China's silver trading volumes up more than 2000%

It's been all about the US Dollar recently. It may be a basket case, but the dollar is still the world's reserve currency. In the last week it has had a decent jump - taking the heat out of commodity prices and stock markets. 

The US Dollar Index was looking pretty sick at 73 just last week, and now sits at 75 - a big move in such a short period of time. However, this is still just a little spike along a firmly established trend to oblivion. As soon as the dollar starts to fall again, the markets should recover. 

US Dollar - slowly but surely on its way out

Source: Bloomberg

So what caused the US Dollar to bounce this week? 

It's actually more a case of the Euro having a big tumble over the last week. More bad news from Portugal and Greece, and it fell sharply by more than 5%, from 1.49 to 1.41. 

A riot in Greece turns into a quick fall in the Euro

Source: Ozforex

This fall in the Euro made the US Dollar look good, but in reality it's just a question of the US Dollar looking 'less bad' than the Euro. It still stinks, and it's still brown, but just a lighter 'shade of brown' than its partner in crime. 

The jump in the US Dollar pulled commodity prices down - as did the numbers for China's commodity imports in April. There were big drops here. The standout here was the big drop in China's copper imports. These were down 13.7% from the month before, and 39.8% from the year before. 

China commodity imports - big fall in copper demand

So it's no surprise that copper has been falling in price. It is now down at $8536 / tonne. This is down from $9521 / tonne just a few weeks ago, when I warned that copper's technical chart was looking a bit dodgy. 

I reckon copper could take a breather for a few months and we may see the price fall closer to $8000 / tonne first. Long term, copper is still very bullish, and I don't think we will have to wait long to see it tackling $10,000 again. 

China also came out with its inflation figures this week. 

April's figure was 5.3%, which is slightly lower than last month's 5.4%, but maintains the upward trend. 

Source: trading economics

China's silver trading volumes up more than 2000%

This is important to follow - as it means higher precious metals prices. The market was expecting 5.2%, so the actual result gave gold and silver prices a decent nudge. Silver was soon back up to $39.50. 

Silver - all over the place this week

Silver briefly got down to $32.34 last night then quickly bounced to $34.57. It wouldn't hurt the silver market to spend a bit of time consolidating in the 30s, as it would make its next move up a bit more sustainable. 

The Chinese inflation data is particularly important, as China is emerging as the main buyer of silver in the recent rally. I mentioned in the newsletter that Chinese silver demand was one big reason to be bullish. The FT reported this morning that:

'...silver turnover on the Shanghai Gold Exchange, China's main precious metals trading hub spiked, rising 2,837 per cent from the start of this year to a peak of 70m ounces on April 26, according to exchange data. The number of contracts outstanding, an indicator of investor exposure, doubled over the same period.'

A great deal of this is probably being purchased by China's ICBC, which has been letting Chinese citizens set up precious metals accounts in recent months. 

'The number of ICBC precious metal customers is surging...to over 3 million by the end of first quarter 2011, a significant boost to its customer base. First quarter data shows that ICBC has sold 17 tons of physical gold, 27 tons of physical silver, nearly as much as for the whole of last year.'

This is just the start. 

At this rate the bank should have another 10 million customers by the end of the year - all wanting to buy amounts of silver that simply aren't available. 

There are plenty of reasons to be bullish silver, but a million new Chinese buyers each month is possibly the biggest reason. 

Silver will hit new highs before long, and will be in triple figures before year's end. Silver stocks stand to make some incredible gains on the back of this. 

If you want a new way to look at the direction China's population and economy is heading, take a minute to play around with this great economics website. Click on 'China' on the list of countries down the side, and then hit play, to see how quickly things have changed in the last few decades. This comes from demographics guru, Hans Rosling.