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Silver is an Eastern Bought Powder Keg Readying to Blow

Summary

  • India imported a record-breaking 123 million ounces of silver in Q1 2024, half for green energy.
  • This is more silver than the US Mint sold in American Silver Eagles in the past 5 years.
  • Silver demand is strong in Asia, with Japan seeing robust demand for solar panels.
  • China's domestic silver price is high due to strong demand for solar power.
  • Silver supplies may be declining due to lower Mexican and Peruvian production.
  • Recycled silver supplies are low because of historically low prices.
  • The price of silver is expected to rise due to strong fundamentals.
  • The gold-to-silver ratio is high, indicating silver is undervalued.
  • Investors are accumulating physical silver, and Shanghai exchange inventories are falling.
  • A silver price surge is expected after the $30 per ounce resistance is broken.

There is no first quarter on record having this size of Indian silver import throughput.

Off the heels of the nation's record over 76 million oz silver bullion import month of February 2024.

India continued pulling silver bullion float off the world market to the tune of near 28 million ounces last month, March 2024.

About half of the Indian silver import demand for March 2024 came through lower duty UAE grain trade. My assumption is all of that is heading towards new green energy initiatives in batteries and solar demand inputs helping to subsidize the effort to build an alleged cleaner energy grid. 

So a large portion of this record Indian silver demand is not store of value demand driven, but more so an emerging industrial powerhouse ramping up its silver inventory levels while spot prices are relatively still cheap.

To put this record size near 123 million ounces the India market has imported through the first quarter of 2024. Think of it this way. 

India in the first quarter of this year 2024, has imported as much silver bullion as the US Mint struck and sold off in 1 oz American Silver Eagle bullion coins in 2019, Covid 2020, 2021, 2022, 2023, and through Q1 2024 combined. 

That is five full years and one quarter of the United States' number 1 retail silver bullion product by demand, equaled by India's silver demand in the first quarter of this year 2024 alone.

Staying on the Asian side of the silver market demand equation. Quick stop at headlines Japanese readers are seeing regarding silver's robust solar panel demand. 

Whether or not you agree with solar as any type of long term energy transition solution, that really doesn't matter as the world is heading that way increasingly so for now.

While the fiat Japanese yen is devaluing at a rampant pace, its local price in silver has just passed its 2011 high. Look right at the full fiat era chart and take note the fiat Japanese yen silver price still has to nearly triple from here to reach its seemingly ancient 1980 price at the same time its local gold price is hitting record prices month after month presently.

Now let's turn to the Chinese side of this silver demand equation. To better understand what has been happening in the country that demands the most silver for solar power capacity globally.

Pretty much since the COVID 2020 premium lows locally in China... local demand for silver bullion, much of which has gone into building out their world leading solar capacity, has created a price premium now hovering about +10% over COMEX silver price quotes. 

China wants and needs silver for solar, and it is paying a world leading premium for it.

The trouble for China silver industrial buyers, is technically speaking. Silver is saying breakout the monthly charts in local fiat yuan terms.

Remember how last week we showed you it was leveraged derivative traders on the Shanghai Futures Exchange that were likely herding and momentum trading helping to push global spot gold and silver markets higher respectively the last month especially?

Well, now the bullish supply demand fundamentals story on silver is becoming more widely communicated in China too, have a look and listen for yourself. 

That guy pumped right off the rails there at the end regarding his last points on silver production in Mexico, it was pure misinformation. Yea Mexican and Peruvian silver supply outputs might be coming down. But don't expect Chinese investors to be able to discern the fact that they won't disappear off the map.

The truth about silver is yes it's hard and costly to mine, but it is especially hardest to mine given the phony derivative driven price signals we've lived under for decades compounding. Ones that have allowed us worldwide, to literally toss trace industrial silver into landfills, rather than profitably recycling it at dignified much higher price points than where they are currently hovering at.

Considering silver bullion is still priced near $30 oz in fiat US dollar terms, relative to all the inherently worthless fiat currencies we collectively con ourselves to give large swaths of our precious lifetimes for. Well the coming rebalancing of these off-kilter scales, overvalued fiat currencies versus still undervalued bullion, is basically the working thesis of what I post on this channel week after week. 

Prudently save and store the value of the undervalued ones, sell the overvalued ones.

Turning back to China, given the mainstream financial media reporting this week on the speculative Shanghai Futures Exchange derivative trader momentum trader pile on, I am again fielding silly cynical questions regarding China like, "But are they accumulating the physical?"

Well, let's see.

Last month 69,000 gold kilo bars flowed to China from the Big Swiss 4 gold refineries.

Is that accumulating the physical while also pushing day to day spot prices around?

Physical gold demand Q1 2024, is reported up 5.94% from Q1 2023.

More importantly, over 1/3rd of that demand was bullion bar and coin buying into the face of fiat yuan record price high levels. The more the fiat yuan devalues, the more positive self-reinforcing gold bullion buying you will see especially from the younger Chinese biggest buying segment disillusioned by poor performing Chinese real estate and competing stock market asset classes.

Looking at the underlying silver bullion warehouse inventory levels on the Shanghai Futures Exchange and the Shanghai Gold Exchange combined. We see two obvious standout points.

They are rapidly shrinking. And combined they are about 75 million oz of silver supporting those two Chinese silver trading markets. That is just under the record amount of silver India imported in February 2024, just a couple months ago.

That is basically the underlying silver market in the east at the moment. 

A systemically mis-priced powder keg market waiting to explode in higher spot prices to come based on uber bullish factors building. 

The silver and gold spot price markets finally had a large selloff in price this week.

The spot gold price closed this week just under $2,350 oz while the spot silver price closed the week above $27 oz.

The spot gold silver ratio which we will focus in on to close this bullion market update, finished this week's trading at 85.

The commercial real estate market is slowly repricing in dribs and drabs as major downtown office spaces in major US cities and metropolitans are taking haircuts anywhere from -50 to over -90% in their net present values versus what they were often bought for in the early 2010s following the 2008 Global Financial Crisis QE re-fiat financialization run.

I presume many of these ongoing commercial loan losses are currently hidden at the moment on pension fund balance sheets.

The fiat Federal Reserve admitted just a week ago that 1,804 US banks and financial institutions or 20% of the entire financial industry took loans during last year's March 2023 bank crisis.

The fiat Fed also admitted that over $21 trillion of 'runnable' money-like liabilities sit mostly on mega commercial bank balance sheets. Again, anyone having over 250,000 fiat USD in a bank is uninsured and subject to potential losses if and when banks start being allowed to go finally again go bankrupt.

US interest rate payment totals coming due by this time next year are estimated at $1.7 trillion in interest rate expenses alone if the fiat Fed doesn't cut rates from here to there. Over $1.2 trillion in debt interest payments if they cut 150 basis points from here to there.

Gold bullion owned outright doesn't care either way. Come back in a year, I bet spot prices are higher regardless.

Turning to the recent selloff in spot gold and silver prices, we turn to Pamp Suisse's market analyst in New York telling the CNBC crowd similar stuff.

The spot gold silver ratio's rising channel since the Q1 2021 Reddit Silver Squeeze phenomenon. Before we dig into the technical formation it is reminding me of, let's hear from leveraged derivative pumpers at CME group about how the spot gold silver ratio relates to one another in systematically suppressed fiat financialized markets.

At the very least, there will be a chart crime and some pretty moving pictures from silver and gold refineries.

Back to where we are and how the current spot gold silver ratio chart is mirroring a similar pattern built on this chart during the 2008 GFC into the ∞QE∞ kickoff era.

Difference this time is the height with which we may end up falling off this cliff again.

While this dive off the GSR cliff may not be imminent, it is worth noting the respective formations and the speed of the dive the spot GSR took in the 2010 to 2011 silver run to $50 oz.

This next time, the fundamentals are so much more bullish and globally driven than last.

To paint a picture of the spot GSR flowing back down through these lower technical resistance zones, back towards and eventually beyond the 2011 low is what I am leaving you with. 

How that comes about will be a twisted fun ride for silver bulls.

Up first is the inevitable passing by of the pathetic $30 oz spot silver overhead resistance that could still take some time.

Buckle in though and position ready. When it gets passed, the ride will get windy and funner still.

That will be all for our weekly SD Bullion Market Update. 

And as always to you out there, take great care of yourselves and those you love.

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James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...

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