How Beijing Controls Global Gold and Silver Flows

China’s rise as the world’s dominant physical bullion hub has exposed deep structural fractures across Western gold and silver markets, revealing a system stretched far beyond its limits. Years of reliance on leveraged contracts and non-deliverable liquidity have left legacy exchanges vulnerable, while physical demand from sovereigns and institutions accelerates through BRICS-aligned channels.

In recent commentary, long-time market specialist Andrew Maguire notes that Western pricing mechanisms have reached a critical turning point after decades of misalignment with physical supply and demand. As participants abandon futures-based venues for physically-settled markets, liquidity has thinned to the point where remaining actors are predominantly speculators, making published benchmarks increasingly detached from reality.

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The migration of institutional flows through the expanding gold corridor has created a dual-market environment: one rooted in immediate physical settlement, the other dependent on synthetically produced supply. With around 96% of Western contracts leveraged and lacking a clear path to delivery, the divide between deliverable spot markets and futures-based pricing has widened into a structural break.

Persistent backwardations across COMEX highlight the imbalance. Futures prices sit at steep discounts to deliverable metal because the paper contracts cannot be fulfilled at scale. These distortions have become a reliable beacon for sovereign buyers, who use discounted Western benchmarks to acquire bullion before it is redirected into physical-only markets.

Each backwardation event triggers arbitrage through BRICS-supported channels, draining Western vaults and tightening availability. The introduction of physically backed trading on the Shanghai Futures Exchange in 2024 amplified this dynamic, drawing thousands of tonnes of metal out of diluted Western inventories. Because every bar must be fully funded before sale, physical pricing has increasingly decoupled from legacy mechanisms.

Beijing’s long-term gold accumulation strategy – supported by domestic policy and a high household savings rate – has reshaped global flows. China’s pricing influence now feeds directly into international markets, challenging Western traders who still operate within a framework built on synthetic liquidity.

While gold has absorbed the bulk of global flows, silver has emerged as the most exposed element of the Western system. Surging spot demand, export controls, and dwindling above-ground stocks have pushed silver backwardations to levels never previously recorded. Fixed spreads of 56–60 cents per ounce reveal a market in acute stress, with London unable to source metal at current synthetic prices.

Over 600 tonnes have been delivered through COMEX this month (November 2025), yet more than 2,100 tonnes remain open – volumes that, according to Andrew Maguire, do not exist in deliverable inventories. Large SLV drawdowns and silent off-exchange loadouts confirm that official buyers are absorbing every available ounce, with Western trading houses facing losses that cannot be resolved by creating more fiat currency, Andrew points out.

Every attempt to cap gold or silver through derivatives, options, or pit-opening interventions has created temporary distortions followed by rapid physical purchasing from sovereigns. These cycles form the physically backed “stair-step” profile now underpinning both metals. As liquidity thins, Western institutions are losing the ability to defend short positions, forcing them to cover at progressively higher levels.

ETF structures add further vulnerability. Billions in short positions exist against GLD and SLV despite questions over bullion backing, leaving shareholders exposed to the risk of unallocated settlement in a crisis. Many institutional holders remain “sticky”, limiting the ability of short sellers to shake them out and increasing the pressure on counterparties forced to source metal they do not have.

Daily unallocated volumes at the LBMA mask a more serious issue: only a few tonnes of NSFR-compliant metal are ever offered at the fixes, and these are quickly absorbed. The Pentagon-scale restocking by central banks, combined with the reweighting of global reserves away from US Treasuries, has created unrelenting demand that Western markets cannot meet.

Major banks have now adjusted their forecasts accordingly. Institutions such as UBS, JPMorgan, and Goldman Sachs expect materially higher gold prices into 2026, aligning with projections that once appeared overly ambitious. As Andrew reveals, external research increasingly supports assessments that China’s undeclared gold holdings may exceed 80,000 tonnes – figures that fundamentally reshape global reserve dynamics.

As BRICS-backed settlement systems gain traction and SWIFT alternatives expand, sovereign demand is becoming increasingly indifferent to short-term market moves, with accumulation driven by strategic necessity rather than day-to-day fluctuations. Central banks accumulate physical tonnes irrespective of short-term moves, prioritising protection from currency debasement over speculative timing. Institutions are following the same path, mirroring a trend that has defined 2025’s record inflows.

This transition has left synthetic markets with fewer participants, reducing open interest and thinning liquidity. Momentum traders now dominate Western futures trading, creating shallow wash-and-rinse cycles that end with higher structural support levels each time physical buyers step in. The Bank for International Settlements has already signalled the shift by closing hundreds of tonnes of derivative exposure ahead of the transition.

The escalating backwardations into first notice, extreme silver tightness, and the persistent drain on Western inventories point to a market approaching one of the most significant inflection points in decades. With synthetic structures losing relevance and physical markets increasingly setting the global benchmark, the capacity for Western institutions to influence pricing is diminishing.

For long-term holders, the implication is clear: physical accumulation is becoming more difficult, not less. The narrowing window reflects a structural realignment rather than a temporary divergence. As bullion transitions to a global pricing regime rooted in physical settlement, the opportunity to secure ounces at current levels grows more limited by the week.

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