Koos Jansen
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Koos Jansen
Posted on 21 Dec 2015 by

A Thorough Examination Of Cross-Border Gold Trade Between Australia And China

As China doesn’t publicly disclose how much gold it imports, we have to combine the foreign trade statistics from all large gold exporting nations to figure out how much is flowing to China. The second largest gold producer in the world is Australia with an annual production of 270 tonnes, according the US Geological Survey. The majority of Australia’s mine output is exported.

When it comes to Australia’s net gold export to China we’ll have to do some analysis, simply subtracting import from export won’t work in this case. Strangely, Australia discloses gold shipments as “export to China” even when it’s transferred via Hong Kong. Implying Australia records its gold export by country of destination, not the first stop, which is not common to my knowledge. To offset any double counting – Australia gold export to China plus Hong Kong gold export to China – we need to cross-check foreign trade statistics.

Let’s compare data from COMTRADE on Australia’s gross gold export to Hong Kong with data from the Hong Kong Census And Statistics Department on Hong Kong’s gross gold import from Australia. Normally, these two data sets would be equal. But they’re not. Have a look at the chart below.

Australia vs HK gold gross august 2015
Exhibit 1.

Australia reports to export a lot less to Hong Kong than Hong Kong reports to import from Australia. I should mention these mismatches are not unusual in global gold trade, though in this instance there is an obvious explanation.

When we compare data from COMTRADE on Australia’s gross gold export to China with data from the Hong Kong Census And Statistics Department on Hong Kong’s gross gold import from Australia, remarkably we can see matching values in nearly all months until January 2015. Have a look at the chart below (please focus on the months until January 2015 for now).

Australia COMTRADE vs HK China august 2015
Exhibit 2.

At this point we can conclude that Australia (COMTRADE) disclosed gold shipments as “export to China” from January 2013 until December 2014 even though these first arrived in Hong Kong. How do we know the exports from Australia to Hong Kong were re-exported to China mainland (the SGE system)? Because Australia does make a difference between Hong Kong and China for its gold export, it just doesn’t reveal the transfer. If Australia’s gold export to Hong Kong wasn’t re-exported to China mainland after its ‘initial arrival’ Australia would not have disclosed the trade as “export to China”, but as “export to Hong Kong” or “export to XXX”.

By the cross-check presented above we have established all gold Australia exported to China from January 2013 until December 2014 was shipped via Hong Kong. Subsequently, if we would add Hong Kong’s “export to China” to Australia’s “export to China”, in order to compute Chinese gold import, this would result in double counting.

At least for the past decades Hong Kong has been the main entry point for (non-monetary) gold into China. This changed early 2014 when China openly stated to stimulate direct gold imports from all over the world, bypassing Hong Kong. Soon after, we’ve witnessed the birth of direct gold export to China from the UK:

UK - CN Gold Trade 2012 - october 2015
Exhibit 3.

The strategic move from Beijing to stimulate direct imports was also mentioned on Chinese state television channel CCTV in early 2014, in the clip below starting from 1:30.

Whenever Australia exported gold to China mainland before 2014 it was shipped via Hong Kong (see exhibit 2). After early 2014 gold exports from Australia to China could travel directly. Tellingly, what Australia (COMTRADE) reported as “export to China” since January 2015 has exceeded what Hong Kong reported as “import from Australia”. According to my analysis the difference reflects what Australia has directly exported to China mainland. In exhibit 2 we can see that for the months after December 2014 Australia’s direct gold export to China increased.

By subtracting Hong Kong’s “import from Australia” from Australia’s “export to China”, what remains is what Australia directly exported to China, which is the figure we were looking for. (By and by, Australia’s gross import from China and Hong Kong is close to nil.)

From the data shown in exhibit 2 we can compute Australia directly net exported 61 tonnes of gold to China mainland In the first 7 months of 2015.

Koos Jansen
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  • Albert

    I have to say that considering that the gold price has halved, the demand and exports haven’t really doubled.

    • Egil Monn Iversen

      Physical gold happens to be measured in tons.
      When the vaults are empty all the tons are gone.
      Someone else has it now. Forget about the price.
      You don’t have what matters – physical.

    • attitude_check

      The physical delivery (spot) market gold price is NOT set in the spot market. It is a derivative of the futures market. That is not a rational method of price discovery for physical metal obviously, and it skews the effect of supply and demand.

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  • Artem Kovtun

    you had an interesting blog, thx

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