Tuesday, October 19, 2010

The Chinese Are Hoarding Silver...

"Jesse" of Jesse's Cafe Americain link brought the article below to my attention. Silver exported from China has declined 40% this year because of the strong internal demand:
“The demand is coming from all areas, including jewelry, investment and fabrication and this has resulted in a physical market shortage in the Far East...” “There are Chinese investors now hoarding silver, along with other resources, amid anticipation of higher inflation,” Feng said. “China is short of resources so these investors believe the metals will be more valuable in the future.”
Here's the link to the news report:  China hoards silver.

Not much commentary is needed to highlight the implications of that report.  I will, however,  point out a couple of  things:  1)  the Comex paper short in silver is absurdly several multiples higher than the ability of those who are short (JP Morgan, HSBC mostly) to deliver actual physical silver if the buyers make that demand;  2)  The gold/silver ratio is currently around 56; historically this ratio has been fixed as low as 8 (ancient Rome) and usually reverts down to its long term historical ratio of approximately 16 from time to time;  3) It is clear that even if gold were to remain at the current price level, the "poor man's gold" is rediculously cheap in relation to golden gold.

The best way to play this out is to keep accumulating physical silver, especially on price corrections - my preference is 1 oz. silver eagles in sealed mint boxes - and invest in high quality silver stocks (HL, SLW, SVM) and mix in well-researched junior exploration stocks.  I will point out that Silver Dragon (SDRG, I own this stock and so does the fund I manage) is sitting on several properties in the heart of China's silver mining district (Erbahuo), one of which (Dadi) is being developed in partnership with Shengda (China's largest silver mining company).  It has been determined that the size of the silver mineralization of Dadi is quite prolific.  The 43-101 is available on the Company's website:  SDRG

In addition, the Comany has announced its intent to file for a listing on Toronto Stock Exchange (most of the conditions for this have already been met) and it will be filing a 43-101 on its second largest property, Laopandao, sometime this year.  If you are interested, please spend ample time with the Company's website. In addition, CEO Marc Hazout is one of the few corporate CEO's who promptly and personally returns all investor phone calls or email inquiries.  For rediculous regulatory reasons, a lot of valuable information is posted on the website which the Company is not permitted to announce with press releases (don't ask, it's a b.s. NASD regulation).  My view is that once the Chinese have trouble satiating their demand for physical silver, they will turn their attention to investing in local silver mining stocks and SDRG will be get a lot of capital attention when this occurs.


  1. I own a boatload of Silver Dragon and like what they're doing, but I'm a little surprised that the locals haven't started to get interested in this stock yet.

  2. The Shanhai stock exchange fell 30% last year. That tends to wring out and scare away a lot speculative players in any market. Granted it has rallied back quite a bit, but just like here, I'm sure the small penny stock plays have been largely ignored over there. In good time SDRG will explode with a vengeance. Between Mexico and China they have an unbelievable amount of untapped silver resource.

  3. The chart is actually shaped like a dragon.

    Just squint your eyes and back-up from the screen a little to see the outlined image.

    Go to the stockwatch 1 year.

  4. Thank you for the TIP Dave...just bought 10,000 share of SDRG...Much appreciated.


  5. What about resource nationalisation? Do you think the Chinese government might confiscate it?

  6. Anonymous, China has a more free economic system than the U.S. does now, for the most part. I think there's greater chance of nationalization here than in China.

  7. Dave, yes at the moment China does seem to have a more free economic system, but I wonder how bad things are going to get. Charles Hugh Smith has an interesting take http://www.oftwominds.com/blog.html
    I'm not sure, I own Prophecy in Mongolia, which doesn't have such a free economic system.
    If we are about to descend into anarchy, then resource nationalisation has to be considered, if we aren't, then more risk is ok. It's a tough call though!

  8. Anonymous, at "the end of the day," the true cold-blooded 100% correct goldbug would say, and always has proffered, that the ONLY way to truly protect yourself from the system is avoid all paper and own only physical gold/silver in YOUR OWN possession.

    I can't live that way and part of the thrill of living for me is adrenaline I get from trying to outsmart the markets. There will be a period of time that mining stocks will substantially outperform the metal. The "trick" will be to have enough discipline to fold up that tent before the system totally descends into the kind of totalitarianism we all know is coming.

    Until then I'm pressing my "living life" accelerator to the floor and taking what's still available while it lasts.

  9. Did you get the letter from Minority shareholders? What is going on?