By all precious metals gossip and reports, China continues to be bullish on many fronts. Despite occasional slowdowns, the Chinese government has been investing feverishly. From mines in Africa and South America, to affiliations with African governments, China has been buying. For precious metals investors and enthusiasts, this begets a question. Is China buying silver, among other precious metals? Like Russian gold purchases, China increased gold imports over 50% in 2017. But what about silver imports? And mining? How and why is China buying silver?
So given all the hot topics surrounding China, and exciting precious metals markets, let's look . at silver. The first thing you need to do is understand what the Asian superpower has been up to and might be planning in coming year. Then, we'll look at factors such as the increasingly favourable rates in relation to gold. Finally, we'll look at future movements in the silver market to come.
According to World Bank data, China's reported 2017 GDP growth was 6.9%, and the country's inflation was reported at 1.4%. A growing economy, and especially middle-class, in a country that places a high premium on precious metals, correlates with stronger precious metals imports. Furthermore, the gold-silver ratio - a historic measure - was over 77 at the time of writing. Look back in time to when the Roman Empire set it at 12, and you will find it is edging closer and closer to 1981 highs near 100. From a historic perspective, there is a strong case for why silver may be a better investment than gold.
Now let's turn to the markets. Is China buying silver, for example, on the Shanghai Futures Exchange? Looking at the exchange and other regional trading, we find a lot of corollaries with the COMEX system. Recent movements of the silver futures speak well to investor sentiments.
The Shanghai exchange's silver reserves went on an amazing run from late 2015 to mid 2016. Notably, some 466 metric tonnes in October ballooned to over 1,706 metric tonnes by April. Surges over 350% don't happen that often in commodities. Whether rooted in traditional buying habits or speculation on policy, there is clearly something happening. Indeed, we need to look at the broader socio-economic implications in and around these massive increases in silver spending.
Those looking for why the silver reserves have skyrocketed in China might first turn to Peoples' Republic's Ministry of Commerce. The Government agency recently abolished a law that banned silver concentrate imports. This decision was announced on their website on November 10th, 2016 and many people quickly flocked to the precious metal. Does this imply a one-time occurrence? Perhaps, but perhaps not. China's strong interest in domestic gold and silver mining goes a long way back. In fact, some of the earliest buyers and sellers of silver bars were Chinese.
Recent warming to the private importation of a variety of goods like the silver ore may therefore suggest a longer-term plan. This also appears in compliance with the country's industrial growth policies. Precious metals have a strong offering to technological manufacturing, especially in many emerging technologies that China is trying to dominate.
A connecting link between China and silver is the production of solar panels. A very probably reason for Chinese silver imports is to bolster the growth of a domestic solar industry. The country was on point to break the record number of solar installations in one year (2017) and it appears they accomplished the goal. Bloomberg New Energy Finance reports that a total of 54 gigawatts of energy will be installed over the course of the year in a country that has already been the largest solar market since 2013.
As discussed in a previous post, silver is one of the most important materials in solar panel production. According to an article in USA Today, each solar panel requires close to two-thirds of an ounce of silver. Compound this over all the solar panels required to meet the demand in China, and you can see why the government and its business community are putting so much vested interest into silver.
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