In Ted Butler's Archive


This year’s surge of silver imports to India from the U.S. prompted me to look at the situation more closely. The 1.3 billion population of India is now only about 50 million less than China. Combined, both countries make up 35% of the world population (7.7 billion) and have always been large buyers and holders of gold and silver. Together, India and China absorb close to 50% of total world gold and silver mine production.  India’s gold and silver imports exceed 25% of world gold and silver mine production.

Based upon deep-rooted cultural factors, the flow of gold and silver into India is a one-way affair. What goes there remains there. Demand from India is price-sensitive, particularly in the case of silver. Demand backs off as prices rise and intensifies as prices fall. This is the opposite of what occurs in the West, where investment demand surges as prices rise and falls as prices decline. Therefore, it was no surprise to read that Indian silver imports are surging, given the super-depressed price of silver.

India has always played a vital role in gold and silver. I remember how my longtime friend and silver mentor, Izzy Friedman, as he was deciding whether to make a major investment in silver in the mid-1970’s, actually flew to India to see for himself if the stories of great silver hoards about to flood the market should prices move higher (from $4 or $5) were true. Izzy saw plenty of silver, but none so closely held in large concentrated quantities to pose a market threat. I believe that’s still the case today.

The people of India, according to Google’s import data, are buying more silver relative to gold than ever before. It’s not that gold imports are down sharply, it’s more that silver imports are up sharply. I broke the data from the past 15 years into two segments – the 9 years from 2004 to 2012 and the six years from 2013 to 2018.

For the 9 years 2004 to 2012, the silver/gold price ratio averaged 56 to 1 and India imported an average of 26.5 million ounces of gold and 85 million ounces of silver each year – or 3.2 times more ounces of silver than gold.

Then, over the next 6 years 2013 to 2018, the average silver/gold price ratio widened out to 73 to 1, with silver getting progressively cheaper relative to gold (except in 2016). Gold imports fell slightly to an average annual 25.2 million ounces, while silver imports surged to 188 million ounces annually, up 120% over the yearly average of the prior 9 years. Imports of silver ounces were 3.2 times more than gold from 2004 to 2012. That jumped to 7.5 times more from 2013 to 2018.

The silver/gold price ratio has now widened to 90 to 1. There is every reason to expect that India’s imports of silver have continued to grow, compared to gold. What this means, aside from confirming the price-sensitivity (and good sense) of the Indian buyer, is that prices do have consequences. It’s often said that the cure for low prices is low prices and the record of India’s silver imports would seem to be a confirmation of that.

By depressing the price of silver, JPMorgan may have succeeded in discouraging western investment demand and cornering the physical market for its own accumulation, but has also inadvertently stimulated Indian demand. Should JPM choose to prolong the silver price suppression, the imports to India should continue to surge and with the concurrent decline in world silver mine production, a physical crunch becomes inevitable. Prices do have consequences.

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