China Gobbles Gold. Is Silver Next?

Written by: Jack Boylan

And it’s not just China. As I am sure many of you know by now, the East, including China, India, Singapore etc. have been much more likely to buy “real” gold. Over here in the West meanwhile, many people seem perfectly happy to own “paper” gold in the form of ETF’s, derivatives, options etc. And of course, both methods are perfectly legitimate ways to purchase the popular metal. The difference between the two is only substantial in a crisis. During especially, let’s call it volatile, times though that difference could be everything. Anything but the real metal is just a promise, or contract, to deliver you the gold upon your demand. Since many of the trading vehicles in gold don’t actually hold the stuff themselves, it does not take an MIT grad to figure out how that could end badly. Now, it is at this point, old news and you may be getting tired of the story, but there is something curious going on that with gold’s perpetual partner, silver. And that is nothing. While the exodus of gold has been relentless, silver remains untouched:

But while the collapse in Comex gold holdings is well-documented and generally understood, so far silver has remained isolated from the physical volatility affecting the gold market.

A look at represented silver Comex holdings shows that unlike gold, which has recently plunged in both price and inventory, silver has only seen its price slide while Comex silver is near all time highs.

Odd, isn’t it? And difficult to explain, too. Why would the two metals, forever joined at the hip be diverging so dramatically when it comes to the “real” thing? While much less publicized this phenomenon is not really new either. It’s just always been difficult to get a grip on the exact reasons. There are plenty of suppositions, such as the East has a strong tradition of favoring gold, or that gold is the premier metal for countries to hold via its central banks (or equivalents). But, there may be a simple reason that explains part of situation and may foretell a shifting of the winds. Could it be that the physical gold “hoarding” was just phase 1 of the overall long term plan? Now, that some of their gold vaults are filled to the brim, some people are getting ready:

That may change very soon because as Bloomberg reports, silver is the new gold when it comes to vaulting in Singapore, and thus China’s precious metal warehousing ambitions.

A silver vault that can hold 200 metric tons opens in Singapore this week to cater for increasing demand for physical precious metals among Asia’s wealthy even as the commodity leads declines this year.

Hmmm. Interesting. What does it mean for you and me? Well, as always, no one knows the future, and it could very well be that the “East” is wasting a lot of time and money gobbling up physical gold (and soon, silver). But it is also undeniable that if a full blown financial crises does occur, they will be in much better shape than most of the “West”. As I drone on about incessantly, the key to a successful portfolio is to be prepared for everything. And while precious metals may turn out to be nothing more than expensive, non-interest bearing “insurance”, it could also be the savior in a crisis. And, if nothing else, it might be a good idea to make sure that your exposure to this market includes some of the actual, physical metal and not just an ETF or some other “paper” asset. Ok, enough preaching out of me! What do you think? Why has the silver supply held steady while gold has flowed eastward? Any theories? Let us know.


China Gobbles Gold. Is Silver Next?

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