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?
Modern day commodity markets are characterized by a continuing divergence between the “paper” and the real “physical” markets. The Chinese silver market is no different.
Most commodities trading takes place between parties than have no physical supply of the materials. In the Silver market, the distortion between the physical and paper markets is extreme. Every day in the global markets, $50 Billion dollars of silver can be sold daily by parties that actually own no silver. The global silver market will trade 1 billion ounces daily in global markets which is more than the entire amount of silver mined each year, which is close to 900 million ounces.
Investors’ rapidly-growing appetite for gold has pushed up China’s gold imports six-fold in the first 10 months of the year, a Shanghai Gold Exchange official said on Thursday, highlighting the appeal of the precious metal as a hedging tool.
In a rare revelation of China’s gold trade data, which is not published by customs, exchange chairman Shen Xiangrong said the country imported 209.72 tonnes of gold in the first ten months of the year.