http://www.nuwireinvestor.com/articles/china-enters-silver-futures-market-57540.aspx
A New Catalyst for Silver Prices
The Hong Kong Merc's entry into the silver-futures market is a game-changer - for a number of reasons. For one thing, the emergence of a new market player will effectively neuter U.S. elitists like those at the Chicago Mercantile Exchange (CME).
I specifically mention the CME because that exchange unilaterally raised margin requirements on silver by nearly 100% in a mere eight days this spring - after silver prices had risen roughly 150% between late August and the end of April. The CME action helped cause silver prices to plunge by 30% from its recent highs.
It hasn't recovered. [ Silver was still trading in the $39-an-ounce range as of yesterday (Thursday), according to
Longer-term - and probably even more significantly - this move will help investors in China and India buy into bullion. In fact, this will be the first time Chinese (and many Asians in the surrounding markets) can purchase silver-futures contracts and, by implication, take delivery. Historically, investors in those markets had to purchase CME-based contracts that are standardized and traded through the Hong Kong Futures Exchange - in accordance with the Chicago-based CME.
In case you aren't familiar with them, futures contracts require the buyers to be prepared to take ownership and delivery when the contract comes due. Like any other "contract," futures are legally binding agreements for delivery of the underlying asset (in this case silver) at an agreed-upon future date and at an agreed-upon price. Further, they are standardized by futures exchanges with regard to quantity, quality, time and the place of delivery.
Only the price changes, which is why futures contracts can offer more financial flexibility, leverage and financial integrity than trading the underlying physical assets themselves.
Asia is already becoming a bigger factor in the silver market. From 2008 to 2010, silver demand soared 17% globally - including 67% in China alone (reaching 7,495 metric tons), according to the Hong Kong Merc. In fact, China accounted for nearly 23% of global silver consumption last year ...
That makes the new futures contracts an even bigger deal than most investors have yet to realize.
- As the U.S. dollar weakens further - and as China's financial power grows - you can bet that country and its individual investors will escalate their purchases of hard assets. This escalating demand will translate into higher prices for silver. More than 20 of the Asian region's most respected and well established
financial institutions and brokerage houses are already members of the Hong Kong Mercantile Exchange. And that list will grow as trading volumes expand.
I am expecting volume to grow rapidly. And I believe the Hong Kong Merc has the same expectation. Indeed, the exchange's own advertising conveys this ambition: The ads talk about the "new force in global-commodity trading" and refer to the allure of "Chinese access, Asian pricing and global risk management."
The new HKMEx silver-futures contract provides for 1,000 troy ounces (30 kilos), with delivery at specified depository facilities in Hong Kong. This makes it considerably smaller than the 5,000-troy-ounce contract traded on the CME, meaning it could be quite a bit more liquid - which was absolutely the intent.
"The new contract will enable buyers and sellers in China to trade effectively with their counterparts across the world," said HKMEx President Albert Helmig, "while at the same time, allowing investors to gain exposure to silver-price movements and broaden their
http://www.nuwireinvestor.com/articles/china-enters-silver-futures-market-57540.aspx
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