Koos Jansen
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Koos Jansen
Posted on 30 Jan 2015 by

BOOM: SGE Withdrawals Week 3, 2015: 71 tonnes!

As I wrote last time on data from the Shanghai Gold Exchange (SGE), in week 2 of 2015 withdrawals from the vaults of the SGE (that equal Chinese wholesale demand) came in extremely high at 70 tonnes; the third highest amount ever. In week 3 (January 19 – 23), though, the Chinese withdrew even more at 71 tonnes, up 0.89 % w/w, and a new third highest amount ever. Year to date 202 tonnes have been withdrawn from the SGE vaults, up 15 % y/y. Like last week, this was happening while the price of gold was rising sharply, staggering numbers.

Screen Shot 2015-01-30 at 3.01.34 PM

Screen Shot 2015-01-30 at 2.56.15 PM
Blue (本周交割量) is weekly gold withdrawn from the vaults in Kg, green (累计交割量) is the total YTD.

Corrected by the volume traded on the Shanghai International Gold Exchange (SGEI), withdrawals in week 3 were at least 65 tonnes (read this post for a comprehensive explanation of the relationship between SGEI trading volume and withdrawals). Year to date withdrawals corrected by SGEI volume were at least 189 tonnes.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 3, dips

Shanghai Gold Exchange SGE withdrawals delivery only 2014 - 2015 week 3, dips

Furthermore, the end of day premium of the SGE main physical gold contract, Au9999, has been positive throughout all of week 3. This means scrap supply was not abundant over this period – a discount, or negative premium, can’t be arbitraged by foreigners as bullion export from China is prohibited. Estimating scrap/recycled gold that supplied the SGE at 4 tonnes and mine production at 9 tonnes, sets imported gold for week 3 somewhere in between 52 and 58 tonnes.

It’s still a mystery why mainstream media are not tracking weekly SGE withdrawals. I’ve read all over the news that Russia’s central bank has added 152 tonnes of gold in total to its reserves in 2014. In perspective, this is approximately the same amount of gold China has imported in the first three weeks of 2015. In my post China Continues To Drain Global Gold Inventory I have, once again, pointed out that import numbers derived from SGE withdrawals are for 95 % covered by export from the UK, Switzerland, Hong Kong and the US. These countries disclose only non-monetary gold trade, which support my assumption PBOC purchases are an invisible side show from public gold trade numbers and SGE withdrawals.

Chinese domestic mining has been roughly 27 tonnes over the first three weeks of 2015, which is not exported. All this gold (import and mine) is being sold through the SGE. Until I run into evidence that states the contrary, the PBOC does not buy any gold through the SGE, but most likely through proxies in Hong Kong or London. So, PBOC purchases have to be added to the tonnage sold through the SGE. According to Deutsche Bank the PBOC has purchased roughly 500 tonnes a year since 2010. Go figure.

Thomson Reuters GFMS released the GFMS Gold Survey 2014 – Update 2 on Thursday. The report states Chinese consumer gold demand in 2014 was 866 tonnes.

Screen Shot 2015-01-30 at 4.45.09 PM

My regular readers will not be surprised I dispute this number; in 2014 China imported at least 1,200 tonnes, mined 451 tonnes and according to GFMS’ numbers scrap accounted for 182 tonnes. So supply was at least 1,833 tonnes, yet consumer demand was 866 tonnes. Quite a gap, 967 tonnes. 

Screen Shot 2015-01-30 at 5.12.24 PMThis gap was at least 737 tonnes in 2013. In the table above taken from the Gold Yearbook 2013 published by the China Gold Association (CGA), we can see import was 1,507 tonnes (blue) and Chinese domestic and overseas mining accounted for 445 tonnes (purple), if we add GFMS’ scrap supply number for 2013, which is 144 tonnes, total supply in 2013 was 2,096. The gap between 2,096 and 1,359 tonnes is 737 tonnes. Neglecting scrap supply disclosed by the CGA (green).

In the report GFMS states “demand does not include transfers of physical gold between financial organizations or gold used to support the OTC market”.

In forthcoming posts I will expand on the differences in metrics used all across the globe (by the WGC, GFMS, CGA, CPM, me) to get a better understanding why Chinese demand numbers are so divergent.

In any case the 0.6 metric tonnes of gold sold in one day in just one shopping mall in Beijing in January, 2015, was not gold used in transfers between financial organizations…

Chinese new year gold goat 2015 1
Beijing January 3, 2015

Koos Jansen
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  • DameEdnasPossum

    In gold we trust.

  • Dress

    Koos, you should go to Dubai and see those Indians buy gold like madmen! Seems to be the same case in China. My guess: China and India will set the price of gold in the near future and the American futures market (COMEX) will be dead!

  • rowingboat

    The consulting report you shared a few months ago explained how Chinese financial institutions, from examination of their balance sheets, had increased their (client) gold holdings by 600mt in 2013. This institutional demand explained, according to them, the difference between SGE withdrawals and WGC consumer demand data.

    So what would happen if these institutions, like their counterparts in the West since 2013 on a net basis, reverse course and their accumulated holdings become supply in China? Would this gold pass through the SGE again?
    For me the direct import numbers are the most reliable because well over 90% of the gold entering the mainland is from 4 sources, and that data is thankfully now available since the Swiss opened up in 2014.

    • KoosJansen

      Yes, that can happen. All Chinese/institutions can Sell gold and, if remelted, this can be sold through the SGE. This is what I think happened ie in March 2013 when the SGE was trading at a discount to London over a long period. This ment domestic supply outstripped domestic demand, but the gold couldn’t be exported (additionally, import was very low).

      That’s why my “recycled gold through the SGE” estimate for 2014 is +300 tonnes.

  • awgee

    You consider SGE withdrawals to be be wholesale demand, and partially because, as you say, “It’s not likely the PBOC would approve bullion gold to be exported in general trade.” Why do you consider it unlikely? Is this your own speculation, or is there some evidence from the PBOC supporting your statement? Obviously the WGC considers it a possibility. Why the difference? What do you know that the WGC does not?

  • Christoph Weise

    I bought a small quantity of physical in Switzerland and after a week I did receive not quite what I had ordered and the bullion had been cast 14 days before in Italy. Even the guy in the bank was quite puzzled. It could be concurrence or a piece of circumstantial evidence. Koos Jansen should set up a blog for such customer reports

    • KoosJansen

      Just tell us the shop you bought it from. It wasn’t pure gold? Why were you at a bank with your gold?

      • Christoph Weise

        Central bank bars are not for sale in shops. I bought from a state bank. Odd is the weight: about 400 grams more than the usual. The smelting plant confirmed the number and manufacturing date. The logistical effort was remarkable: cast, sold and transported to SNB, transported to the selling bank and sold with one week waiting on my side: all within a mere 2 weeks

        • KoosJansen

          If you can provide PROOF of anything being wrong (with names of banks etc) I can do something.

          Why did you have to wait 1 week for 400 grams?

          • Christoph Weise

            No proof! It made me just suspicious. In the past bullion I bought was always stamped years before the purchase date. Central bank bars are usually about 410 ounces – are they not? This one is about 423 ounces.

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