Silver Trading in Shanghai to Extend Surge on Inflation Demand

Silver trading in Shanghai, which jumped 65 percent in terms of volume last month, will continue to increase on demand for a safe-haven investment, even as the government moves to curb volatility and speculation.

“Chinese investors have piled into silver as one of the investment choices to hedge against rising inflation,” Shi Heqing, silver analyst at Beijing Antaike Information Development Co., said today. The government’s move to increase margins in an effort to curb volatility won’t affect buying interest in physical material, Shi said.

Volume on the Shanghai Gold Exchange rose to 33,293 metric tons in April, up from 20,206 tons the previous month, according to data from the exchange, the main bourse in China for trading silver. The central bank raised reserve requirements a day after reports showed inflation and lending exceeded economists’ estimates in April, with consumer prices rising more than 5 percent.

“China’s physical demand for silver may remain high as industrial use from the electronics and solar energy sectors and demand for silver coins and bars will rise,” Shi said. China turned to a net importer of silver in 2010, a situation that has not changed this year, according to Antaike.

Prices in Shanghai have tumbled about 30 percent this month after the exchange adjusted daily trading limits and margins four times in the past week to control speculation. Last week, silver futures in New York plunged the most since at least 1983 after the Comex exchange boosted margin costs by 84 percent. On April 25, the metal reached $49.845, the highest since the Hunt Brothers tried to corner the market in 1980.

Individual Investors

Most of the silver trading in Shanghai is conducted by individual investors, while institutions remained the most active investors in gold and platinum trading, according to the exchange’s data.

Silver for immediate delivery slipped as much as 8.1 percent yesterday to $32.3125 an ounce, the lowest level since Feb. 25. It dropped 1.2 percent to $34.3225 at 1:00 p.m. Singapore time. The Shanghai contract dropped 0.2 percent to 7,646 yuan a kilogram.

The Shanghai exchange widened the trading band for silver contracts to 13 percent from 10 percent today and also raised the margin requirement to 19 percent from 18 percent.

--Feiwen Rong. Editors: Richard Dobson, Jake Lloyd-Smith

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at +86-10-6649-7563 or frong2@bloomberg.net

To contact the editor responsible for this story: Jim Poole at jpoole4@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.