SILVER & PLATINUM Surge on Chinese Premium Gap Ups

Precious Metals Market Update - December 2023/January 2024

Key Concepts:

• SGE/SHFE: Shanghai Gold Exchange & Shanghai Futures Exchange – Chinese precious metals markets.
• GSR (Gold/Silver Ratio): The number of ounces of silver required to purchase one ounce of gold. A falling GSR indicates silver is outperforming gold.
• Spot Price: The current market price for immediate delivery of a commodity.
• Premium: The amount paid above the spot price, often reflecting local demand and scarcity.
• Float: The amount of a commodity readily available for trading.
• Log Scale: A scale used for charts where values are plotted according to the logarithm of their actual values, useful for visualizing large changes.
• COMEX: Commodity Exchange Inc., a division of the New York Mercantile Exchange, where metals are traded.
• VAT: Value Added Tax.

I. Chinese Precious Metals Market Surge

The week leading up to and including Christmas saw a significant surge in activity within China’s precious metals markets, specifically the Shanghai Gold Exchange (SGE) and Shanghai Futures Exchange (SHFE). Premiums paid for silver, palladium, and platinum experienced substantial increases. As of Christmas Eve, silver premiums on the SGE exceeded 82 ounces, and on the SHFE, over 81 ounces. Platinum and palladium premiums were even more dramatic in percentage terms, leading the speaker to question whether Value Added Tax (VAT) fully explains the magnitude of these increases. Specifically, palladium was trading at nearly $2,300/ounce while Western spot prices were at $1,925/ounce, and platinum at over $3,130/ounce versus a Western price of $2,446/ounce.

Xiao Jun, a Twitter user known as “oriental ghost,” has been consistently reporting these daily price points. The speaker highlights that these premiums are in addition to any local Chinese VAT. The platinum price has already surpassed its nominal high from early 2008 (near $2,300/ounce).

II. Ratio Analysis & Precious Metals Performance

Several key ratios are demonstrating significant shifts, indicating strong performance in precious metals, particularly silver and platinum.

• Gold/Platinum Ratio: This ratio has fallen rapidly, from a peak of 3.5 (meaning 3.5 ounces of platinum were needed to buy one ounce of gold) in April 2023 to approximately 1.85 currently.
• Gold/Silver Ratio (GSR): The GSR is also collapsing, driven by localized shortages of 1,000-ounce silver bars moving from Western to Eastern markets. Lease rates for silver in London remain high, indicating limited availability. Approximately one-third of deliverable COMEX registered silver (1,000 oz bars) has been withdrawn since early September.
• SGE/SHFE Silver Inventories: Inventories of silver bars on the SGE and SHFE remain low, suggesting industrial users are aggressively stockpiling silver due to concerns about price increases and potential supply disruptions.
• Potential Chinese Export Restrictions: Concerns are growing that China, controlling an estimated 2/3 of the world’s silver refining capacity, may restrict silver exports in 2026 and 2027 to secure supplies for domestic use. This would give China significant price discovery leverage.

III. Market Sentiment & Forecasts

The speaker notes that current silver price forecasts from major banks are lagging behind the actual market movement. He observes that while the nominal price increase is “fun to watch,” it shouldn’t be taken for granted. Google Trends data confirms a record level of internet user interest in gold and silver prices, and specifically how to buy them.

The spot silver price closed the week above $79/ounce, and the spot gold price reached a new nominal high at $2,053/ounce. The GSR ended the week at 57, with the potential to fall further into the 50s. The speaker points out a discrepancy between Western spot prices and aggregated prices outside of New York COMEX trading hours, which have ballooned to nearly $400/ounce and are not declining. He believes the red and blue lines on the GSR chart (representing spot price and Eastern world price respectively) will converge again during a future mania phase.

IV. Broader Economic Context & Capital Flows

The gold/S&P 500 ratio is showing potential for a technical breakout, possibly reaching 1:1 parity or even surpassing the 2011 highs. Analyst Jordan Roy Bryan highlights that silver is outperforming a 60/40 stock/bond portfolio, indicating a shift in investment capital towards harder assets. The S&P 500/silver ratio is also falling rapidly, currently at 87 (meaning 87 ounces of silver can buy one share of the S&P 500), compared to around 25 in 2011 and low single digits in the early 1980s. This suggests silver has the potential to significantly outperform the US stock market.

V. Notable Quotes

• “We are starting to get to the point in silver where yes, the nominal fiat number go up is indeed fun to watch, but it's nothing to take for granted.” – The speaker, emphasizing the need for caution despite price increases.
• “Merry Christmas, especially to all you crazy uncles out there…like a fox.” – A lighthearted closing remark acknowledging those who have been advocating for precious metals.

VI. Technical Details & Data

• COMEX Registered Silver: A 33% reduction in deliverable COMEX registered silver (1,000 oz bars) since early September.
• China’s Silver Refining Capacity: China controls approximately 2/3 of the world’s silver refining output.
• GSR Historical Data: The GSR peaked at 3.5 in April 2023 and is currently around 1.85. It reached lows in the single digits during the early 1980s silver bull market.
• S&P 500/Silver Ratio: Currently at 87, down from around 25 in 2011.

Conclusion:

The precious metals market, particularly silver and platinum, is experiencing a significant surge driven by strong demand from China and a shift in investor sentiment. Key ratios are indicating outperformance of precious metals relative to traditional assets like stocks and bonds. The speaker emphasizes the importance of understanding the dynamics of the Chinese market and the potential for further price increases, while also cautioning against complacency and highlighting the need for long-term wealth preservation strategies. The current market conditions suggest a potential for a significant, long-term bull market in precious metals.