Tag Archives: Chinese gold market

The Chinese Gold Market Essentials

A series of eight articles covering the Chinese Gold Market has recently been added to BullionStar’s Gold University portal. This series is titled “Chinese Gold Market Essentials”. Links to all 8 articles can be found on the left-hand frame of the Gold University pages under Research on the BullionStar desktop site, and under the “Chinese Gold Essentials” section of the Gold University, under Research on the BullionStar mobile site.

These new Gold University articles draw on both information from BullionStar analyst Koos Jansen’s Chinese gold market blogs as well as new material. The eight articles in the series follow the style and format of all other articles within the BullionStar Gold University pages. i.e. to be a reference resource for all who are interested in the global gold markets, be they industry participants, reporters and journalists, precious metals investors, or indeed general readers.

The framework for the “Chinese Gold Market Essentials” series centres around the Supply - Demand equation of the Chinese Gold Market and the infrastructure of this market.

The article “Mechanics of the Chinese Domestic Gold Market” explains the core concepts of the Chinese gold market and the central function that the Shanghai Gold Exchange (SGE) plays as the market allocation mechanism within the Chinese gold market. By design, nearly all gold in China flows through the SGE trading and vaulting network, and gold withdrawals from the SGE are therefore a suitable proxy for Chinese wholesale gold demand. This wholesale gold demand includes consumer gold demand and direct purchases of gold on the SGE (institutional gold demand). Wholesale gold demand is therefore a far broader measure of gold demand than just the consumer demand which precious metals consultancies such as GFMS and the World Gold Council report on.

There is therefore a simple and elegant gold supply-demand equation at the heart of the Chinese gold market.

Two other articles in the series address the supply side of the Chinese gold market, each of which focuses on one of the two large components of gold supply in China, namely gold imports and gold mining production.

In 2016, China net imported about 1300 tonnes of gold, making gold imports the largest single source of supply to the Chinese gold market. The article “Chinese Cross-Border Trade Rules on Gold” discusses these gold imports, and the rules around importing gold into and exporting gold from China.

Although Chinese cross-border trade rules on gold apply to both gold imports and gold exports, gold flows mostly into China, and not out again, due to the general prohibition on gold exports. Rules on gold imports are also strict and are administered by the People’s Bank of China, which issues gold import licences to the small number of authorised domestic and foreign banks. Some Chinese mining companies now also import their own gold directly into China.

As regards mining, China is also the world’s top gold producing country, with Chinese mines producing over 450 tonnes of gold output during 2016. Gold mining output is therefore the second largest source of gold flowing into the Chinese gold market. The article “Chinese Gold Mining as a Source of Gold Supply” provides an overview of the Chinese gold mining industry, and profiles some of the larger domestic gold mining companies in this sector.

The gold mining supply article also looks at the fact that China now claims to have over 12,100 tonnes of in-ground identified gold reserves that can be mined in future, and that there are even regiments of the Chinese army which specialise in surveying and exploring for gold across China.

Gold Demand within the Chinese Gold Market” expands on the idea that Chinese gold demand is not just consumer gold demand (jewellery demand, coin and bar demand, and industrial demand) but includes substantial direct purchases of gold at the Shanghai Gold Exchange. Chinese commercial banks also hold gold on their balance sheets to cover a number of activities such as gold accumulation plans, gold leasing etc.

The article “Infrastructure of the Shanghai Gold Exchange” looks at the trading mechanisms and contracts of the Shanghai Gold Exchange. The SGE is the world’s largest physical gold exchange, an exchange in which real physical gold stored in the exchange’s vaults changes hands between trading participants via exchange traded contracts. All trading is conducted on an electronic trading platform, and counterparties are required to have the full amount of gold and cash before trading. Gold contracts traded and cleared on the SGE are known as the SGE’s ‘Price matching’ market.

Gold contracts traded bilaterally off Exchange (i.e. traded Over-the-Counter between counterparties) can also be entered into the SGE trading platform and then cleared through the SGE’s clearing and vaulting system. This is known as the SGE’s “Price Inquiry” market. Additionally, a twice daily gold price auction, known as the Shanghai Gold Price Benchmark auction, is a distinct third spoke of trading on the SGE.

There are 8 physical gold product contracts traded on the SGE representing gold bars and gold ingots ranging in weight from 50 grams through 1 kg and up to 12.5 kgs. Five of these products trade on the Main Board of the Exchange (domestic), and a further 3 trade on the Shanghai International Gold Exchange ( International Board).

A specific article in the series covers the "Shanghai International Gold Exchange". Sometimes known as the SGE International Board or SGEI, this international board is an internationally focused physical gold trading platform launched by the SGE in September 2014. This platform offers 3 Renminbi-denominated physical gold contracts, one of which, the iAu99.99, sees significant trading volume. The aims of the International Board include boosting internationalization of the Chinese Yuan, introduction of offshore Yuan to SGE trading, and internationalizing the membership of the SGE.

The SGEI also has a designated gold vault in the Shanghai Free Trade Zone. Gold imported to this vault remains outside the domestic Chinese gold market. Both domestic and international members of the SGE can trade the International Board contracts in either onshore or offshore Yuan, which as a stated aim of the Chinese authorities, supports the internationalization of the Chinese currency.

The official gold reserves of the Chinese State (monetary gold) are held by China’s central bank, the People’s Bank of China. Currently, these gold reserves are claimed (by the Chinese State) to be in the region of 1840 tonnes. However, the real level of Chinese State gold holdings may be significantly higher than official published figures suggest. The article “PBoC Gold Purchases: Secretive Accumulation on the International Market” presents evidence that the Chinese State purchases monetary gold on the international market including in the London gold market, and ships this gold back to Beijing. It also looks at the possibility that the Chinese central bank may be buying up to 500 tonnes of gold per year and that it may have in the region of 4000 tonnes to 5000 tonnes of gold in its 'real' gold reserves.

The Value Added Tax (VAT) system in the Chinese gold market exerts an important influence on both gold imports and the types of gold that flow to and through the Shanghai Gold Exchange. The article "Value Added Tax (VAT) in the Chinese Gold Market"  looks at the general VAT system in China and on gold specifically, and the types of VAT receipts generated on gold transactions. It also explains when imported gold is exempt from VAT and how 'Standard' gold sold on the SGE is VAT exempt. Standard gold is gold bars or gold ingots of 50 gram, 100 gram, 1 kilogram, 3 kilogram or 12.5 kilogram form, with a fineness (gold purity) of 9999, 9995, 999 or 995.

BullionStar Media

As well as offering a full transactional platform for buying gold and buying silver, the BullionStar website features a wide variety of original research, analysis and other content addressing the global precious metals markets. BullionStar's aim with this analysis and content is to provide readers and viewers with unique and up-to-date insights into the precious metals markets that are not available elsewhere.

A case in point is the BullionStar Perspectives video series which provides viewers with free access to leading independent views of the precious metals markets. In July, BullionStar had the privilege of hosting an exclusive interview in Singapore with legendary investor, author and financial commentator Jim Rogers, and this interview has now been published under the BullionStar Perspectives series.

Jim Rogers - Catastrophe and Opportunity

Rogers, who currently resides in Singapore, co-founded the famous Quantum Fund in 1973, and has written a number of best-selling investment and travel themed books.

The interview touches on potential crises that Rogers thinks could impact the global economy and the opportunities that such crisis may offer investors. Catastrophe and Opportunity can be viewed as the same phenomenon, and panic creates buying opportunities.

Ideally, Rogers thinks the Federal Reserve should stand aside since it has created many problems such as driving interest rates to zero and wiping out savers. Realistically, he doubts the Fed would be abolished, and in a future acute crisis, it will be pressured into generating ultimately futile financial market rallies.

Crucially, Rogers believes in the importance of acquiring physical gold and silver as an insurance policy, and in understanding what you are investing in. Everybody, he says, should have some gold and silver as an insurance policy if nothing else. “You hope you never need it”, but “its the best insurance policy in the world”.

Rogers owns physical gold and thinks that due to future financial market instabilities, gold could well turn into its own bubble. This is because, when financial crises hit, people go to gold and silver as a safe haven asset. "That’s what they do", he says.

Rogers appreciates that the gold market is a fractional-reserve market, with only partial backing by real physical metal. On the subject of paper gold versus physical gold, Rogers envisages that in a real crisis, there won’t be a paper gold market - the paper gold markets will close down due to widespread chaos. That is why there is a need for physical gold ownership, in your pocket or in a vault.

Jim, who has some gold stored in Singapore, thinks that Singapore is better than most as a gold storage jurisdiction, and an added attraction is that buying investment gold and silver in Singapore is tax free (GST free).

The interview with Jim Rogers is published as part of the BullionStar Perspectives series, a series which aims to provide viewers with free access to original and independent views and analysis of the precious metals markets.

The Jim Rogers Interview, which is just over 14 minutes long, can be viewed here

Other videos in the BullionStar Perspectives videos series include Marcus Grubb of the World Platinum Investment Council on the Case for Platinum. Bron Suchecki of Monetary Metals on the intricacies between the physical and paper gold markets, Chris Powell of GATA on price manipulation in the gold market,  analyst Jayant Bhandari on the Indian gold market, and Ronan Manly of BullionStar on Secrecy vs Transparency in the gold market.

The BullionStar website also features in-depth factual gold market information in BullionStar's Gold University portal, original research and analysis of the global precious metals markets by BullionStar analysts Koos Jansen and Ronan Manly, a unique monthly review of the world's most important physical gold markets in chart form in BullionStar's Gold Market Charts series, and a specific company-focused blog series known as BullionStar Blogs (also known as 'Inside BullionStar').

BullionStar's Gold University is a Wikipedia-style resource for use by the gold industry, by financial media and reporters and by general readers. It features contemporary factual information covering the world's gold markets, a selection of the world's largest gold vaults, profiles of the world's largest precious metals refineries and mints, and profiles gold industry associations. It also contains sections addressing the core concepts of the Chinese gold market, central bank policies on gold, and the mechanics of bullion banking and gold ETFs.

Articles and analysis by BullionStar analysts Koos Jansen and Ronan Manly, published in the form of blogs, keep readers up to date with developments in the precious metals markets. These blogs contain original research, such as on the Chinese and London gold markets, and are popular across the precious metals industry as well as being frequently featured across many other websites.

BullionStar's Gold Market Charts uses charts to capture current developments and demand and flow trends in the world’s most important physical gold markets including China, India, Russia and Switzerland.

The BullionStar Blog's series (Inside BullionStar) features posts relevant to the company BullionStar and its products, but also extends to hosting interesting articles on aspects of the gold market and BullionStar's unique Infographics on the gold market.

All of the above content can be found on the BullionStar site under the 'BullionStar Research' menu.

BullionStar in the Media

BullionStar and its team members are also frequently quoted in the wider financial media, and have appeared in coverage by well-known publications such as the Wall Street Journal, Bloomberg, Straits Times of Singapore, and CityWire Asia. Media Coverage of BullionStar is summaried in a Press Room page on BullionStar's website.

Infographic: The Chinese Gold Market

This Chinese Gold Market infographic guides you through the largest physical gold trading market in the world, China.

An impressive 16,000 tonnes of gold are held within China's borders.

Did you know that the Chinese wholesale demand for physical gold was an astounding 2,596 metric tonnes in 2015? This was supplied by China mining more gold than any other country in the world as well as importing more gold than any other country.

The chief architect of the Chinese gold market, the Chinese State, is continuously moving forward China's position as the dominant market player for physical gold globally.

The Shanghai Gold Exchange (SGE) is the largest market in the world for physical gold trading. It has 10 million institutional customers, 8.3 million individual customers and 55 certified gold vaults connected to it.

In this infographic you will learn more about the following features of the Chinese Gold Market:

  • Total Chinese Gold Reserves
  • Important Chinese Gold Developments
  • Trading Volumes on the Shanghai Gold Exchange (SGE)
  • Trading Volumes and Trading Lots for the Shanghai Futures Exchange (SHFE)
  • Official Chinese Gold Reserves
  • The Role of the Chinese Banks on the Chinese Gold Market
  • Chinese Gold Mining
  • Chinese Gold Supply
  • Chinese Gold Importation

You can learn more about the Chinese Gold Market at the BullionStar Gold University and in Koos Jansen's blog at BullionStar.

Infographic on the Chinese Gold Market which is the largest gold market in the world

To embed this infographic on your site, copy and paste the code below