China Silver Demand — One Step Closer to the Edge

The Hong Kong based Chinese Gold and Silver Exchange Society or CGSE announced recently that it will launch Yuan-based silver spot trading in Hong Kong in the first part of next year. The exchange says growing demand for silver has prompted the decision.

This move shows that China is inching closer and closer to the silver market and is quietly nibbling away at Western demand for silver.

When Will This Shift Influence Global Silver Prices?

It's already well known that Chinese citizens are not only allowed, but encouraged to own precious metals like silver and gold.

While no one truly understands China, it has become increasingly clear that demand for precious metals and the monetary safety they provide has remained culturally and socially significant for much of the country’s huge populace.

The significance of precious metals in China has persisted even throughout the last 100 years while wealth in Western countries has been gradually eroded, extracted and now effectively transferred.

Much of this has been a direct result of the great Western fiat currency experience, which is rapidly unraveling, going bad, and threatening to become even worse.

Comex - Death by a Thousand Cuts

Some astute observers are wondering exactly when growing Chinese demand will begin to make an impact on physical inventories at COMEX warehouses, which are tiny relative to the available supply of physical metal reported in other official warehouses.

Furthermore, according to long time silver and commodities analyst Ted Butler, recent reports have shown that in and out inventory movement, has been nothing less than frantic.

At what point will the already low inventories diminish to the point of quiet, cash-offered deliveries only? This would amount to a technical default in the precious metals market that would further erode confidence in the paper based metals markets.

CME’s Force Majeure May Foreshadow Future Physical Shortages

The day of “force majeure” also seems to be upon us, as a recent CME Group announcement demonstrates. On November 26th, the huge commodity exchange group declared a force majeure at its New York precious metals depositor operated by bullion and coin dealer Manfra, Tordella and Brooks, commonly referred to as MTB.

Incredibly, the Group claimed that delays in MTB’s precious metal deliveries were a result of “operational limitations” due to Hurricane Sandy, even though that severe weather event occurred over a month ago.

The announcement affected MTB’s deliveries of physical gold, palladium and platinum bullion, although at least some of the deliveries could be obtained from Brinks Co. instead.

One can only wonder what will be the final straw that moves such defaults (blamed on the weather) into affecting the public’s confidence in paper precious metals markets.

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Position Limits on the CGSE? 
I wonder if the Chinese will have tighter control on position limits when their silver spot-trading commences. If they do, and the likes of JP Morgue …

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