Rush for physical silver in India

For two weeks, the Bloomberg Commodity index, which tracks the evolution of raw materials, has increased by 10% after having recorded an almost continuous decline since June 2022:

The strongly bearish positioning of funds on raw materials over the last two years is mainly explained by the unprecedented slowdown in the Chinese economy, a situation without precedent since 1998:

The rebound in commodities is probably explained by the start of covering the short positions of certain funds, following the announcement this week of a Chinese recovery plan. This plan concerns both the real estate sector and the Chinese stock market.

China plans to inject at least 500 billion yuan (or $71 billion) of liquidity directly into the stock market.

This support plan is surprising in its scope and arouses many skeptical reactions as to its timing: why intervene now in the face of a more marked slowdown than expected, after having suggested that no intervention would be made?

The rate cut in the United States could be part of this context. The Fed is said to be acting proactively, anticipating an economic slowdown, while China’s central bank appears to have been forced to react after the fact, rather than taking preventative measures.

Chinese money printing could indeed support the markets. It remains to be seen whether this will be enough to curb fund sales of commodities.

Funds are largely short oil in anticipation of a global recession. However, crude oil inventories in the United States are at historic lows:

A sudden economic event would now have to occur to prevent a short squeeze massive.

This is a possibility that is being taken seriously by more and more observers. What if we were actually close to an economic shock much more significant than the proponents of the “soft landing” suggest?

The Richmond Fed’s manufacturing employment index plunged 21 points in September, hitting its lowest level since April 2009.

The index is in contraction for most of 2024 and is even below levels observed during the pandemic:

American industry is showing signs of slowing down, and it could be that the Fed’s intervention comes too late… This clearly encourages speculators to take bearish positions on oil.

This is undoubtedly why the majority of raw materials ultimately react relatively little to this change in China.

The prices of precious metals continue to rise, signaling an increasingly obvious loss of control by central banks over the situation.

For its part, silver metal is setting records on the rise.

The price of silver is currently experiencing, amidst a certain general indifference, one of the most spectacular bull markets of all time, with an increase of +36% in 2024 alone:

The price of silver is supported by strong physical demand from India. Following changes to taxation on the import of precious metals last July, the country recorded, as expected, a significant increase in demand for physical silver in August:

I wrote this in my bulletin of July 26:

“India has reduced import duties on gold and silver from 15% to 6%, a move aimed at boosting demand and reducing smuggling. Lower local prices have already led to an increase in demand for jewelry, and shares of jewelry makers rose as much as 10% following the announcement.

This surprise decision effectively reduces the price of an ounce of gold by almost $300 when purchased in India.

Under these conditions, demand for precious metals in India could pick up again, after a year 2023 marked by a slowdown in the country.”

It is not surprising that it was money that benefited from this tax reform. Indeed, silver is much cheaper than gold, and the gold/silver ratio remains stuck at very high levels:

Silver still has a lot of upside potential relative to gold. In 2011, for example, it was more than twice as expensive compared to gold.

Another factor driving up the price of silver is industrial demand, particularly due to the booming solar panel market. This encourages Indian manufacturers to accumulate the metal as long as it remains affordable.

Forecasts for solar panel installations have significantly underestimated actual demand in recent years:

The silver demand figures are significantly underestimated: the physical silver market is already in deficit. It is therefore logical to observe a rush for available stocks in a country like India, which is investing considerably in the development of this energy source.

Good luck to bullion banks still massively shorts on the future money !

The greater the depletion of LBMA silver stocks, the more risky these bearish positions are. It is the physical market that ultimately determines prices. This time, the physical demand is not coming from speculators: demand from a country like India could quickly deplete stocks of the physical metal in London, especially if traders seek to limit their losses by taking additional short positions to contain price increases. This headlong rush only accelerates the situation, and keeping prices at affordable levels only intensifies the rush to the physical market.

India has already significantly increased its silver imports compared to last year:

India imported 1,421 tonnes of silver in August, an increase of 641% from the previous year, bringing the year-to-date total to 6,148 tonnes. It’s colossal!

Where does India get this silver metal? Mainly by taking delivery of contracts on the Chinese market and the London market: