Why Is China Buying All This Silver?

It seems something big is going to happen on the silver market and China wants to be part of it. China is buying silver like a maniac. It all started in August 2015 but in 2016 it’s accelerating. Investing in silver can be very lucrative in 2016.

Earlier this week China has begun with its own price-fixing for gold and silver. China want more control, especially after revelations by Deutsche Bank that they and other western banks manipulated gold and silver prices. A yuan fixing for gold and silver is the next move to dominate the commodity and precious metals market.

The Chinese buying spree happens at the same moment Comex vault are running empty. Gold fled Comex vault a long time ago but now they are also selling silver bars with dust. Comex silver inventory peaked last July at 184 million ounces and declined towards 150 million ounces at the moment.

At the Shanghai Futures Exchange things went the other way around. August 20 was the bottom, since last August SFE started increasing its silver stock. Inventory rose from 233 ton or 7,5 million ounces to 1.706 ton or 54 million ounces. Especially 2016 inventory rose exponentially.

It took J.P. Morgan 4 years to accumulate 69,4 million ounces of silver, but it took China just 8 months to accumulate 54 million ounces of silver. This is an amazing achievement, but mainstream media is once again missing the point.

When silver moves, it really, really moves, and everyone wants to be on the right side of that trade, said Andy Pfaff, who as chief investment officer for commodities at MitonOptimal Group in Cape Town.

Silver ETF’s and the USD/ZAR connection

Investors are piling up on silver in the United States. ETF holdings rose 5,6% this year to 19,904 tons, just 2% shy of the October 2014 record at 20,182 tons. Money managers last week increased their net-long positions by 30 percent to 54,885 contracts, the highest since comparable Commodity Futures Trading Commission data begins in 2006.

Finally the US Dollar/South African Rand exchange rate (USD/ZAR) is confirming the bottom.(USD/ZAR) has a very interesting relationship that goes back a long way. When the USD/ZAR rate is moving up, then the silver price is moving down, and vice versa.

Furthermore, when the USS/ZAR rate is making a top, then a bottom in silver is normally very close (before or after the USD/ZAR peak).

If it is indeed a long-term peak for the USD/ZAR rate, then one should expect a very important bottom for silver around that date. Technically and fundamentally, silver is running. So what are you waiting for?

So witch shares should you buy?

If you are a cautious investor, but you believe gold will rise the coming years, you should focus on profitable producers.

If you want to maximize your gains and you’re willing to take higher risks, you should focus on early-stage gold explorers.

If you’re somewhere in between, like most investors, advanced explorers moving known discoveries towards production are the best stocks for your portfolio.

As a reminder, gold and silver stocks rose 602% on average in the 2000 – 2003 bull market. That means the best breed rose 1.000%. Today the sector is in the same shape as it was at the beginning of the century. So buckle up and enjoy the ride.