China's Media Recommends Buying Silver and Silver Starts to Surge on Open of Shanghai's SGE Exchange

This innocuous tweet, if correct, gives an interesting insight into a potential sea-change in the Chinese silver market.

https://twitter.com/brianhrc1/status/1778509128358633621

The Chinese media (i.e. the Chinese Communist government) encouraging its 1.5 billion citizens to buy silver in lieu of gold can have a potentially very material impact on the global silver market.

Looking at the chart below, we can see the silver digital market price starting to rise over the last 5 sessions on the opening of the Shanghai Gold Exchange (SGE) silver spot (cash) market that begins trading at 9:00 p.m. EDT / 6:00 p.m. PDT each day.

With the silver market already facing a global supply deficit in 2024 estimated to be 200 million (M) ounces in a total 1.2B ounce annual market, the added demand from China’s population base can easily add 200M ounces of demand to the already tight global silver market.

The largest visible silver stockpiles globally exist in the City of London with total vault holdings today stated to be 25,600 tonnes (823M ounces) of silver.

As noted by Ronan Manly of BullionStar in 2022:

“…of the 28,506.28 tonnes of silver as of the end of August 2022, only 10,068.7 tonnes of silver is not held in ETFs. And another caveat as usual: of the London silver not held in ETFs, some of this too represents allocated silver holdings of the wealth management sector, such as physical silver held by investment institutions, family offices and High Net Worth individuals.”

With the silver market already stressed today, the added silver demand from Chinese investors may squeeze the supply / demand balance for silver enough that the issuers of the digital promissory notes in the City of London spot silver market start to declare default.

The LBMA has stated that more than 90% of the daily trade of gold and silver in the London gold and silver markets consist of trading of these spot/cash (immediate ownership) promissory notes.

Silver users and investors globally holding these spot silver promissory notes for silver delivery in London (typically 3 days after demand) will be in for a rude awakening if the issuers of these notes start to dissemble and then default on silver delivery requests.

At such a point, the LBMA, acting as a proxy for the Bank of England, will see the London digital unallocated silver promissory note price containment system evaporate and the establishment of a new silver pricing system based on physical metal supply and demand. Ditto the London gold market.

The old saying “You’ve been Shanghai’d” may then become “You’ve been Londoned” as people begin to digest what has transpired.

There has not been a better time to hold gold and silver than now.

Best regards,

David Jensen