China Tightens Its Grip On Silver

Key Concepts

• China's Export Controls: Announcement 2025 number 68 by China's Ministry of Commerce (MOCOM) imposing stringent conditions on exports of tungsten, antimony, and silver antimony for 2026-27.
• Resource Security Agenda: China's strategy to secure and control its strategic resources.
• Boomerang Effect of Tariffs: The idea that imposing tariffs on critical materials can backfire, leading to price increases or supply restrictions from exporting nations.
• Executive Order 232: A US executive order that allows for the investigation and potential imposition of tariffs on imports that threaten national security.
• Critical Minerals List: A list of minerals deemed essential for economic and national security, which the US may consider for tariffs under EO 232.
• Supply Chain Vulnerabilities: The interconnectedness of global supply chains and how disruptions in one area can have cascading effects.
• Hoarding: The act of accumulating and storing resources, often in anticipation of scarcity or price increases.
• Natural Gas Exports: Increased US natural gas exports to terminals, potentially driving up domestic prices.
• Government Shutdown: The impact of a US government shutdown on the release of economic data, such as jobs reports.
• ADP Employment Report: An alternative measure of employment data that may become more significant due to the government shutdown.
• Fed Speakers: Statements and pronouncements from Federal Reserve officials, which can influence market sentiment.
• Oil Tariffs in the 1990s: A historical example of how proposed oil tariffs led to price increases due to retaliatory actions by oil-producing nations.

China's Tightened Export Controls on Critical Minerals

The Ministry of Commerce of the People's Republic of China (MOCOM) has issued Announcement 2025 number 68, which imposes stringent conditions on the export of three critical minor minerals: tungsten, antimony, and silver antimony. This announcement is effective for the period of 2026 and 2027. This move is interpreted as a reflection of China's intensifying resource security agenda and a tightening of export controls over strategic materials. This action is seen as consistent with China's broader intention to centralize demand and supply within its borders, moving away from independence and towards its own strategic interests, thereby "ring fencing and protecting their franchises in precious and rare earth materials." The timing of this announcement, occurring after trade negotiations between Donald Trump and Xi Jinping, is noted as further evidence of an ongoing "divorce" in trade relations.

The Boomerang Effect of Tariffs on Silver and Critical Minerals

The transcript discusses the concept of the "boomerang effect" of tariffs, particularly in relation to silver and other critical minerals. The argument is that tariffs, or even the threat of them, can backfire.

• Silver and EO 232: The US may consider adding silver, platinum, and palladium to its critical minerals list under Executive Order 232 (EO 232), with potential tariffs being a consideration. However, the market's perception of hesitation from Washington is seen as a signal of weakness.
• Market Reaction to Perceived Scarcity: If the US acknowledges its need for imported silver, exporters are likely to raise prices or restrict supply. This is not necessarily due to formal tariffs but because the threat alone triggers self-protective measures abroad.
• Policy-Driven Scarcity: The transcript asserts that silver scarcity is becoming policy-driven, leading to a form of hoarding.
• UBS Reports and Hoarding: Reference is made to UBS reports on platinum and palladium, where analysts, despite not being fundamentally bullish, raised price targets due to US purchasing activity, which is characterized as hoarding. This applies to silver, palladium, platinum, and other critical minerals, framing it as "metals war."
• Historical Precedent (Oil in the 1990s): A personal anecdote is shared about the 1990s when the US aimed to reduce dependence on foreign oil. At that time, oil was trading around $18. A senator proposed a $5 tariff on oil. This action, when the US was dependent on foreign oil, was seen as "idiotic." The implicit response from Saudi Arabia was to reduce pumping until the price increased by $5. Consequently, oil prices rose from $18 to $23 within days. This illustrates that threatening tariffs on items a nation needs signals weakness to suppliers, prompting them to raise prices.
• Tariffs and Supply Chain Strength: The transcript argues that tariffs are effective only if a nation possesses either the natural resources or the industrial base to produce goods. When a country lacks both the production of the raw material (like silver) and the refining mechanisms for finished products, tariffs become detrimental.
• Copper Example: The case of copper is cited. The US has abundant raw copper but lacks the manufacturing base for finished copper goods. Tariffs on both raw and finished copper imports are intended to build this base, but the absence of the base means copper cathodes, essential for EVs, are carved out.
• China's Signal to the Market: China's actions are seen as a clear signal to global suppliers to raise the price of silver. The prediction is that silver could reach $150 within five years, with the possibility of this happening sooner.

Market Overview and Economic Data

The morning markets and metals report provides a snapshot of current market movements:

• Yields and Dollar: 10-year yields are up 1%, and the dollar is up 13.
• Equities: S&P 500 is up 23, NASDAQ is up 88.
• VIX: Slightly offered.
• Precious Metals: Gold is up seven cents, and silver is up 11 cents at $48.76. Palladium is up 17, and platinum is up 29.
• Commodities: Copper is offered unchanged. WTI crude oil is up a couple of cents. Natural gas is up 11%, showing a significant run above $3, attributed to increased US natural gas exports to LNG terminals.
• Cryptocurrencies: Bitcoin is down $2700 at $107, and Ethereum is down almost $200 at $3714.
• Grains: All grains are bid, with wheat leading the charge.

Upcoming Economic Data and Fed Commentary

• Jobs Data: The official US jobs report and unemployment numbers will not be released due to the government shutdown.
• ADP Employment Report: The ADP employment report on Wednesday is expected to be particularly important as a substitute for the official jobs data.
• Fed Speakers: Numerous Fed speakers are scheduled to make statements, which will be closely watched by the market.

Deutsche Bank and Bloomberg on Gold

Two reports from Deutsche Bank and Bloomberg suggest that gold is nearing a turning point and may be bottoming out. Analysts from both institutions, from different perspectives, see gold bottoming somewhere between the current price and $3,800. The reasoning from Deutsche Bank is considered strong, and Bloomberg's observations are deemed accurate.

Conclusion and Takeaways

The core takeaway is that China's tightening export controls on critical minerals like tungsten, antimony, and silver antimony, coupled with the US's potential use of tariffs under EO 232, are creating a policy-driven scarcity in the market. This scarcity, amplified by the historical precedent of tariffs backfiring and the inherent vulnerabilities in global supply chains, is expected to drive up the prices of these strategic materials, particularly silver. The market is reacting to the perceived threat of supply disruption, leading to price increases even before formal tariffs are imposed. The current market environment is characterized by volatility and a focus on resource security and supply chain resilience.