The Phaserl


Is Silver Next For Speculative Chinese Investors?

by The Doc, Silver Doctors:

According to a Bitcoin Magazine article dated May 31 2016:

“Huobi and OKCoin, the two largest Chinese exchanges that now account for some 92% of Bitcoin global trading by (self-reported) volume, both reported almost double the usual trading volume over the past weekend. BTCC, China’s third largest exchange, also reported a surge in bitcoin trading volume, setting a new record on its Pro Exchange.”4

4 J. Williams, “Bitcoin Price Soars as Chinese Investors Look for Safe Haven From Devaluation and Capital Controls” Bitcoin Magazine (May 31, 2016).

Huobi’s CEO, Leon Li said that: “More and more Chinese investors and their hot money need a new investment market, and a convenient alternative investment like Bitcoin is easy to be accepted by the traders.”

Given that its impossible to curb bitcoin trading, and with limited bitcoin supply, I would not be surprised at all if Bitcoin approach US$1 000+/BTC in the near term.

Curiously, if a crypto-currency without intrinsic value can muster such popularity, why not speculate on gold and silver? Particularly silver, as it stands out as a “poor man’s gold”, ideal for action-seeking, trigger-happy Chinese investors.

Indeed, open interest in silver on the Shanghai Futures Exchange has been steadily increasing this year, with open interest now roughly equal and equivalent in size to that of COMEX.

Shanghai Futures Exchange Silver contract open interest:

The contract size is 15kg, roughly 500oz, or 1/10 of the COMEX silver contract size (5 000 oz). The open interest ballooned from less than 200 000 contracts in 2012 to over 600 000 since April 2016.

COMEX silver open interest (‘000)

What is the take-away?
1. The world is welcoming a new class of investors numbering in the tens of millions with hundreds of billions in speculative dollars.
2. Those investors may prefer metals over stocks and bonds.
3. When those finicky investors arrive, they will create a torrential wave.

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