Koos Jansen
BullionStar Blogs
Koos Jansen
Posted on 19 Oct 2013 by

Open Letter To Andrew Maguire

Dear Mr Maguire,

Yesterday I read an interview with you that was published on King World News. In it you mentioned gold delivery numbers from the Shanghai Gold Exchange. I might have a different perspective on these numbers and I would like to bring this to your attention as I’m most concerned about accurate data being spread through the gold community.

A quote from the interview:

…We also know that official Shanghai gold deliveries have accelerated since that time.

Last week I reported the September numbers to you and it was over 225 tons of gold being delivered. But as of today, for the 9 delivery days of October, we already have over 101 tons of gold delivered.

The Shanghai Gold Exchange (SGE) has a Chinese website and an English website. Although they look alike, they are not the same. Only the website written in Chinese publishes data on the amount of gold that leaves the SGE vaults. On this site every friday a PDF report is released on the prior trading week; including the course of trading volumes, turnover, open and closing prices, premiums and the amount of gold withdrawn from the vaults. Usually half way each month there is also a monthly overview published containing the same data categories. Below is a screen dump of the trading activities section of last friday’s weekly report from the Chinese website:

This is the section that contains data on withdrawals:

The second number from the left (本周交割量) is the gold withdrawn in the week covered by the report, the second number from the right (累计交割量) is total gold withdrawn YTD. Also note, all gold contracts on the SGE can be physically delivered and these deliveries can be withdrawn from the vaults. The difference is that some, like Au99.99, are spot contracts while others, like Au(T+D), have the option for future delivery.

On the English website a different data set is published on a daily basis, it looks like this:

At the far right we can see “delivery volume” for the contracts Au(T+D) and Ag(T+D), but this does not describe the amount of gold leaving the SGE vaults, it describes the amount of gold in the SGE vaults that changes ownership after settlement between Au(T+D) contracts at the end of a trading day. A process that can be repeated to infinity; this doesn’t tell us how much gold flows into China mainland.

You stated in the interview that in total 225 tons of gold were delivered in September and 101 tons from 1 till 18 October. With which I assume you mean gold being withdrawn from the vaults – in my opinion the amount of gold changing ownership in the SGE vaults is of no importance to readers of KWN.

If I sum up all the daily “delivery volumes” from the English website the outcome is 225 tons for September and 101 tons for the period in October. This makes me conclude your delivery data is based upon the gold volumes changing ownership in the SGE vaults, while the SGE also publishes the numbers on gold leaving the vaults (that gives us gold investors very detailed information on Chinese demand). That’s why most commentators (including me) use the withdraw numbers from SGE when they speak of SGE delivery.

For September 2013 the amount of gold that changed ownership in the SGE vaults was 30 % higher than the amount of gold that left the vaults.

My only purpose with this letter is to make sure you, and readers of KWN, are aware of the different types of data the SGE publishes. I hope this information is of any value for you.

Kind regards,

Koos Jansen
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  • Zhanglanv366

    I am also concerned at the accuracy of some of Andrew Maguire’s statements on KWN. To be honest, in his interviews with Keiser he appears to be both knowledgeable and personable, and I find his insights well-researched and well presented. However, in detail, a number of troubling anomalies appear

    Several years ago I was Chief Dealer, Futures & Options at a major German Bank (in Germany); these days I am responsible for risk management of approximately $200 bio AUM; I know my derivatives. Last week, in the run up to the 25th November COMEX Options Expiry, Andrew Maguire commented that the Gold price was being hammered down, and that this was causing those with hedge positions ‘to sell short sufficient gold futures contracts in order to maintain a neutral delta on that position’ I am baffled by that statement, as follows:

    As it approaches expiry the value of a close-to-the-money Option becomes almost binary, whilst the delta on deep in- and out-of-the money options becomes largely price insensitive. In a falling market, such as that which we have experienced over the past month, the only Options positions which would have been close to the money – and, indeed, would have represented ‘hedges’ – would be Puts. However, as the price falls, the relative Delta on a Put (which is a negative value) INCREASES, to the point where at expiry it converges to -1 (i.e. equivalent to a short Futures position). The only situation in which the Put Delta will decrease in a falling market is where Volatility (Vega) collapses, but this requires significant remaining time to expiry to have any meaningful effect on Delta or Gamma. Neither of those circumstances existed last week, and my conclusion, therefore, is that Andrew Maguire was talking nonsense: in a falling market close to Expiry, the holder of a hedge position based on Put Options would certainly not have SOLD additional futures in order to maintain a particular Delta position – he would have BOUGHT contracts.

    The article is here http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/11/23_Maguire_-_Fed,_BIS_%26_Criminal_Banks_Continue_Attack_On_Gold.html and I may be wrong in my interpretation. However, niggles like this undermine my confidence in what Maguire says – or, rather, in what he actually knows – and whilst I would dearly like to establish a dialogue with the man, my faith in his utterances is waning. That having been said, I am increasingly losing it with KWN itself, so maybe its just me ….

    • In Gold We Trust

      Thanks for your comment Zanglanv.

      Can I have your email address for some other questions? You can send it to info@ingoldwetrust.ch.

      Regards

    • http://goldchat.blogspot.com/ Bron Suchecki

      You are not alone. Andrew is a day trader in gold and has no professional market experience in the gold market. Other examples of “troubling anomalies” include (see http://goldchat.blogspot.com.au/2012/11/etf-price-suppression-mechanics.html):

      1. Andrew’s use of “spot index” – this is not how London bullion traders talk (and I checked with a bullion bank contact to make sure and they said that phrase is not used).
      2. Getting the number of GLD’s APs massively wrong.
      3. Borrowing shares “from the ETF”.
      4. “Allocated at the fix.”

  • MNH

    I think actually what AM is trying to say is that the people who are short the Puts are pushing the price through the strike so they do not get exercised upon. Used to happen all the time in single stock equity vol terms when I traded it for a bank, but in Gold you would need a lot more size to puch the prices around. This is the difference between the theory of options, and what the banks do in practice. They are generally short vol through structured products and therefore a few of them with the same positions can really have an impact if unintentionally (but also fully aware) they are working together.

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