China Begins Silver Futures Trading

  • Posted May 9, 2012

What is the most populated country in the world? Of course, the answer is China with over 1.3 billion people.

So what happens when the most populated country in the world opens a market up to its populace and China Begins Silver Futures Trading? Of course, the answer is hundreds of millions Chinese will have easier access to invest in silver.

As China Begins Silver Futures Trading on the Shanghai Futures Exchange (SHFE), the Chinese will not be the only group affected, but the event will be felt globally. The long-term price of silver may be impacted all over the world. Here’s Why…

MORE DEMAND

Economics 101 is Supply and Demand. If Supply stays the same while demand increases, the price will increase until the supply satisfies demand. The are no major new sources of silver production available on May 10th that would drastically alter the global supply of silver. However, with hundreds of millions of prospective investors, demand is sure to increase over time. Therefore, it is reasonable to suggest that the price of silver may move upward on that fact alone. As China Begins Silver Futures Trading, the Chinese will now be able to participate in the silver market at their local exchange and in their own currency.

MORE LIQUIDITY

Previously, some Chinese did take part in the silver market, but the options were limited for those not stockpiling physical silver. Investing on a foreign exchange, using the Shanghai Gold Exchange Ag, or buying paper silver from commercial banks were a few ways. Though, now with silver being traded on the SHFE, the proposition is much more attractive to investors.

HARDER TO MANIPULATE

Up until now, China would follow other futures markets like the London Metal Exchange and COMEX in determining the price of silver. However, those exchanges have been subject to much ‘alleged’ manipulation by the likes of JP Morgan and friends. Having China control its own market will certainly make it tougher for the manipulators to get away with their massive short sells and market tinkering. The result could lead to a more appropriate price, especially considering the silver to gold ratio has been out of whack for quite some time.

LOWER MINIMUM PURCHASE PRICE

For several years, the Chinese have been able to participate in Gold Futures. But the minimum requirement for investing in silver in China is much less than that of gold. The new Silver futures will entice the small to medium Retail investors who had been on the sidelines of the gold market.

 

 

In the long-term, these factors should do nothing but push the global price of silver upward. As the U.S. spot price now stands at a ridiculous 28.93/oz., you need to consider taking advantage of the situation and loading up on your physical silver.

 

 

DOWN TO EARTH

Don’t expect the price of silver to jump to $50 on May 10th just because it is open to more demand. Fact is, the current number of Chinese in the futures market is a fraction of that compared to, say, the US. It has also been reported that China’s industrialists have 15 months supply in stock, so there shouldn’t be an initial stress globally. However, now that the Chinese will have more access to investing, you can expect a gradual increase in participants in the long term. Being able to trade in their own currency and do so locally as opposed to offshore will only serve to build the marketplace.

 

 

DEVIL’S ADVOCATE

(conspiracy seeds, thoughts of the conspiracy theorist)

-There is a segment of Chinese who buy physical bullion already. This is just a ploy to get the current ‘little guy’ investors into the paper market to manipulate them as well.

-Yeah right, the Hong Kong Metals Exchange was supposed to deal a death blow to the COMEX and expose the JP Morgan manipulators. Ha, up until we saw that Nathaniel Rothschild was their Chairman.

-I am to believe that the western banking cartel has no involvement in the formation of a paper market? Chinese or otherwise….

 

 

WRAP-UP

Well, all conspiracies aside, hopefully the addition of silver to the SHFE is done in good faith. Hopefully, it will be leveraged 1:1, meaning all contracts backed by the physical product. Possibly we will finally see the manipulators game come to an end.

In closing, you need to understand that this is not an endorsement for trading paper silver unless you are experienced and know what you are doing. If you are starting out, first and foremost, you should take physical possession of any silver you put your wealth into. The governance in the Chinese market is not the same as elsewhere. For example, in the U.S., if you you were to trade on the COMEX you are speculatively trading paper that is leveraged. Many contracts are settled for cash, not the physical delivery of silver. Simply put, if everybody who held the paper contract ordered physical possession of their metal, there would not be anywhere near enough metal.

So as China Begins Silver Futures Trading, you may find it to be a good time for you to get into the silver market. If you choose silver, BUY PHYSICAL.

Author is not responsible for your financial decisions. Your own due diligence is encouraged. Author is long physical silver.

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