Shanghai Silver Premium: The 13% Is China's VAT, Not Demand

Thirteen points of the Shanghai silver premium are China's value-added tax. The Shanghai Gold Exchange (SGE) quotes silver with that VAT already inside the price. London and New York quote their wholesale benchmarks before tax. So a 13% gap between Shanghai and New York is not China outbidding the West but two markets agreeing. On 6 October, MetalCharts' tracker ended the day at 13.0%.

Take the tax out and that gap comes to roughly zero.

Even that close was a week old on one side. The exchange stopped trading on the afternoon of 30 September for China's National Day holiday, and its own notice has it reopening on 8 October. Every "live" premium quoted in between has set Shanghai's last price against a New York price that kept trading. By the afternoon of 7 October the same tracker read 16.03%. That three-point jump came without a single Shanghai trade.

Maybe that number is on your phone right now. It sits under a headline about Western vaults running dry, beside a buy order that feels urgent because the gap looks so wide. Show it to Magnus first. He learned the metals trade on bank desks in three countries. The reflex he kept from all of them is to take a premium apart before anyone trades on it. You'll sit beside him while he does it to the Shanghai number.

Magnus lays his thumb over the percentage. He wants to know what each price underneath is made of. A gap between two numbers only tells you something once both are built from the same things.

What is the Shanghai silver premium comparing?

You can answer the easy half. The Shanghai number is the SGE's silver benchmark, quoted in yuan per kilogram and converted by the tracker into dollars per troy ounce. The other is dollar spot, set in London and New York. A tracker divides one by the other and prints the gap as a percentage. Headlines take it from there.

They have had plenty to work with this year. In January an X post from The Kobeissi Letter put Shanghai at "a record $124/oz" against $108 in the US. It called the gap a "+$16 PREMIUM". Since late August, the silver price in China has held near 13% over the US price. Read cold, that is a country overpaying for metal week after week, and it is the natural answer if someone asks you why silver is more expensive in China. Factories, solar panels and emptying Western vaults do the rest.

"Before I believe a country is paying more, I want to know whether it is paying for more," Magnus says. He means the tax, because a premium only measures appetite between like and like. The Shanghai price contains one thing New York's doesn't.

Why does the Shanghai silver price include 13% VAT?

Magnus finds the answer in a rulebook written for accountants. The SGE's invoice rules give silver a chapter of its own. For gold and platinum the exchange writes settlement invoices itself, but for silver it writes none. When metal is delivered, the seller invoices the buyer directly. Article 23 sets the price on that invoice at the trade day's settlement price, labeled "含税价": tax included.

The exchange backs that rule with cash. Since March 2023 it has frozen 13% of a silver seller's payment until the invoice exists, a share its notice (in Chinese) sets at "the current national VAT rate". A seller who misses the deadline forfeits the frozen money. The rules pass that money to the buyer, to cover the input tax the buyer can no longer reclaim. Nobody covers a lost tax credit unless the tax was paid.

In Shanghai, the buyer pays it inside the price.

"Doesn't the tax wait for delivery?" you ask. "It is not collected on every trade, but it is priced into every one," Magnus says. Every trade on the exchange happens at the price that invoice will call tax-inclusive the moment anyone takes silver out. A buyer who never touches a bar still pays it. Taking the tax back out is arithmetic for a phone calculator: divide one plus the headline premium by 1.13, then subtract one. "Run it on every number they printed," Magnus says.

With the tax out, the three late-summer readings sit within a tenth of a point of zero. January's "+$16 PREMIUM" shrinks to 1.6%. The widest net gap is the reading taken with Shanghai shut.

Someone still pays that 13%. Under the SGE's delivery rules, no individual can take delivery of silver. Neither can international members and clients, or any company that isn't a VAT general taxpayer, China's term for a business registered to charge the tax and reclaim it. The firms left at the delivery counter are exactly the ones that can claim the tax back as input tax. VAT is built to land on the last buyer in a chain, the one with nobody left to pass it to, and that buyer never reaches the exchange. For a company buying silver to make solar paste, the tax is cash tied up until its next VAT return. It says nothing about how badly that company wants metal.

A price made behind a door like that tells you about the door first.

Gold trades on the same exchange without the tax

"So gold's Shanghai premium is tax too," you guess. Magnus shakes his head. Gold sold through the SGE is exempt from VAT, under a rule that goes back to 2002. When China's finance ministry and tax administration rewrote it in late 2025, they kept the exemption for sellers of standard gold on the SGE and the Shanghai Futures Exchange.

Same exchange, two tax regimes.

So a gold premium in Shanghai has nothing to strip, and a gap there is a gap in the price of metal. Silver's premium is a tax before it is anything else.

Gold has its own version of the trap, run on price. When gold passed Treasuries in central banks' reserves, the ranking moved because gold's price rose, and anyone who assumed the buying had changed took the wrong lesson from a true number. Silver's premium is a true number of the same kind. It can sit there for months without a single extra ounce wanted behind it.

What would a real Shanghai silver squeeze look like?

You aren't ready to let the squeeze go, and Magnus doesn't ask you to. "So China can't pull silver east?" you ask. It can, he says, and you would see it happen, because a real pull moves metal.

He reaches back ninety years for the proof. In the mid-1930s an American silver-buying program lifted the world price far enough that silver drained out of China. It was smuggled where it couldn't be shipped, until China gave up its silver standard. "Metal goes where the price pays for the trip, even when it's told to stay," Magnus says.

Today the trip runs from London to Shanghai, through an importer. It pays freight, insurance and license premiums, plus the VAT at the border, which it recovers when it sells. FXStreet's Przemyslaw Radomski puts the all-in cost of landing bullion in China at "roughly 15% to 20% above pre-VAT global spot", on MetalCharts' stated methodology. Only the tax is published, he notes; the rest is an estimate. A headline near 13% sits under that hurdle. At that level the premium is not a pull east but a reason for metal to stay where it is.

That gives the squeeze a shape you can watch for. MetalCharts' series has caught two: a squeeze in June 2024 and a run at the end of this January, each closing above 20%. Net of tax they still come to roughly 7% and 8% (computed), clear of that landing estimate. A premium like that, holding for days with both markets open, means Shanghai is paying more than it costs to bring silver in. Somebody will be bringing it in.

Below 13%, net of tax, the cheap market is Shanghai. An 11% headline still sounds like a squeeze, yet it puts Shanghai about 1.8% under New York (computed). MetalCharts says its latest close was higher than 89.1% of the daily closes in almost three years of its series. So nearly nine closes in ten came in under 13%.

Net of tax, the famous premium has been a discount, or nothing, nearly nine days in ten.

If you have watched Bitcoin trade below the global price in Korea, you have asked this question before in another market. A regional gap is only money if something can cross to close it. Somebody also has to be allowed to carry it. Every premium between two markets is a statement about the border between them: what it costs to cross, and who may.

What happened to the premium while Shanghai was shut?

Magnus has no quarrel with the 16.03% on your phone. It is honest arithmetic on two real prices, and one of them is a week old.

The SGE's holiday notice (in Chinese) sets out the calendar. Shanghai shut for three days over the Mid-Autumn Festival in late September, traded for three more, and skipped its night session on the last evening of the month. Then it closed for the whole National Day week. Of the nine weekdays from the start of that festival to the reopening, Shanghai traded on three, while London and New York traded on all nine and silver tokens traded every hour in between.

With one side frozen, the premium mirrors the other market. Every percent New York falls adds a little over a point to it, and every percent it rises takes about as much away (computed). Overnight, New York slipped about 2.6% by the tracker's own figures, so the headline climbed three points to the number on your phone. Net of tax that leaves about 2.7%, every bit of it made in the one market that was open.

"The cheapest way to make a premium is to shut one market and wait for the other to move," Magnus says. The exchange planned for that moment. Before the break it raised the margin on its Ag(T+D) silver contract, citing price swings in international markets during the holiday.

A shut exchange isn't the only way to make one. MetalCharts' record came in early February, when both markets crashed. The spread blew out not because anyone in Shanghai paid up but because London and New York fell harder.

Gold meets the closed-market version every weekend, when a price is quoted while its home market is shut. The last close goes on being quoted against a market that kept trading, by people who were never in the room.

A shut market keeps its price and loses its say.

How do you read the premium when Shanghai reopens?

"And when it opens again?" you ask. Its first prices will have a week of the world's moves to absorb, Magnus says, and the premium will jump or collapse that morning as they land. Either move is the calendar settling its account.

Neither is news about demand until Shanghai has traded a full day alongside New York.

So he waits for that day. Then he divides one plus the headline by 1.13, subtracts one, and holds what is left against the cost of moving metal into China. Under that cost, it is a tax with noise on it. Over it, for days, with both markets open, it is a pull, and he starts watching the warehouse stocks in Shanghai and the monthly customs figures for metal coming in.

Whatever you do with that buy order, it should stand on its own reasons. A premium made of a tax and a holiday isn't one of them.

The habit travels. It works on Bitcoin's price in Seoul and on a dollar token that slips under a dollar on one exchange, anywhere two prices for one thing sit on either side of a border.

Shanghai will shut again at Lunar New Year. The 13% will still be inside its price when it does, and somebody will still be quoting it against a New York price that kept moving.

Buy a little silver on a free simulator account the day Shanghai next shuts, because the price there keeps moving straight through the holiday. Each morning, set the headline premium beside how far your silver has moved since Shanghai's last close. When the price slips and the premium climbs together, you'll be watching a squeeze assembled in the only market that's open.

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