Silver, China... and Opium

Let history and technical analysis guide us as we look at the silver rally. May 16, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Silver, China… and Opium SEAN RING Dear Reader, China has always valued silver for many reasons, perhaps even more than gold. So it’s no surprise that silver is taking off in Shanghai trading, moving the pricing power from West to East. In short, the Shanghai rally has pulled western silver futures contracts up to nearly $30 per ounce. As I sat in our weekly editorial meeting, good friend and Rude contributor Byron King reminded me of those facts. And then I thought about opium. No, it’s not a non sequitur. Silver and opium were intimately intertwined in the 19th century. The mere mention of the Opium Wars sends the average Chinese person into a patriotic rage. I remember dating a young Chinese woman when I first lived in Singapore. She loathed the British. I couldn’t believe it. I said, “You’re in your twenties. Why do you care anymore?” She explained how the Chinese taught history. It’s as much about emotions as facts. So, let’s examine why the Chinese love silver, why the British fed the Chinese opium, and where silver might be going today. The Chinese have valued silver highly throughout history for several economic, cultural, and practical reasons. The Historical Significance of Silver in China The Chinese have long held silver in high regard, and this preference is deeply rooted in economic, cultural, and practical factors that have shaped the nation’s history. Economic Factors During the Ming (1368–1644) and Qing (1644–1912) dynasties, silver became the cornerstone of China's economy. It served as the primary medium for large-scale transactions and tax payments, increasing its demand significantly. The Chinese government mandated that taxes be paid in silver, further solidifying its importance. From the 16th century onward, China's participation in global trade, particularly with the Spanish Empire, saw an influx of silver from the Americas via the Manila galleons. Chinese goods like silk and porcelain were highly prized in Europe, and silver was the preferred payment method. This international trade network further integrated silver into the Chinese economy. Silver's intrinsic value, as opposed to the more volatile and easily counterfeited paper money, made it a reliable store of wealth. It was universally accepted and less susceptible to inflation, providing economic stability. This reliability was crucial in a nation often experiencing political upheavals and regime changes. Cultural and Practical Factors In Chinese culture, silver symbolizes wealth, prosperity, and status. It was used as currency and in jewelry and household items, showcasing its significance. In Feng Shui, silver is believed to have protective and purifying qualities, further enhancing its cultural value. Silver’s durability and resistance to corrosion made it ideal for long-term storage and use in coins and artifacts. Chinese artisans skillfully crafted silver into intricate jewelry, ornate household items, and religious artifacts, reflecting wealth and artistic talent. Historical Context Before adopting silver widely, China experimented with various forms of money, including cowrie shells, bronze coins, and paper money. These systems often faced issues like counterfeiting and inflation. Transitioning to a silver-based monetary system provided a more stable and reliable economic framework, facilitating trade and taxation. The global silver trade, especially the flow of silver from the Americas to Asia, profoundly influenced China's economic policies. The country absorbed vast amounts of silver, integrating it deeply into its economy and shaping its monetary practices. Now, let’s take a closer look at why the British drugged the Chinese. The Opium Wars and the Role of Silver The Opium Wars were a series of conflicts between China and Western powers, primarily the British, during the mid-19th century. In the 18th and early 19th centuries, Britain had a significant trade imbalance with China. The British demand for Chinese goods, mainly tea, silk, and porcelain, was immense, but China required little from Britain. The British were paying for these goods with silver, which drained their silver reserves and exacerbated the trade deficit. The Opium Trade To address this imbalance, the British East India Company began exporting opium grown in India to China. Let’s imagine a conversation between British merchants trying to procure some tea, which only grew in China at the time. Their problem was that the Chinese emperor didn’t want any British export crap; he would only take silver. Let’s join our friends, who are brainstorming over a pint of IPA—India Pale Ale—which doesn’t need to be refrigerated and can be shipped from the homeland. “What are we going to do? The damn emperor won’t trade anything for the tea!” “But those Chinese like to chase the dragon, don’t they?” “What?” “So?” “I’ve got an idea… How about we sell them the opium for silver…” “And then use the silver they give us to buy their tea!” “That’s it!” “Matey, you’re a genius!” And that, my friend, is how the Opium Wars started and how the British Empire became the greatest narcostate in human history. However, the trade became so large that by 1865, the Hong Kong Britishers needed a bank to finance it. Step forward, Thomas Sutherland, director of the P&O ferry company and founder of the Hong Kong and Whampoa Dock Company. Sutherland founded the Hongkong and Shanghai Banking Corporation - now you know them as HSBC. To spell it out for you: HSBC was founded to launder drug money. Yes, I just wrote that. Sure, they financed many other things and still do a great job. Heck, they’re my bank in Hong Kong. Nevertheless, the Hongkong and Shanghai Banking Corporation was formed to finance the opium trade. The First Opium War (1839-1842) The Chinese government, recognizing the detrimental effects of opium, sought to ban the opium trade and confiscate large quantities of the drug. This action provoked the British, leading to the First Opium War. With its superior naval power, the British military defeated the Chinese forces. The Treaty of Nanking (1842) ended the war, imposing several conditions on China, including: - The cession of Hong Kong to Britain. - The opening of five treaty ports to British trade. - A large indemnity was to be paid by China to Britain. - Granting of extraterritorial rights to British citizens in China. The Second Opium War (1856-1860) Tensions never subsided, leading to the Second Opium War. This conflict, also involving France alongside Britain, resulted in further Chinese defeats and more punitive treaties, including: - The legalization of the opium trade. - The opening of additional ports to foreign trade. - Allowing foreign envoys to reside in Beijing. The Opium Wars caused untold damage to China. Besides losing the wars, the inflow of opium led to a significant outflow of silver from China, reversing the previous trade imbalance. This outflow of silver destabilized the Chinese economy, leading to inflation and widespread economic distress. The widespread opium addiction created severe social problems, including public health crises and increased crime rates. And now you know why the Chinese like to stick it to the Brits whenever possible. And if you’re thinking what I’m thinking (fentanyl), the Brits gave the Chinese their playbook. 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Credit: [@KingKong9888]( Silver looks like it’s attempting to close the gap now on high volume, which is a great sign. Credit: [@TheBubbleBubble]( Posting the highest close in 11 years is not indicative of a bear market. Credit: [@goldseek]( Silver finally broke out of its 13-year downtrend. Credit: [@i3_invest]( And the gold-silver ratio (GSR) is heading downward. That’s good, as silver leads in precious metals bull markets. Credit: [@graddhybpc]( [@DonDurrett]( Finally, to tie this back to China, here is the Shanghai close from yesterday: Credit: [@oriental_ghost]( [@DonDurrett]( On the Shanghai Gold Exchange, silver closed at the equivalent of $32.63 per ounce. On the Shanghai Futures Exchange, it closed at $32.68 per ounce. As I write (at 5:15 a.m. ET), spot silver is trading at $29.45. That’s a full $3 difference. And that pressure from Shanghai won’t subside anytime soon. Wrap Up You have some background, history, and charts on silver today. I hope it helps you paint a fuller picture of what’s happening in the world. Again, I don’t want to sound pushy, but silver still hasn’t popped yet. We’re getting there soon, I think. Consider looking at silver coins, bars, and mining stocks. They may determine how well you can live in the future. All the best, Sean Ring Editor, Rude Awakening X (formerly Twitter): [@seaniechaos]( Rate this email Like Dislike Thanks for rating this content! Looks like something went wrong. Please try to rate again. In Case You Missed It… Why Today’s CPI Number Matters So Much SEAN RING Today at 08:29 Eastern Time, traders will be staring at their screens, hand on mouse, like they’re ready to draw at the OK Corral. At 08:30, we’ll know if the Fed will cut rates this summer or not. Why is this? Because the April CPI number will come out and tell us whether or not the Fed has inflation under control. It’s no matter that the way the Bureau of Labor Statistics (BLS) calculates the CPI is complete bullshit. It doesn’t matter that a cup of coffee has gotten so expensive; the statistics guys removed it from the calculation. That number will tell the Fed to cut or not to cut. To ensure we’re on the same page, the CPI is the Consumer Price Index. Though its methodology is entirely flawed, Fed Chairman Powell relies on it to determine whether he’s cooled the fires of inflation. Simply put, we take a basket of goods in March, measure its price, and then take the same basket in April and calculate the price difference between the two monthly baskets. In our stupid Keynesian world, the price rarely goes down. The problems started when the BLS statisticians added cheap goods and removed expensive goods. As I mentioned above, the stat guys removed coffee from the basket. I know exactly two people who’ve never drunk coffee. It’s people's fuel. That it’s no longer in the basket is absurd. The BLS stats guys call it “hedonic adjustments.” Most other people call it “lying.” The CPI’s expected month-on-month increase was 0.3% for the last three months. The CPI missed its target each time, recording a 0.4% gain. The trouble is that the PPI, or Producer Price Index, came in yesterday above expectations. (The PPI is like the CPI but measures price changes for wholesalers, not retail folk.) So, the likelihood of the CPI coming in below expectations is low. It’s not impossible, but it’s low. Quite frankly, no amount of book-cooking coming from the government’s economists would surprise me. Let’s get into why this potential Fed move is so important. Asset Markets I just re-watched my presentation (with prediction) in the [Paradigm Press Seven Predictions on YouTube](. I predicted an SPX of 5,000 and a gold price of $2,500 by the election because of all the goodies the Democrats will hand out to try to win the election. The SPX has already reached 5,000, so I was too conservative with this prediction. I still stand by my gold prediction, but I was wrong that gold and the miners needed a pivot to rally. They obviously didn’t. I’m still bullish. But the likeliest scenario tomorrow is that the CPI comes in hot. That means it’ll overshoot the consensus again. If that happens, the market will know Powell doesn’t have the green light to cut rates yet. The market will sell off, and it may be a terrible day indeed. But if the CPI falls below expectations, Powell is getting the punch bowl back out. I also said, and stand by, that Jay Powell doesn’t want to work for or be fired by The Donald. So Powell has a vested interest in letting his dovish colleagues win and cutting rates. If not at this next June meeting, we’ll wait for two months more for data before he moves at the late July meeting. 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Europe Needs a Lifeline Most economists thought the Fed would lead central banks in cutting interest rates. I, myself, thought that would be the case. We were wrong. The Swiss National Bank cut interest rates in March, and Sweden’s Riksbank cut in May. From Capital Economics: In Switzerland’s case, core inflation has dropped to only 1.1%, which is consistent with the SNB’s “below 2%” target and much lower than elsewhere. Swedish core inflation has also been relatively subdued. Moreover, Sweden’s economic performance has lent itself to earlier loosening as the economy contracted for a fourth successive quarter in Q1 as mortgages responded quickly to higher interest rates. The Eurozone needs help, fast. Its GDP has only grown by 3.4% since Q4 2019 (or just 2.5% if we exclude Ireland). This is the Real GDP change since December 2019 among major economies: Credit: Capital Economics Since the Eurozone’s inflation rate isn’t out of control, they have room to cut. The UK, however, has an inflation problem (below) and terrible GDP growth (above). The UK’s inflation rate is second only to Norway. So Europe will probably cut first, followed by the Fed. Then, the Bank of England will cut rates in late summer or early autumn. Wrap Up Today is a big day for domestic asset and mortgage markets and central banks at home and abroad. I suspect inflation will be hot, but that’s not a prediction. No one knows what the BLS statisticians will concoct this month. But if I’m correct, the Fed will probably hold in June and cut in July, depending on future inflation data. If I’m wrong and inflation is tame, the Fed will surely waste no time to cut. Remember, Jay Powell doesn’t want to work for The Donald again, but he can’t make it look political. The further he cuts from the election, the better for him. If I were Powell, I’d pray for a tame number. Or I’d pick up the phone to the BLS and put a thumb on the scale. All the best, Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. 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