to whack silver down even a few more sheckles today.

eigenvalue's picture

Silver has been repeatedly nuked in the past 3 weeks. Already down $4. Fundamentals are almost meaningless now :(

SilverRhino's picture

Works for me .... BTFD already :-)

 

MilleniumJane's picture

+1!  Preserve what you have, don't worry about price.  I buy physical just to maintain value in my savings, not to get rich.  Saving all of your money in the form fiat currency is dangerous right now.  Silver allows me to "diversify" that savings and spread the risk. 

RobotTrader's picture

Hedge funds are dumping silver en masse after getting burned by General Jim and Ted Butler's outlandish price predictions.

Cognitive Dissonance's picture

Yup, I'm sure all those hedge funds relied solely upon those two people for price guidance.

Arius's picture

well, you make your own bed...

btw, it seems these pennies ad up....they are cleaning up the store being paid few dolars

mrgneiss's picture

Ya, I gues an 80% return between August and Dec sucks the big one, I bet they are kicking themselves over that trade.

ColonelCooper's picture

Don't you have a 3 second chart to put up? 

Mr Lennon Hendrix's picture

Take a piece of paper and a pen.  Draw supply/demand.  Move demand up (to the right).  What happens to price?

Now because silver is a finite resource let us consider, hypothetically as silver has not yet peaked, but let us consider a supply decrease.  Now move supply down (to the left).  Once again, what happens to price?

lieutenantjohnchard's picture

but catfish mouth you're on record as a PM bull as of yesterday. in the meantime why don't you share with us yesterday's news and act like you were on the right side of every development.

GoinFawr's picture

Mild mannered RT is really just a disguise; whenever disaster strikes he will always be there one day later... It's a Turd (no offense), it's insane, no it's

Captain Hindsight

http://www.youtube.com/watch?v=cY_oKve-bH0

Regards

cowdiddly's picture

No worrys Mate, Its just another rare earth metal to complete the trifecta.

lieutenantjohnchard's picture

now that gold and silver bullion are up for the day my guess is that old catfish mouth robo uber bull, after regalling us with tales of blowtorches reamed up the backside of said metals in pre-market, will tell us all that he was long afteral having bought from the weak hands.

grey7beard's picture

>> Hedge funds are dumping silver en masse after getting burned by General Jim and Ted Butler's outlandish price predictions.

 

I'm guessing by General Jim,  you are referring to Jim Sinclair?  If so, I read JS web site on a regular basis.  I can't recall Jim ever speaking of silver, much less any kind of price predictions.

Bastiat's picture

Accuracy is not high on Robo-trolls list of priorities.

AUD's picture

General Jim did predict that gold would be trading at $1650 'shortly'. This was about 12 months ago, when I stopped visiting JS Mineset.

He has no great insight that others lack.

fiftybagger's picture

"Hedge funds are dumping silver en masse after getting burned by General Jim and Ted Butler's outlandish price predictions."

 

Seriously man.  Do you have some type of emotional problem?  Why do you always come on the board and make such absurd comments?  Yearly investment silver supply is only 100 million ounces.  That is not even large enough for one hedge fund to get involved much less many.  There's no way you can really be serious, so why are you here?

 

http://www.youtube.com/user/BrotherJohnF?feature=mhum

FunkyMonkeyBoy's picture

The metrics of supply and demand are irrelevant in these Bernank controlled 'markets'... therefore, these are not markets by definition.

Will he hang for his crimes? or course not, evil always win in this world, always has done, always will.

Temporalist's picture

Believing there is such a thing as "evil" is your first problem.  Superstitious notions from voodoo, religion and mythology are fantasy.  Expecting human nature to always practice self-interest is the norm.  Even when the wealthy don't need more they do it because it is a defense mechanism to protect their nests. 

MilleniumJane's picture

Evil is not superstition.  Evil is the shadow of ourselves and we are all capable of it in some form or another.  We all know that it is there but do we choose to deny it or do we deal with it?  I don't believe it is a "defense mechanism."  That is an excuse for bad behavior that is detrimental to society as a whole.  Altruism and empathy are the other half of our human nature.  We make the decision about which side motivates our intentions and actions.

http://onthehuman.org/2009/10/empathic-concern-and-altruism-in-humans/

 

Cognitive Dissonance's picture

When the only real enemy to the dream world is waking up, awareness and consciousness suddenly become the mortal enemies of the dream makers.

Sleep sweet precious metals, sleep.

unwashedmass's picture

 

that is one fantastic video. are we going to try the makers on sex charges like julian?

BrianOFlanagan's picture

silver = the most overhyped investment of the era

cossack55's picture

Don't care. If silver drops to $20 I'll buy more. If it drops to $10 I'll buy twice as much, if it drops to $1 I'll buy it all.  I may need another safe. 

BrianOFlanagan's picture

if it drops to $10, I'll own it too.  Until then - it's all gold for me.

tmosley's picture

Well, at least you've got that going for you.

dlmaniac's picture

So many idiotic gold investors don't even understand supply & demand and price discovery.

tmosley's picture

Scratch "gold" from your comment, and it remains true.  Surprisingly few people really understand supply and demand.  If they did, they would all be shrieking in terror whenever someone offered them dollars for goods or services.

FunkyMonkeyBoy's picture

fiat currencies = the most wealth destructive scam ever concieved.

Quintus's picture

So...a few minor blogs and 'Fringe' writers recommend gold and silver.  On the other hand, we have mainstream 24 hour tv channels, magazines, Sell-side analysts reports etc. devoted exclusively to hyping stocks and bonds.  

% of population that own metals - maybe <1%

Percentage of population with some direct or indirect ownership of stocks and/or bonds >50%

Any your conclusion is that Silver is overhyped?

 

Hahahahahahahahahahahaha.

ColonelCooper's picture

SOoo the Chinese, Indian and Russian Central Bank Directors got all their information from Goldline commercials while watching DVRs of Glenn Beck???

goldmiddelfinger's picture

Apparently they are as slope headed as you.

ColonelCooper's picture

Come on Shitfinger.  You can do better than that.

ZZZzzzzz.

SheepDog-One's picture

RIGHT! The Chinese, Russians, India, etc are all hoarding PM's like crazy because of some blog. Im sure youre right Quintus, its nothing else.