by David Jensen, Jensen’s Economic, Precious Metals, & Markets Newsletter:
The price of silver in Shanghai continues a relentless march higher today closing at $103.35.
However, there is more to this elevated price than meets the eye.
The Shanghai price listed on Shanghai exchanges does not include the 13% VAT tax applied to silver when it is withdrawn from exchange warehouse facilities. The cost to take possession of silver from Shanghai exchanges is thus approximately $116.79 /oz. today.
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Figure 1 – Shanghai Silver Price vs. US Silver Price; source: goldsilver.ai
While silver bars imported to China are not tariffed they similarly face a 13% VAT tax giving an imported silver price of roughly $105 /oz. plus shipping/handling and insurance. Estimating this additional cost at approximately $2 /oz., silver imported from other global sources costs importers approximately $107 /oz.
Silver from Shanghai exchanges is thus 9% more expensive than imported silver creating a very strong incentive to import silver to meet market demand and collect the arbitrage.
Further, $107 /oz. silver gives us a sense of just how intense the physical demand for silver actually is currently in China.
If Ross Perot were around today he would likely describe this impact of materially cheaper imported silver as creating a strong silver import dynamic in China’s domestic market.
The Debasement Trade Hits China
The currency inflators at the US Fed have nothing on those at the People’s Bank of China (PBOC).
China’s reported M2 Money Stock (total M2 currency in the system) is $48 trillion (T) and is increasing at 8.5% p.a. in comparison to a US M2 Money Stock of $22T.
On a nominal GDP basis, the US economy is 60% larger than China’s giving a further measure of how wildly the PBOC is operating its monetary policy. It is no wonder that China’s population is flocking into gold and silver.
London Silver Price Fixing Scheme Meets Its End
The relentless demand for physical silver is not just an Asian phenomenon. The following website tracking silver and gold availability at 629 Costco stores in the US is currently reporting 6 Costco locations having silver available for sale: https://costcogoldinventory.com/ and much of Europe is reporting widespread retail silver shortages as well.
The silver and gold price fixing scheme operated for 4 decades in the City of London silver and gold markets relies upon buyers of cash/spot contracts happily holding promissory notes in lieu of physical metal bars creating an artificially inflated supply of metal and depressing the global price of these important monetary metals and critical monetary inflation warning indicators.
With an estimated 2 billion oz. of silver claims standing in London’s cash silver market, the global silver shortage seen everywhere now speaks of a quick ending to the London Silver Market as holders of cash silver contracts start asking for their silver in size to meet increasing global demand. Silver that is just not there.
The entire global economy has now operated for decades on a false premise of responsible and limited monetary policy according to statements from our central bankers.
We can now see that the central planners at these central banks have instead operated extremely loose monetary policy creating serial speculative asset bubbles and artificial temporary economic growth reliant on continually loose monetary policy combined with suppressed gold and silver prices to hide the monetary inflation.
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