If I am correct in thinking the whale in the market is the Peoples Bank of China, then instead of suppressing the silver price, she is now hedging approximately one year’s silver imports against future price rises. Having pinpointed the switch from price suppression to futures accumulation to approximately March 2017, we can now say that courtesy of JPMorgan’s dealing skills, no one was aware of the Peoples Bank’s change in price strategy.
This was shortly after President Trump was elected and assumed office, which could have had a bearing. From China’s point of view, the geopolitical outlook had become very unstable, with its Washington sources reporting the Deep State’s conflict with Trump and its attempts to destabilise his administration. At the same time, the global economic outlook was improving, which would have led to greater global demand for silver, making it difficult for China to continue to suppress the price. These are good enough reasons to change price strategy and lock in silver prices by buying futures to cover future shipments.
More recently, China has begun to declare monthly additions of monetary gold reserves, a trend led by Russia and copied by other Eurasian central banks. Gold has suddenly caught a bid and having risen sharply become dangerously overbought. This is in sharp contrast to silver, which on the surface appears to have been side-lined.
The traders at the Peoples Bank now appear to have protected themselves against an increase in the silver price, which normally rises nearly twice as much as gold. Since the Peoples Bank also controls the nation’s gold, the silver desk could have known about the plans to announce monthly increases in China’s monetary gold reserves in advance. It would have been an added incentive for the desk to buy silver futures from the beginning of this year.
It will be interesting to see if this move, combined with China’s increasing gold reserves, results in a significant jump in the silver price. If the silver whale is China, then it’s a reasonable supposition that China is signalling by its actions that it expects dollar prices for gold, and therefore silver, to continue higher over time. An advantage of taking up a silver position is if things cut up rough in the gold market, China will not be implicated so far as Comex futures are concerned. Unlike large-scale dealings in Comex gold futures (which China appears to have studiously avoided), protecting prices on her silver imports is what the futures market is for and is unlikely to be politically contentious.
The message for silver investors is seven of the eight largest traders appear to have become complacent. If China is the whale in the market, then discovery could be a very painful process for them. Its unfolding could be dramatic, likely to coincide with the next move upwards in the gold price.
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