Chinese Investment In Silver Could Push Up Prices

Now that Chinese citizens are not only allowed to invest in silver, but encouraged to, there is reason to believe that this could push up silver values. The Chinese are savvy investors and are skeptical of the security of American dollars, which may mean a shift to greater investment in precious metals like silver and gold. The following article from Daily Wealth explains why an increase in Chinese demand for silver can have a significant impact on prices.

Two years ago on August 21, China's government allowed its citizens to invest in an entirely new asset. It allowed them to invest in Hong Kong-listed stocks.

Hong Kong is a special region of China. It's one of the most dynamic, capitalistic places on Earth. The move from the government was a move toward "investment freedom" for the Chinese people.

On that day, Hong Kong's benchmark stock index rose 8.74%. Over the next two and a half months, it skyrocketed from 11,000 to over 20,000. It was a chapter in a story that you should get used to over the coming years: When the Chinese decide to invest in something, it causes giant ripples across the world.

This sort of situation is starting to happen again: This time it's happening in precious metals... especially silver.

The Chinese have a centuries-old affinity with silver. It began in the 1500s with the explosion of trade with Mexico via the Spanish galleons. These sailing ships were the super-tankers of their age. They made one voyage per year, carrying tea, silks, and spices from Asia to Mexico. The ships returned to Asia with gold and silver. After the Chinese threw off imperial rule in 1912, the country used silver money. Today, the Chinese word for "bank" means, "silver movement."

And now that China is becoming one of the richest, most dynamic capitalistic countries on Earth, this story is about to take a modern twist. The Chinese want silver again.

Thanks to a decade of wealth accumulated by regular Chinese citizens, there is plenty of cash to chase good investments. As the famed global investor Jim Rogers points out, these people are the best capitalists in the world. They are great savers. Chinese people want their money to work for them... so they invest.

I recently watched a China Central Television piece on gold investing... According to the program, there are some 400 million households in China, with an average ownership of about 0.1 ounces of gold. The average gold ownership in most emerging countries works out to about 1 ounce per household. The Chinese are beginning to make up that gap. From 2006 to 2007, domestic demand for gold rose 60% to around 700,000 ounces. Experts continue to urge citizens to put 3% to 5% of their net worth in precious metals.

Chinese government statistics show the average urban Chinese household has about $1,300 in disposable income to invest. While that doesn't seem like much, when you add up all those households, there's about $36 billion that could move into the next big investment opportunity – precious metals.

The government is now actively encouraging its citizens to buy gold and silver. They recently unveiled silver bullion for investing (you can see the video here). The premise is that gold was 50 times more expensive than silver in 2007... but is now 70 times more expensive.

The government is promoting silver bullion as an investment for regular citizens. And remember, a bunch of Chinese students laughed at U.S. Treasury Secretary Tim Geithner this year when he claimed the dollar was safe. The Chinese know the value of real assets... real money like gold and silver.

What does this mean for silver prices? It's impossible to say. But here's a little math that interests me. According to the Silver Institute, demand for silver in 2008 (for industry, jewelry, and investing) was 832 million ounces. At today's price, that's an $11.5 billion market... or about 1/3 the capital available in China alone.

The most important thing to understand about this situation is the Chinese people become freer every time the government loosens up a restriction. These people couldn't legally buy silver bars before. Now, they can. They're becoming richer... and they will continue to do so for decades.

Add this to a world already waking up to the grand currency debasement you've read about in DailyWealth (like here and here), and you have a recipe for the continuation of the big bull market in silver and other precious metals.

This post has been republished from Daily Wealth, an investment analysis and advice site.

How To Profit From Silver

Silver, like gold, is a highly volatile investment with wild swings in value. However if you believe that inflation, or even hyperinflation is likely, then silver may be a good commodity to consider right now. Brian Hunt from Money Morning discusses why silver is a compelling investment right now and how you can profit from it.

Late last month, one world’s greatest speculative profit plays made an important breakout move.

This speculative investment is the tiny group of mining stocks that operate as pure plays on the price of silver.

If investment assets were all patients in a mental ward, bonds would be the guy who sits silently in the corner and stares out the window. Stocks would be the guy who wanders the hall and mumbles to himself. And silver would be the guy they keep in the padded room all day.

And with good reason.

As the chart that follow shows us, silver prices are subject to fast, wild swings - up or down. You see, silver trades a little like a precious metal, meaning that it moves wildly when people get worried about a market crash or inflation. But silver is also an industrial metal, so it can trade up or down in line with changes in global manufacturing activity.



Okay, so you now know that silver can move crazily. Now realize the firms that focus on silver mining are pure madness. Their profit margins and asset values fluctuate with more volatility than silver itself. Take one of the largest and best-known silver companies, Silver Standard Resources Inc. (Nasdaq: SSRI).



When the global credit crunch hit last year, Silver Standard saw its share price plunge from $42 to less than $8 - a drop of more than 75% in just three months. But after investors warmed back up to mining stocks, it took the same amount of time to nearly triple in value.

And that brings us back to the present day.

Just last month, Silver Standard saw its shares blast to a fresh nine-month high. The global economy is getting "less bad" - and the aggressive bailout plans that are being rolled out throughout the world have most smart people scared to death of inflation. That’s driving the price of "real assets" - like silver - to the moon.

So the next time you’re looking around for an "inflation trade," consider going long on a company like Silver Standard - or taking a position in the iShares Silver Trust Exchange Traded Fund (ETF) (NYSE: SLV).

If the government’s “funny-money” scheme turns out badly, these positions have a long history of providing gigantic gains in virtually no time at all.

This article has been reposted from Money Morning. You can view the article on Money Morning's investment news website here.

Gold And Silver Update

Last week we saw some big news come out of China regarding gold, and investors are paying close attention. China almost doubled their gold reserves, and after a stretch of falling prices, this news sent prices up. For more on this, read the following post from Tim Iacono.

Big news for the precious metals markets came from China last week when the Xinhua News Agency published comments made by Hu Xiaolian, head of the State Administration of Foreign Exchange, indicating that China's gold reserves had increased by 454 tonnes since 2003. Apparently, they were required to report the new total to the IMF and made a public disclosure at the same time, however, it is not at all clear why there were no previous updates in recent years.

This almost doubled their previous reserve total of 600 tonnes and vaulted China into sixth place on the World Gold Council's list of official gold holdings as noted in this item last week. With almost $2 trillion in foreign exchange reserves and an increasingly vocal dislike of the U.S. dollar in recent months, this big gain comes as no surprise to most analysts, however, the magnitude of the increase in dollar terms was mostly overlooked in media reports.

This addition amounts to only $13 billion - less than one percent of their foreign exchange reserves - and boosts their "percent of reserves held as gold" from 0.9 percent to just 1.6 percent. The "rule of thumb" for western central banks is a stockpile of 15 percent, about ten times the new total, and most analysts expect thousands more tonnes to be purchased.

Prices for both gold and silver were buoyed by the news late in the week but, after two months of mostly lower prices, the metals were due for a rebound. For the week, the price of gold rose five percent to end at $913 an ounce and spot silver surged nine percent to close at $12.89 an ounce.

As a result of this move back up above the $880 level, buy indicators for both gold positions in the model portfolio - Gold Bullion and the SPDR Gold Shares ETF (GLD) - have been changed from green back to yellow.

It will be important to keep an eye on the world's most popular gold ETF since, for the first time this year, metal recently exited their vaults as shown to the right. Inventory has declined by 23.2 tonnes since April 16th after an impressive addition of almost 350 tonnes since the first of the year.
Interestingly, mainstream financial media outlets such as Reuters and Bloomberg now routinely report changes in GLD inventory in their gold reports and also compare their stockpile to official country holdings around the world, something that I've been doing for years. In fact, I remember being disappointed early last year about not being mentioned in an article in the Wall Street Journal after a reporter called to follow up on one of my articles about the GLD inventory passing China's official holdings of 600 tonnes.

It's was ironic to see these two items in the news together last week.

Buying in India has supported the gold price in recent days as the world's most price-sensitive buyers have been on strike for most of the year, only appearing when sub-$900 an ounce prices were to be had as Monday's important Akshaya Tritiya festival neared. This is one of the four most important days of the year for Hindus and is considered an auspicious day for buying long-term assets such as gold, a legend stating that any venture begun on Akshaya Tritiya will bring prosperity.

The recent surge in enthusiasm for the gold price, while welcome, should be tempered by the knowledge that, according to GFMS, about 500 tonnes of scrap gold entered the market during the first quarter of 2009. This is the equivalent of an entire year's worth of scrap metal and exceeds the record 469 tonnes added to gold ETFs around the world over the same period. While I'm sure that prices for precious metals will go much higher at some point, making such a move in the near term will be difficult absent another flight to safety, something that is now looking more likely than it did a few weeks ago.

This post can also be viewed on themessthatgreenspanmade.blogspot.com.

Silver ETFs Continue To Grow

Silver prices have been going up and down, and up and down, but what has continued to steadily increase is the amount of silver being help inside the Silver ETFs. This means that despite the volatility, investors still see silver as a great investment opportunity and are funneling more money into the metal. Commodity investment expert and well known blogger Tim Iacono, takes a closer look at the recent Silver ETF data in his blog post below.

Like its big golden brother, the iShares Silver Shares ETF (NyseArca:SLV) is now regularly making new all-time highs, the latest move coming yesterday with the addition of 199 tonnes. This brings the net gain to 550 tonnes so far in 2009.

The price of physical versus paper forms of precious metals was a hot topic over the weekend at the Cambridge House Investment Conference. The shortage of coins and small bars last year combined with the fact that both of the major ETFs continued to add inventory as prices fell just adds to the discussion, however, not always in an entirely productive way.

Louis James of Casey Research was one of the more level-headed panel participants acknowledging that, while the physical market is a relatively small part of the overall bullion market, recent developments will have an outsized, long-term impact on investor psychology and the market in general.

Full Disclosure: Tim Iacono is Long SLV

This post can also be viewed on themessthatgreenspanmade.blogspot.com.

As The Price Of Gold Rises, What Is An Oscar Worth?

With the price of gold sky high right now, how valuable are those Oscars that got passed out yesterday?

According to The Seattle Times, each Oscar Statuette cost $500 this year, up from $400 last year. In only one year the price jumped $100, or 25 percent! That is pretty amazing, and it goes to show how bad inflation is getting, especially for materials. Each Oscar, according to The Seattle Times, is made from pewter that is plated in successive layers of copper, nickel, silver and gold, and then lacquered and buffed. The price of gold itself has jumped around 40 percent in the last year.

Those who think that $500 isn’t much to pay for an Oscar might be disappointed to know that they can’t be bought. There are strict rules forbidding their sales, and Oscar winners sign contracts guaranteeing that they won’t sell their own award. If they were to break that contract, they would probably fetch more than $500 on the black market, but instead of investing in Oscars, one might want to consider the materials that make up an Oscar.

Even though it seems that silver and gold are at ridiculous highs right now, I think there is more room to grow. Considering the rate at which the Fed is inflating the monetary supply, gold and silver are practically a must for investors right now.