International Silver Price Stabilizes, Supply Tight in Mainland China
After experiencing significant fluctuations, the international silver price has started to stabilize. However, in mainland China, the supply of silver remains tight due to the consumption of inventory for investment and industrial purposes.
According to a report by Bloomberg on February 11th, domestic producers and traders in mainland China are working hard to digest backlogged orders, driving up prices in the short term and causing serious spot premiums in the market. The near-month contract premium on the Shanghai Futures Exchange has skyrocketed to a historic high.
Zhang Ting, a senior analyst at Sichuan Tianfu Bank, stated that “such large spot premiums are caused by inventory crises and the consumption of deliverable raw materials. Institutions still have the motivation to depress the market to make profits.”
At the same time, short sellers at the Shanghai Gold Exchange are betting on a decline in silver prices. Since the end of December last year, they have been paying roll-over delivery fees to long positions to avoid silver deliveries, highlighting the shortage of silver available for closure.
Since the end of January, the silver market has faced historic sell-offs, erasing a 61% increase in the first few weeks of the year. Previously, speculative buying in China and other regions drove up silver prices, with silver briefly surpassing gold, becoming a symbol of market concerns about the U.S. dollar, Federal Reserve independence, and escalating geopolitical conflicts.
The silver market, which is relatively illiquid, is no stranger to extreme volatility, such as the global supply tightness last fall that led to depleted inventories in China and a surge in investment demand in December. Subsequently, warehouse inventories related to the Shanghai Futures Exchange (SHFE) and the Shanghai Gold Exchange (SGE) have dropped to the lowest levels in over a decade.
Demand for investment silver remains strong. In Shenzhen Water North Market, China’s largest precious metals trading center, businesses can easily find buyers for silver bars at high prices. “As long as there is inventory, it will quickly sell out,” said Liu Shunmin, risk manager at Shenzhen Guoxing Precious Metals Co., Ltd.
For individual investors in China, limited domestic investment options and suppressed information also lead them to hoard gold, silver, and other precious metals.
According to a report by The Wall Street Journal, Jia Pei, a visitor in her thirties from Henan, believed that the price of gold was too high. A few years ago, she bought about 50 grams of gold and sold it for a profit after the price doubled last summer.
Now, she and her friends are investing in silver, believing that silver has more appreciation potential than gold. “I have started hoarding silver,” she said. “Even if the price falls, I can afford it.”
Additionally, industrial demand is also one of the reasons contributing to the tight supply.
However, there are signs indicating that the speculative frenzy may be cooling down. As investors reduce their positions before the Chinese New Year holiday starting on February 16th, the total open interest contracts on the Shanghai Futures Exchange (SHFE) have dropped to the lowest level in over four years.