This analysis was published today in Alasdair Macleod's financial letter at Substack and is reposted here by his kind permission. Macleod's letter is published every few days and a seven-day free trial subscription is available. Rates are $10 per month or $120 per year. To subscribe, please visit:
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By Alasdair Macleod
Tuesday, August 26, 2025
In recent decades China, which ranks fifth in global silver reserves has not only mined 3,500-4,000 tonnes annually but imported large quantities of silver dore for refining as well. Less well known is the role of the People's Bank of China in managing reserves of silver, which many people in China still regard as a monetary metal. China was on a silver standard only 90 years ago.
Today gold is the principal monetary metal and silver is widely regarded as industrial only. But since 1983, along with gold, the PBoC has been responsible for overseeing the accumulation of the nation's silver bullion reserves. The key to this policy has been price management. This article shows how this was achieved.
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About 12 years ago I was speaking in New York at a conference attended by about a dozen silver mining and exploration companies. At that time conspiracy theories about JPMorgan's dealings in the silver market were rife. But when Blythe Masters, then head of global commodities at JPMorgan, went on CNBC --
https://www.youtube.com/watch?v=gc9Me4qFZYo [3]
-- she made JPMorgan's position clear:
"Speculation is [rife] particularly in the blogosphere about this topic and I think the challenge is that speculation represents a misunderstanding as the nature of our business. As I mentioned earlier, our business is a client-driven business where we execute on behalf of clients to achieve their financial and risk management objectives.
"The challenge is that commentators don't see all of that activity simultaneously.
"So just to give you a simple example, we store significant amounts of commodities -- for example, silver -- on behalf of customers. We operate vaults in New York City, in Singapore, and in London. And often when customers have that metal stored in our facilities, they hedge it on a forward basis through JPMorgan, who in turn hedges itself in the commodity markets.
"If you see only the hedges and our activity in the futures market, but you aren't aware of the underlying client position, then hedging it would suggest inaccurately that we're running a large directional position.
"In fact, that's not the case at all. We have offsetting positions. We have no stake in whether prices rise or decline. Rather, we're running a flat or a relatively neutral. ..."
[Interviewer interrupts.]
Silver bulls rushed to condemn Masters, calling her a liar and worse. But I was convinced that a senior executive of her undoubted ability and in her position would be telling the truth. Furthermore, I suspected that Masters did the CNBC interview specifically to quash the wild rumors about JPMorgan's silver dealing rather than ignore them.
So what was JPMorgan's true role in the market?
Clearly, it was intermediating for clients and not taking one-sided positions on its own book. As Masters revealed, the bank took out derivative positions only to hedge its dealings with clients.
The conference in New York gave me a chance to dig a little deeper. I asked the dozen or so silver companies present about the process of how they turned their silver at the mine into cash to pay their costs. They all said that the process started with an assessment of the silver dore's value by a specialist assessor, usually from Glencore, who then arranged for payment and shipment to a refiner. None of the miners admitted they knew where the dore was shipped to for refining. It was no longer their concern. But the common assumption was probably China.
Glencore is a huge commodity trader acting for large mining corporations as well as the smaller miners I interviewed. They obviously worked with a major bank on the payments side, which is where JPMorgan would come into the picture. As soon as the dore was shipped, the cashflow-hungry miner would be paid on the assessor's valuation by JPMorgan. Likely it would be shipped FOB Origin, which means the dore enters Chinese possession at the point of shipment.
Presumably, China (which would have been the PBoC) instructed JPMorgan to hedge the silver price on Comex or London, timed to suppress the price. Note that this is not JPMorgan acting as principal but acting for the Chinese as a client.
As well as being a large miner herself, China was refining considerable amounts of imported dore when some Western refineries were closing down on environmental and cost grounds.
So the hedging book through JPMorgan would have been significant enough to manage the price. We can take this even further, in the context of a normal dealer/client relationship. As dealer and client work together, an element of dealing discretion can be given to the dealer along with dealing objectives.
So what might those objectives be?
As a major buyer of dore, it would have been in China's interest to keep the price as low as possible. And shorting derivatives would have been the means for China to accumulate substantial silver reserves for monetary purposes, which she had already done with gold.
In this context, the original 1983 Regulations on the Control of Gold and Silver appointing the Peoples Bank of China state:
"Article 4. The People's Bank of China shall be the State organ responsible for the control of gold and silver in the People's Republic of China.
"The People's Bank of China shall be responsible for the control of the State's gold and silver reserves; responsible for the purchase and sale of gold and silver; work in conjunction with the authority responsible for commodity prices to formulate and administer a purchase and sales price for gold and silver." [My emphasis.]
Note the PBoC's responsibility for controlling the price of silver.
We know or should know that in the period 1983-2002, when the Shanghai Gold Exchange came into existence under the control of the PBoC, the PBoC was able to secretly accumulate vast quantities of gold, which was in a substantial bear market fueled by American and European financial communities liquidating their bullion holdings in favor of dollars.
I believe that during this period China secretly acquired as much as 20,000 tonnes, hidden by being spread around various state bodies.
These easy conditions for accumulating gold were not generally true for stockpiling silver in the far larger quantities required, reflected in the price relationship between the two monetary metals. The PBoC had to use different tactics. The practical way to accumulate massive quantities of silver was to become the world's refiner and manage the price. In other words, to keep it suppressed principally by selling as a covered bear in paper markets.
Blythe Masters had no need to lie about JPMorgan's role in this. Between Glencore and China as its customers, JPMorgan would be central to achieving the outcome China desired.
There is another and rarely mentioned aspect to this puzzle. Note that under Article 4 of the regulations appointing the PBoC no distinction is made between gold and silver. For the purposes of the regulations, silver is as much money as gold, a reserve to be controlled by the central bank as general backing for the currency.
China was on a silver standard as recently as 1935. Ordinary people accumulated silver as wealth and banks kept reserves in silver. For the Chinese population, silver was their money as much as gold was in the West. There is every reason why silver should be singled out in the regulations to have the same status as gold.
Will China continue to suppress prices? Those days are probably over. Almost certainly China has accumulated substantial silver reserves, more than enough for a supporting monetary role to gold. The state's monetary silver reserves are likely to be segregated from industrial production, which has become an uncontrollable source of demand.
Clearly, the PBoC understands the role of monetary metals, which is ultimately to secure the value of credit. They know that gold and silver values are generally stable and that it is credit that declines. China's very public disposal of dollars for gold tells us that it is no longer suppressing gold prices. What goes for gold must also apply to China's policy regarding silver.
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