Posted 23rd October 2020

China's gold and silver buying spree tightens physical supply

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Andrew Maguire explores the marketwide implications of China buying gold and silver in vast quantities.

‘Talking Gold’ – a fortnightly update from Kinesis Director and precious metals expert, Andrew Maguire, providing a detailed round-up of the recent action in the gold and silver markets – a regular feature from the Kinesis Youtube show ‘Live from the Vault’.

In this week’s deep dive into the gold and silver markets, Andrew Maguire reveals China’s unprecedented move into physical silver. The precious metals expert also shares word of the People’s Bank of China (PBOC) securing huge quantities of gold doré bars from the African region.

Andrew Maguire breaks down the combined impact of these developments on the paper markets and physical supply.

China sources African doré bar supply

Andrew Maguire reveals China is buying gold doré bars in huge quantities, circumventing the LBMA bullion banks and refineries. According to industry sources, the People’s Bank of China is now strategically frontrunning every available ounce of the raw material.

What’s more, Andrew Maguire reports the PBOC has secured thousands of tonnes of raw supply at close to all-in global mine costs. As a result, the LBMA is losing out on the cheap mine supply they have relied on to suppress the gold price in the markets. 

However, according to Andrew Maguire, the structural change in bullion flows has gone unreported by mainstream media sources. With most coverage misreading a reduction of flows from the West to China, as a lack of demand for gold.


China’s move into the physical silver market

Andrew Maguire has it on reliable information that China has aggressively moved into the physical silver market. According to Andrew Maguire’s sources, the nation is buying physical silver mine supply in very large size. 

The precious metal expert believes the unprecedented move is already tightening up wholesale supply. Andrew Maguire reports that wholesale dealers are already experiencing the effects. Such as dealers having their silver allocations cut, even more so, in a period of already very tight supply.

Watch Andrew Maguire reveal the algorithms behind the recent downwards price movement in gold and silver, in last week’s Talking Gold from fortnightly Kinesis show ‘Live from the Vault’.

Impact on the paper markets

As Andrew Maguire sees it, this shift in bullion flows explains the disconnected margin increase in the paper markets last week. 

Andrew Maguire reports never seeing “such a large percentage increase on an overnight increase in borrowing costs” for Silver and Gold Futures. For example, Andrew Maguire cites a 14 per cent, or $2000, per lot increase in SI Futures margins.

In general, there are only two reasons for a significant margin increase:

  • Very large price rise 
  • Very disruptive volatility

However, the Futures markets have remained in the same flat range through the last 4 COT weekly. Following four weeks of flat prices, Andrew Maguire believes the hikes in margins are otherwise unexplainable. 

There is absolutely no credible reason for those margins to be increased.

Andrew Maguire

What does this mean for the gold and silver markets?

In conclusion, as Andrew Maguire sees it, a tiny percentage of supply disruption can alter the paper game. The aggressive move of China buying gold and silver in huge quantities is tightening supply, and leading to tighter restrictions. Andrew Maguire believes tighter supply and tighter restrictions exhibit a firmly bullish setup. 

Andrew Maguire’s parting thought:

Given what’s coming down the pike here I would not be sitting down waiting for a possible price dip, because you could be left on the sidelines here.

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Next Episode: Andrew Maguire carries out another detailed round-up of the gold and silver markets. 

The opinions expressed in this publication are those of Andrew Maguire and do not purport to reflect the official policy or position of Kinesis.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.