Chinese Silver Investors Bring Suitcases of Cash and Leave in Moving Vans

Tue, Mar 8, 2011 - 12:00am

It was recently reported in the Suzhou evening news that a local investor in the Nanjing area bought one ton of silver bullion over the counter from a local coin and bullion dealer. The total purchase value amounted to well over $1 million USD. The investor and a team of helpers had to haul twenty small trunks out of the store and into a moving van to complete the transaction. The investors silver bullion was denominated in small 1,000 gram bars. Despite the local dealer being an affiliate of a large state owned bank in China it took the dealer several months to acquire the full amount of silver.

The Guangzhou Daily also reported that another man went into a local bullion dealer in Guangzhou and bought 10 million RMB worth of physical silver. This amount converts to roughly $1.5 million USD. This Chinese investor and his assistants brought in eight suitcases full of cash to complete the transaction.

Welcome to precious metals investing…..Chinese style.

Demand for precious metals in China is skyrocketing. High inflation and a lack of investment options are the main culprits. With new housing regulations bringing housing investment to a standstill, investors are looking for new ways to invest cash. The housing market looks to go down or stay flat and the stock market is widely viewed as corrupt and risky. Physical Gold and Silver are becoming increasingly popular.

Everyone is aware that gold imports into China have been surging. In 2010, gold imports into China grew by 500%. Gold bars in several sizes are now sold through the retail banking chains all across the country. You can keep your cash bank account denominated in paper gold and instead of keeping your cash in a bank account earning a few points a year you can convert it online into paper gold and reconvert back to cash at anytime.

What is less well known is that China’s net imports of silver hit a record high in 2010 with the volume quadrupling to a total import amount of 3,500 tons. This is a major shift as China was previously a net exporter of Silver.

In 2005, China exported silver in the amount of 3,000 tons. China is the world’s 3rd largest Silver producer and yet they have now moved from the sell-side to the buy-side. Before last year the buy side was not that significant of a quantity but a four fold jump of imported silver in 2010 has changed the equation.

In China, Silver has served historically as the main medium of exchange in China. It was an official currency in China as far back as the Han Dynasty (206BC-220AD). Silver Ingots were used to horde wealth and Silver Taels were produced by the government to function as currency or to back a paper currency. The Chinese word for “Bank” is literally translated as “Silver House”

Believe it or not, the Dynastic governments would often over-print the currencies against the national silver holdings which would result in a collapse of the paper currency and a rush back to silver. Sound familar anyone?

Today, local silver and gold dealers are semi-government affiliated companies that often have a relationship with a major state-owned bank. They sell Silver physical bullion in bars of 500grams, 1,000 grams, 2,000 and 5,000 grams.

Not to be left out I myself rushed to the dealers last week to lock in some physical Silver. It was not as easy to order the Silver as I had expected. In the negotiation process they showed me a book full of receipts written for other investors who had already paid for their Silver but had not yet been delivered the metal. They have a huge back log of Silver purchases and are unable to fill demand. And the end of the day, I got to make my purchase and lock in the price. Not yet sure when I can collect. They said they will call me….next month.

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