Shanghai Futures Exchange Sees 2.5% Silver Vault Draw-Down Overnight

It is Not Paper Day Traders Driving Price Action

Much has recently been written about the Chinese gold and silver trade driving recent price action in both metals.

Noting that representatives of major global banks have come to the Shanghai Gold Exchange (SGE) one after the other in recent months of 2024 while silver and gold have both run sharply higher in price, these actions merit attention - the clatter of banker arrivals in Shanghai creates an appearance of urgency on their part.

The Shanghai Futures Exchange (SFE) has made no public disclosure regarding similar banker visits.

Direct export of gold from China is not permitted although gold can be first imported into the Shanghai Free Trade Zone (SFTZ) and thereafter exported from the SFTZ.

There are no similar prohibitions on the direct export of silver from China.

What Is Driving Silver and Gold Market Activity?

Media reports in recent days state that the out-sized price run in gold and silver over the last 75 days has been from Shanghai speculators frothing at the mouth driving the paper futures market.

Silver warehouse vault data, in particular, tells us something different.

SFE silver warehouse vault data indicate a 2.5% overnight draw-down in total silver vault holdings to 896.446 tonnes while SGE silver vault data indicate a 0.5% overnight draw-down on April 24, 2024.

Over the longer term, since January 1, 2023 SFE silver warehouse holdings have declined by 60%.

Such large draw-downs in physical warehouse stock of a traded commodity is not a signature of exclusively paper day-traders driving a market.

SFE Silver Warehouse Stocks Through April 23, 2024 [tonnes]

Publicly disclosed data from the CME COMEX in the US indicates a bullion bank (swap dealer) net short position of 164M oz. of silver in the US futures market as the price has run higher.

There is no indication of how large bullion bank short positions are in the London spot and futures silver market.

Let’s stay tuned to these markets as further information becomes available.

Best regards,

David Jensen