After Bitcoin, Chinese Go Crazy About Silver

July 5, 2016 Updated: July 7, 2016

Chinese speculators have the reputation of buying anything and everything that is going up.  

Real estate, the stock market, copper, bitcoin, and now silver. Futures in Shanghai reached their upside limit when prices hit $21.13 per ounce, up 6.9 percent on the day.  Chinese are behind the bulk of the buying as volumes on the Shanghai futures exchange exploded to 95 billion yuan ($14.2 billion) last Friday.

The price has since retreated to a tad below 20, but the overall performance over the second quarter is best in class, up 17 percent.

(Provident Metals)
(Provident Metals)

At least considering traditional asset classes. Bitcoin, the preferred Chinese capital outflow vehicle is up 66 percent in Chinese yuan over the same time period. After peaking on June 16, it has leveled off a bit, a good chance for Chinese traders to focus on silver again. Like Bitcoin, silver is not part of the Chinese banking system and provides insurance for a possible debt restructuring. 

Throughout history, the Chinese have been alternating between currency systems based on silver and currency systems based on paper money. Genghis Khan was the first emperor to force his citizens to use paper money,  Chiang Kai-shek’s Nationalist Party was the last one to switch silver for paper in 1935. 

The fact that the traded volume goes up while the open interest goes down is a clear indication that day traders have taken over for now.
— Ole Hansen, Saxo Bank

The current Chinese communist regime has been remarkably lenient in letting the Chinese people buy gold and silver, maybe because they know they can confiscate it at any given time.

“They know that in crisis situations, the central government can confiscate gold and hand out paper money in return. Especially in a centrally controlled country like China,” gold expert Willem Middelkoop told Epoch Times in an earlier interview.

Until then, the Chinese probably don’t care so much about the philosophy of different currency systems, but rather like to speculate and make a profit, according to Ole Hansen, Saxo Bank’s  head of commodity strategy. 

“The emergence of commodity trading venues in China has, however, changed the balance in the market. Back in April, a sudden rise in demand for steel rebar and iron ore futures from Chinese day traders triggered a major surge in daily volumes,” he writes in a blog post.  “The fact that the traded volume goes up while the open interest goes down is a clear indication that day traders have taken over for now.”

Chinese traders had invested in steel and iron ore earlier in the year, only to see their prices go down by a third. Will the same happen to silver? Not according to Hansen.

“No is probably the shortest answer. Silver is a much more globally traded commodity than some of the other futures currently available for trading in China.”