Surging Gold and Silver prices creating chaos in Chinese markets

With demand for gold and silver at a fevered pitch, speculative mania has driven premiums in China to extremely high levels, creating tension in the marketplace.

As Bloomberg reported, the precious metals frenzy created by rapidly rising prices has increasingly exposed Chinese investors to high levels of risk as local prices soar high above international benchmarks.

Gold has surged to over $5,500 an ounce, and silver briefly topped $120 on Thursday (Jan. 29). The Shanghai silver premium has run above $5 an ounce this month, with gold premiums spiking as high as $100.

Bloomberg characterized the appetite for precious metals in China as “insatiable.”

This has created problems.

According to Bloomberg, authorities in the southern city of Shenzhen set up a special task force to oversee the operations of a gold-trading platform. According to a statement from the Luohu district government, investors faced difficulties withdrawing funds from their accounts.

Meanwhile, China’s sole pure-play (silver only) silver fund recently halted trading temporarily and turned away new investors. 

Unable to withdraw funds, around 100 investors showed up at the offices of the Shenzhen Jiewo Rui gold-trading platform. Video showed a few people scuffling with police.

According to Bloomberg, the trading platform allows users to lock in future prices by posting as little as 1/40^th of the spot price. In effect, the platform offers 40-times leverage. For this scheme to work, Jiewo Rui must hedge against price swings and maintain adequate fund flows, along with maintaining enough gold inventory for delivery. As Bloomberg put it, “With gold prices hitting successive highs, this becomes especially challenging.”

Jiewo Rui reflects the struggles of many small and mid-sized gold trading platforms in China.

Shenzhen is home to the largest physical bullion marketplace in China. Last fall, the local industry association issued a warning, citing a crackdown on three companies unable to make deliveries or release funds. 

On Wednesday, the E Fund Gold Theme Fund tried to calm the exuberance by halting new subscriptions. 

The Chinese silver market is even tighter. A major seller in the city’s Shuibei market recently defaulted on delivery, leaving more than 350 people waiting for compensation.

The underscores one of the primary dynamics driving the silver market. There simply isn’t enough metal. Silver charted its fifth consecutive structural market deficit in 2025 based on preliminary analysis of the data. The shortfall will likely exacerbate tight supply issues that have precipitated a significant silver squeeze.

The structural market deficit came in at 148.9 million ounces in 2024. That drove the four-year market shortfall to 678 million ounces. Including the projected 2025 shortfall, the market deficit will likely be well over 800 million ounces, an entire year of mining output.

Given the short supply, several Chinese silver funds have halted new subscriptions.

On Wednesday, UBS SDIC Silver Futures Fund LOF took that step. The fund has frequently paused trading and issued warnings almost daily since early December. The fund was running a 36 percent premium over Shanghai Futures Exchange silver contracts, according to data compiled by Bloomberg. 

In its latest notice, the company called the premium “unsustainable” and warned investors could face significant losses if the market suddenly turns.

Here in the U.S., many retailers have reported shortages of metal, particularly silver. Here at Money Metals, we have plenty of inventory, and we currently have no order restrictions.