Category Archives: Charts

Chinese Gold Demand 973t In H1 2016, Nomura SGE Withdrawals Chart False

Chinese wholesale gold demand, as measured by withdrawals from the vaults of the Shanghai Gold Exchange (SGE), reached a sizable 973 metric tonnes in the first half of 2016, down 7 % compared to last year.

Although Chinese gold demand year to date at 973 tonnes is slightly down from its record year in 2015 – when China in total net imported over 1,550 tonnes and an astonishing 2,596 tonnes were withdrawn from SGE designated vaults – appetite from the mainland is still the greatest of all single nations worldwide. At the same time the mainstream consultancy firms (World Gold Council, GFMS, Metals Focus) continue portraying Chinese gold demand to be roughly half of SGE withdrawals, as these firms measure “gold demand” merely at retail level which excludes any direct purchases at the SGE by institutional and individual investors. But to reassure you, Chinese wholesale gold demand still equals SGE withdrawals. 

In the month of June (2016) SGE withdrawals accounted for a robust 139 tonnes, although this was down 29 % from June last year. The reason being for “somewhat subdued” Chinese gold demand in recent months is that the price of gold has risen strongly over this time horizon and the Chinese tend to buy gold when its price goes down, in contrast to Western investors that buy gold when the price goes up. From 1 June until 30 June 2016 the price of gold in US dollars jumped by 9 % from $1,214.70 to $1,325.76. Over the first six months of 2016 the price of gold exploded by 25 % (from $1,061.5 on 1 January 2016). So, since January this year when the price of gold started to rise, the Chinese actually stepped down their gold purchases while Western demand, which can be roughly measured by the net flow in/out of the UK, went up impressively.

Let us have a look at a few charts to come to grips with what’s going on in the Chinese (and international) gold market. Below, we can see a chart showing monthly SGE withdrawals plotted against the end of month price of gold in yuan per gram. In recent years, whenever the price of gold goes down the Chinese step up their purchases (buying the physical supply coming from the West) and whenever the price of gold goes up the Chinese slow their purchases. 

Shanghai Gold Exchange SGE withdrawals June 2016
Since January 2016 when the gold price started rising, SGE withdrawals started declining. Note, for spotting trends, gold bought at the SGE does not have to be withdrawn immediately.

By looking at a weekly SGE withdrawals chart (from before January 2016) we can see the trend just described – “the Chinese tend to buy more gold when the price goes down” – in a more granular fashion. Have a look below.

Shanghai Gold Exchange SGE weekly withdrawals
The SGE published weekly withdrawal data until January 2016.

In contrast to Chinese gold buying behaviour, let us have a look at gold demand from the West. Our proxy for Western demand is the net flow in/out of the UK where the London Bullion Market (LBMA) and the world’s largest ETF’s such as GLD store physical gold. At the beginning of 2016 (when the price of gold started to rise) the direction of the flow has reversed sharply, from the UK being a net exporter to being a net importer.

UK Gold Trade 2012 - June 2016

From being a large net gold exporter in 2013, 2014 and 2015, the UK is now one of the largest net importers. In April 2016 the UK net imported 195 tonnes of gold – while export to China was nil.

If we look at a chart that reflects the net flow of gold into the UK versus the gold price, we can clearly see the correlation. A declining gold price (blue line) coincides with the UK net exporting gold (black line) and vice versa. 

UK Gold Trade 2012 - June 2016 vs goldprice

The impressive gold rally year to date, and the accompanied massive growth in GLD inventory in London, predicts sustaining net gold imports by the UK in May and June. In a forthcoming post we’ll discuss more thoroughly how above ground gold stock is moving between which nations and how this correlates to the price of gold.

International merchandise trade statistics always lag a few months, so I don’t know exactly the total amount of gold China has net imported in H1 2016. That I know of, China has net imported 368 tonnes year to date, according to trade data from Hong Kong covering January-April, the UK covering January-April and Switzerland covering January- May. Australia’s export data is not clear yet. If we project the pace of imports to to six months, China has “at least” imported 512 tonnes of gold in H1 2016.

Supply to the SGE can only come from import, domestic mine output or scrap/disinvestment. As, import accounted for 512 tonnes and domestic mine supply for 225 tonnes, consequently scrap/disinvestment through the SGE must have been approximately 236 tonnes in H1 2016.

Import + mine output + scrap/disinvestment = SGE withdrawals

SGE withdrawals – import – mine output = scrap/disinvestment

973 – 512 – 225 = 236

By using our preliminary estimate of 512 tonnes for China’s net import in H1 2016 and mine output at 225 tonnes, there are currently an estimated 18,444 tonnes of gold within China. Assuming the PBOC has accumulated about 4,000 tonnes by now which has not been supplied through the SGE, that is. For a detailed explanation how I conceived this estimate please read my post “PBOC Gold Purchases: Separating Facts from Speculation”.

Total Chinese gold reserves june 2016

If my speculative estimate of PBOC holdings would be incorrect, and China’s central bank holds what is officially disclosed at roughly 1,800 tonnes, there are currently an estimated 16,244 tonnes of gold within China.

Nomura’s SGE Withdrawal Data Is False

Since I’ve been publishing SGE withdrawals and its relation to Chinese gold demand many others have jumped the bandwagon, though some more successful than others. A few days ago I stumbled upon a “SGE withdrawals chart” from Nomura research with false data.

Nomura
Courtesy Nomura.

In Nomura’s chart it’s shown that withdrawals from the vaults of the SGE in the first five months of 2016 accounted for 4,425 tonnes. Which of course is false. If that would be true, China should have imported about 3,800 tonnes in five months. No, that did not happen.

What Nomura did is grab the “cumulative delivery amount” from the Chinese Market Data Monthly Reports, instead of the “cumulative load-out volume”. The latter is how the SGE refers to “withdrawals” in English. As I’ve written previously the “delivery amount” is not the same as “load out volume”. The “delivery amount” reflects the volume of gold that changes ownership inside the vaults, computed as the sum of the trading volumes in physical products and the contract delivery volumes of deferred products, whereas “load out volume” tells to the amount of gold that is withdrawn from the vaults.

Let’s have a look at the Chinese Market Data Monthly Report from May, which Nomura used for its withdrawal data for January-May 2016 (“5M16” in their chart).

Screen Shot 2016-07-06 at 1.57.34 pm
Courtesy SGE. Red numbers added by Koos Jansen.

We can see that at number 4 the “cumulative delivery amount” notes 4,425,035.28 Kg, which is exactly what Nomura shows in its chart as “withdrawn”.

By and by, the “cumulative delivery amount” is counted bilaterally. Effectively, half of this amount (2,212,517.64 Kg) is how much physical gold changed ownership inside SGE designated vaults from January until May 2016.

At number 8, we see the actual amount of gold withdrawn from the vaults over this period (counted unilaterally). In the first five months of 2016 SGE withdrawals accounted for 835 tonnes.

Below is the full explanation of the Chinese trade table.

1Delivery amount this month, the sum of the trading volumes in physical products and the contract delivery volumes of deferred products for the reported month, counted bilaterally in Kg.

2) Trading volume this month, the sum of all trading volumes in physical and deferred products for the reported month, counted bilaterally in Kg.

3Delivery ratio this month, the proportion of the delivery amount to the total trading volume of both physical and deferred products for the reported month (1 divided by 2).

4Cumulative delivery amount, the sum of all monthly delivery amounts from the beginning of the year to the statistical time point, counted bilaterally in Kg.

5Cumulative trading volume, the sum of all trading volumes in physical and deferred products from the beginning of the year to the statistical time point, counted bilaterally in Kg.

6Cumulative delivery ratio, the proportion of the cumulative delivery amount to the cumulative trading volume of both physical and deferred products from the beginning of the year to the statistical time point (4 divided by 5).

7Load-out volume this month, the amount of gold withdrawn from the vaults for the reported month, counted unilaterally in Kg.

8Cumulative load-out volume, the amount of gold withdrawn from the vaults from the beginning of the year to the statistical time point, counted unilaterally in Kg.

SGE Gold Trading Volume 2015 Up 84 % Y/Y Due To International Board

In two parts I will present an overview of the Chinese gold market for calendar year 2015. In this part we’ll focus on Shanghai Gold Exchange trading volumes. In the next post we’ll focus on physical supply and demand flows in Chinese gold market in 2015.

First, let us quickly assess the core volume data of the largest precious metals exchanges in China and the US. Physical and derivative gold trading at the Shanghai Gold Exchange (SGE) in 2015 reached 17,033 tonnes, up by 84 % from 9,243 tonnes in 2014. Gold futures trading at the Shanghai Futures Exchange (SHFE) in 2015 accounted for 25,421 tonnes, up 7 % from 23,750 tonnes in 2014. Consequently, total wholesale trading volume in China (SGE + SHFE) was 42,454 in 2015, up 29 % year on year. In New York at the COMEX total gold futures volume reached 128,844 tonnes for the year 2015, up 3 % from a year earlier. COMEX trading volume was three times as large as the total volume in China.

COMEX vs SGE & SHFE gold volume 2015 pie chart

It’s unknown how much gold is traded in the Over-The-Counter London Bullion Market. However, a survey conducted by the LBMA in 2011 pointed out approximately 680,783 tonnes of gold per year change hands through the London based market.

All tonnages mentioned in this post are counted single-sided.

The Shanghai Gold Exchange

There are a few more interesting data points to be found in SGE trading for 2015 when examining the developments of the specific contracts.

At the SGE two types of gold products (/contracts) can be traded: physical products and deferred products. The physical contracts traded on the Main Board (SGE / domestic market) are:

  • Au50g (50 gram gold bar, 9999 fine)
  • Au100g (100 gram gold bar, 9999 fine)
  • Au99.99 (1 Kg gold ingot, 9999 fine)
  • Au99.95 (3 Kg gold ingot, 9995 fine)
  • Au99.5 (12.5 Kg gold ingot, 995 fine)

The physical contracts traded on the International Board (SGEI / international market) are:

  • iAu100g (100 gram gold bar, 9999 fine)
  • iAu99.99 (1 Kg gold ingot, 9999 fine)
  • iAu99.5 (12.5 Kg gold ingot, 995 fine)

The contracts above cannot be traded on margin and are settled (/delivered inside SGE(I) designated vaults) immediately (T+0), therefor they embody pure physical trading.

The deferred contracts (only traded on the Main Board) are:

  • Au(T+D) (1 Kg per lot, delivery in 3 Kg or 1 Kg ingots)
  • Au(T+N1) (100 gram per lot, delivery in 1 Kg ingots)
  • Au(T+N2) (100 gram per lot, delivery in 1 Kg ingots)
  • mAu(T+D) (100 gram per lot, delivery in 1 Kg ingots)

Because the deferred contracts are traded on margin and there is no fixed delivery date, these derivative products embody paper trading.

All SGE contracts can be traded competitively over the Exchange, but the physical contracts can also be negotiated bilaterally in the Over-The-Counter (OTC) market and then settled through the SGE system. The SGE publishes the volume of these OTC trades.

The most traded contract on the Exchange in 2015 was the deferred product Au(T+D). In total Au(T+D) volume accounted for 5,648 tonnes, up 30 % from the previous year. The second most traded contract was the physical product Au99.99, of which 3,465 tonnes changed hands, up 65 % from 2014 - although, if we include OTC trading total Au99.99 volume for 2015 reached 6,998 tonnes, which would make it the number one contract.

Shanghai Gold Exchange Trading Volume 2015
The contracts Au99.5 and iA99.5 are not included in the chart, as the products have not been traded. This underlines the PBOC, that would prefer to buy 12.5 Kg bars, is not buying gold through the SGE.

Shanghai Gold Exchange Yearly Trading Volume 2002 - 2015

Physical trading (including OTC activity) at the SGE in 2015 accounted for 9,745 tonnes (57%), versus 7,288 tonnes in paper trading (43 %).

The growth in total gold trading at the SGE in 2015 was the strongest since the financial crisis erupted in 2008. According to my analysis one reason for this has been the opening of the Shanghai International Gold Exchange (SGEI) in September 2014.

The SGE system services gold trading for the domestic Chinese gold market. This gold traded over the SGE system is prohibited from being exported. The SGEI is a subsidiary of the SGE located in the Shanghai Free Trade Zone, where international members of the Exchange can import, trade and export gold. In terms of physical gold flows the SGE and SGEI are separated venues. For more information please read my previous post, “Workings Of The Shanghai International Gold Exchange”.

On the surface it looks as if the SGEI has been a failure. The most traded contract at the International Board is iAu99.99. At the start of 2015 iAu99.99 trading was weak and after a short peak in April, volume came down to practically nil throughout the middle and the end of the year. Hence, most analysts stated the SGEI was dead. There are two important points that undermine this statement.

The first point is that iAu99.99 can be traded in the OTC market. When it appeared that trading of iAu99.99 was dying out at the Exchange, in the OTC market activity continued. There is no constant trading in iAu99.99 in the OTC market, but the volumes are significantly higher than iAu99.99 trading over the Exchange (see the chart below).

iAu99.99 SGEI volume

Tellingly, the iAu99.99 trades in the OTC market are all performed in giant batches of 100 or 1000 Kg. Have a look at the data labels in the chart below. We can see that all weekly OTC iAu99.99 volumes are in sizes one hundred (blue bars) or one thousand (red bars) 1 Kg bars. For example, look at the week that ended 3 July 2015, when exactly 73,000 Kg’s were traded. In theory 20,855 Kg’s were traded on Monday and 52,145 Kg’s on Thursday, aggregating to 73,000 Kg’s in total for the week. Though, this coincidence cannot have occurred each and every week. More likely the iAu99.99 traders in the OTC market always buy and sell per 100 or 1000 Kg’s. No other SGE or SGEI contract shows this bulky trading pattern.

Weekly iAu9999 OTC Trading Volume

The second point is that international members of the Exchange are not only allowed to trade the contracts on the International Board, they’re also allowed to trade the domestic contracts, they’re just not allowed to withdraw the metal from domestic vaults. The international members that focus on arbitraging any price differentials between the US and China will prefer the most liquid contracts on the Exchange. So, for this purpose the international members would trade Au99.99 and Au(T+D). Sources at the SGE confirmed to me that indeed international members are trading Main Board contracts.

If we look at the next chart, we can see that since the inception of the SGEI in September 2014 total SGE volume (including domestic, international, physical and deferred contracts) increased significantly. My conclusion is that the gateway of the SGEI has increased liquidity at the Exchange in Shanghai and enhanced the connection between the Chinese and Western gold markets.

Total Weekly SGE Trading Volume

I realize the system of the SGE and SGEI, how trading and physical gold flows are divided, is not easy to understand. The best I can do to clarify this is to present the diagram furnished by the SGE showing how trading in all contracts by all customers is organized (see below). In the next post we’ll examine the physical gold flows going through China and the Shanghai Free Trade Zone.

Screen Shot 2016-03-18 at 5.31.17 pm
Courtesy SGE.

Note, domestic members/customers are allowed to use onshore renminbi to trade all products on the Main Board, but are also allowed to use onshore renminbi to trade all products on the International Board (although load-in and load-out metal from the vaults is prohibited). In turn, international members are allowed to use offshore renminbi to trade all contracts on the International Board, but are also allowed to use offshore renminbi to trade most contracts on the Main Board (although load-in and load-out metal from the vaults is prohibited).

SGE Confirms To Continue Publish Withdraw Data!

I’ve received written confirmation by the Shanghai Gold Exchange (SGE) delivery department that the Chinese Market Data Monthly Reports disclose the volume of physical gold withdrawn from SGE designated vaults. I’m thrilled to resume reporting these numbers and everything related to the Chinese gold market! 

It’s advised to have read The Chinese Gold Market Essentials Guide before you continue.

Because of the structure of the Chinese gold market the volume of physical gold withdrawn from the vaults of the SGE provides us a unique measure of Chinese wholesale gold demand – which in recent years has been more than twice as much as Chinese consumer gold demand reported by the World Gold Council. However, it appeared the SGE ceased publishing SGE withdraw numbers after a press release from 11 January 2016 that stated the bourse “adjusted some terms in the Delivery Reports”. After the announcement SGE withdrawals were not disclosed in the Chinese Market Data Weekly Reports and over the phone I was informed withdraw numbers would not be disclosed any longer by the SGE.

Perhaps I spoke to the wrong people at the SGE or perhaps the SGE has changed its mind. In any case, in the first Chinese Market Data Monthly Report of this year (January) the format was different from the Chinese Market Data Weekly Reports. In the Chinese monthly report it showed a number that looked to be the volume of gold withdrawn from the vaults. Though we couldn’t be too sure as the SGE changed its nomenclature since the press release from 11 January.

Once again I contacted the SGE and finally came in touch with an employee at the delivery department. The person in question told me over the phone that indeed the January monthly report disclosed withdraw data, but because confirmations over the phone can be easily violated, I also asked for written confirmation. Then, a few days later the SGE delivery department confirmed over email that the Market Data Monthly Reports include the volume of gold withdrawn from SGE designated vaults!

So, here we go again. The SGE monthly report from February shows withdrawals from the vaults of the SGE accounted for a modest 107.6 tonnes, down 52 % from January and down 31 % from February 2015.

Shanghai Gold Exchange SGE withdrawals February 2016

Year to date SGE withdrawals have reached 333 tonnes, down 19 % year on year.

Subdued SGE withdrawals – indicating suppressed Chinese physical gold demand – in February is very remarkable as in this month the price of gold (in US dollars) increased by over 10 %.

Screen Shot 2016-03-08 at 1.58.45 pm
Graph conceived with BullionStar charts.

This suggests that the Chinese do not buy physical gold when the price goes up but mainly buy when the price goes down. In addition, because there has been strong buying from Western parties in February, for example GLD inventory in London increased by 15 % over this period, we can conclude the West is the price setter and China up until now has predominantly been a “price taker”. Put differently, China is merely taken advantage of bargain prices.

CdBc0LTWAAAym5-
Courtesy Bloomberg.

The same correlation between the price of gold and Western physical buying behaviour can be observed when we compare the gold price to cross-border gold trade from the UK, where many Western investors store their gold.

UK net gold flow vs gold price

So for this comparison we use UK cross-border gold trade as a proxy for Western physical gold buying. Although this is not exact science, in the chart above we can see whenever the West is buying physical gold (UK net import increases, see 2012) the price goes up and whenever the West is selling physical gold (UK becomes net exporter, see 2013) the price goes down.

Given the fact the price of gold has increased significantly year to date we may expect the UK was not a net exporter in January and February, more likely the UK was a net importer over this time horizon.

Addendum

Because there has been so much confusion about the terms used in the new Chinese Market Data Monthly Reports and the Market Data Weekly Reports I included screenshots of both reports below provided with translations as suggested by the SGE press release from 11 January 2016. In the Market Data Weekly Report for week 7 (22 – 26 February) 2016 we can see the following Delivery Report.

Screen Shot 2016-03-08 at 10.24.27 am

  1. Delivery amount this week, the sum of the trading volumes in physical products and the contract delivery volumes of deferred products for the reported week, counted bilaterally in Kg.
  1. Trading volume this week, the sum of all trading volumes in physical and deferred products for the reported week, counted bilaterally in Kg.
  1. Delivery ratio this week, the proportion of the delivery amount to the total trading volume of both physical and deferred products for the reported week (1 divided by 2).
  1. Cumulative delivery amount, the sum of all weekly delivery amounts from the beginning of the year to the statistical time point, counted bilaterally in Kg.
  1. Cumulative trading volume, the sum of all trading volumes in physical and deferred products from the beginning of the year to the statistical time point, counted bilaterally in Kg.
  1. Cumulative delivery ratio, the proportion of the cumulative delivery amount to the cumulative trading volume of both physical and deferred products from the beginning of the year to the statistical time point (4 divided by 5).

In the Market Data Monthly Report for February 2016 we can see this Delivery Report:

Screen Shot 2016-03-08 at 10.01.56 am

  1. Delivery amount this month, the sum of the trading volumes in physical products and the contract delivery volumes of deferred products for the reported month, counted bilaterally in Kg.
  1. Trading volume this month, the sum of all trading volumes in physical and deferred products for the reported month, counted bilaterally in Kg.
  1. Delivery ratio this month, the proportion of the delivery amount to the total trading volume of both physical and deferred products for the reported month (1 divided by 2).
  1. Cumulative delivery amount, the sum of all monthly delivery amounts from the beginning of the year to the statistical time point, counted bilaterally in Kg.
  1. Cumulative trading volume, the sum of all trading volumes in physical and deferred products from the beginning of the year to the statistical time point, counted bilaterally in Kg.
  1. Cumulative delivery ratio, the proportion of the cumulative delivery amount to the cumulative trading volume of both physical and deferred products from the beginning of the year to the statistical time point (4 divided by 5).
  1. Load-out volume this month, the amount of gold withdrawn from the vaults, counted unilaterally in Kg.
  1. Cumulative load-out volume, the amount of gold withdrawn from the vaults from the beginning of the year to the statistical time point, counted unilaterally in Kg.

Final notes: “delivery” is not the same as “load out volume” or “withdrawals”. “Delivery” refers to the amount of gold that changes ownership inside the vaults, “load out volume” and “withdrawals” both refer to the amount of gold that leaves the vaults.

The load-out volume for silver does not reflect Chinese wholesale silver demand, as the structure of the Chinese silver market is different from the Chinese gold market.

According to my manual cross calculations the “delivery amount” in the weekly report for week 7 does not match “the sum of the trading volumes in physical products and the contract delivery volumes of deferred products for the reported week”. I’ve send out an inquiry to the SGE to verify the data.

UPDATE 10 March 2016: The SGE replied how they calculated “delivery amount”, it was based on the delivery of Au(T+N1) and Au(T+N2) in 100 gram per lot. It appeared I had an SGE sheet with false specifications of Au(T+N1) and Au(T+N2) – 1 Kg per lot. My manual cross calculations and the SGE numbers match now. 

Precious Metals Import India 2015 Strong, Government Hopelessly Continues To Obstruct Demand

While India’s gross gold bullion import in 2015 reached the third highest amount ever at 947 tonnes and gross silver bullion import reached the highest amount ever at 8,504 tonnes, the Indian government is perpetually trying to obstruct the populace from protecting their wealth. 

Last week I was going through gold and silver trade data released by the Indian Directorate General of Commercial Intelligence and Statistics (DGCIS) and observed strong import of precious metals in 2015. At the same time I was reading the documents, news came out that stated the Indian government was to implement extra rules to hinder its people from buying gold. In my view, the situation in India is another perfect example of a government’s nonsensical fight against the economic tide. Central banks do it all time don’t they?

In an ongoing failure to understand what capitalism is about, the Indian government continues to “disagree” with its citizenry where savings should be placed. Whenever the Indian people increase gold purchases to secure their financial wellbeing, the government is keen to find new tactics to suppress this free market expression. The government aims the country’s wealth to be where it suits them – in the fiat currency they issue and control, but the populace believes fiat currency is inherently vulnerable and chooses physical gold for its long-term wealth preservation. It seems the more the Indian rulers resist private gold demand, the stronger the forces they’re fighting become. As we’ll see below, most undertakings by the government to keep its people from buying gold have been in vain.

First, let’s have a look at an overview of all the measures undertaken in the past years. At the end of the post I will present the details of the latest gold and silver import data (India mostly relies on import for its precious metals hunger).

When the price of gold made its famous nosedive in April 2013 Indian physical gold demand skyrocketed off the charts; in May 2013 India imported 165 tonnes of gold, the highest monthly tonnage ever. In reaction, the government decided in June 2013 to raise the import duty on gold from 4 % to 8 % and in August 2013 from 8 % to 10 %. In addition, in July 2013 the “80/20 rule” was implemented, forcing traders to export 20 % of all imported gold. The import duty on silver was raised to 10 % as well, although silver was not subjected to the 80/20 rule. The result was that by September 2013 India’s gold import through official channels had fallen to a mere 16 tonnes, but smuggling in gold had exploded. Gold trade was diverted to the black market with all due consequences – thriving criminality threatens social and economic stability – and India’s established gold industry organizations fiercely objected the government’s policy. Another consequence was that silver import has seen spectacular increases ever since (see further below).

Although heavily restricted, Indian gold import through official channels bounced of the lows in mid 2014. Eventually, the 80/20 rule was withdrawn in November 2014 while the Indian government was preparing a new trick: the gold monetization scheme, which was to “to mobilize the gold held by households and institutions in the country” and ”be able to reduce reliance on import of gold over time to meet domestic demand”. In my words, the scheme was intended to oversubscribe the people’s gold by exciting them to deposit their metal at commercial banks. The catch is that the gold depositor is technically lending his gold to the bank, whereby he risks losing his metal if the counterparty goes belly up – although these risks were not disclosed in the brochure. Ironically, the essence why people buy gold in the first place is protect their wealth, not to take risks (ie by lending). Not surprisingly, the gold monetization scheme has failed miserably. In the first two weeks after its launch in November 2015 only 400 grams trickled in – bear in mind, there is an estimated 20,000 tonnes of physical gold owned by the Indian private sector. It does not look like the gold monetization scheme will ever succeed in India.

Data from the World Gold Council shows Indian consumer gold demand accounted for 848.9 tonnes in 2015. Reasons enough for the Indian rulers to continue their hopeless quest to limit demand. In January 2016 the government introduced a rule that forces jewelry buyers to show a Permanent Account Number (PAN), which the vast majority of rural customers do not have, for any purchase above Rs 200,000. And it proposed the re-imposition of a 1 % excise duty. Remarkably, the excise duty was first introduced in 2012 but rolled back the same year as jewelers went on strike. This time around jewelers are seeking the same relief. Since 2 March they’re on strike indefinitely (speculating; the excise duty will not succeed).

Let’s head over to the most recent (final) trade data released by India’s customs department, the DGCIS. India’s gross gold bullion import in December 2015 was robust at 111 tonnes, up 9 % from November and up 218 % from December 2014. Total gross gold import for India in 2015 came in at 947 tonnes, up 22 % from 2014, the third highest amount ever.

India gross exported 11 tonnes of gold bullion in December 2015, down 22 % from November and up 35 % from December 2014. Gross gold export for the year 2015 aggregated to 150 tonnes, the highest ever, up 136 % compared to 2014. Gold bullion export might be elevated due to India’s increased refining capacity.

Net gold bullion import in December 2015 came in at 100 tonnes. Total net gold import for 2015 accounted for 797 tonnes, up 11 % year on year.

India Gold trade december 2015

India gold import 2015

India yearly gold demand

India’s gross silver bullion import was very strong in December 2015 at 1,042 tonnes, up 71 % from November and up 198 % from December 2014. Total gross silver import in 2015 accounted for a staggering 8,504 tonnes (!), up 20 % from 2014.

As, silver bullion export from India is neglectable, net import in December 2015 accounted for 1,041 tonnes and total net import for 2015 came in at 8,494 tonnes. The latter being 31 % of world silver mining output!

India Silver import trade 12 2015

India silver import 2015

From looking at official precious metals import and demand numbers we can wonder if the many restrictions from the Indian government have accomplished anything to their likes. One thing is for sure; the Indian people did not substantially bought less gold – and did buy substantially more silver.

Instead of hopelessly resisting and intervening in the Indian economy, the government could also choose to allow free market forces and/or even support the people’s love for gold to bolster India’s gold industry for it to become a global powerhouse. Wouldn’t that be much more effective?

Kindly note, the cross-border trade tonnages for this post, calculated by myself and Nick Laird from Sharelynx.com, are based on the Rupee values disclosed by the DGCIS and the monthly average metal prices. The gold and silver bullion import and export figures mentioned in this post exclude smuggling and cross-border trade in precious metals jewelry.

London Was Bleeding 184t Of Gold In December While China Imported At Least 217t

When there is no more gold left in London to export the gold price is likely to go higher on strong global demand induced by economic headwind. At the time of writing the spot gold price is $1,251.80 per ounce, up 18 % year to date, while the S&P 500 is down 9 % year to date. 

In a year that saw strong gold demand from China, in total withdrawals from the vaults of Shanghai Gold Exchange accounted for 2,596 tonnes in 2015, we turn our eyes to the most obvious place for sourcing such quantities of physical gold: London, the heart of gold wholesale market. Since the gold price came down sharply in April 2013 there has been a spectacular drain from the vaults in the London Bullion Market. In 2013 the UK net exported no less than 1,424 tonnes. Whilst net gold export from the UK in 2014 decreased to 452 tonnes, in 2015 the gold exodus from London has accelerated to 573 tonnes.

In December 2015 the UK has net exported 184 tonnes of gold, which is the third highest amount on record, according to data released by Eurostat. Net gold export in December was up 218 % from November and up 3,730 % from December last year. In December 2015 the UK gross exported 213 tonnes of gold – the second highest number on record, which is up 127 % from November and up 315 % from December 2014. The UK’s gross import accounted for 29 tonnes in December 2015, down 20 % from November and down 38 % from December 2014.

UK Gold Trade 2012 - december 2015

In the chart above we can see a clear correlation between the UK’s net gold export (“Total net flow”, the black line) and China’s wholesale gold demand (measured by “SGE withdrawals”, the turquoise line), implying gold import by China is supplied, directly or indirectly, by London. In the chart below we can see the same data as in the chart above, but now I’ve inverted “SGE withdrawals” and moved its scale on the right hand side so the correlation is even more clear.

UK Gold Trade vs SGE Withdrawals

Of total export from the UK in December 29 tonnes were net exported directly to China and a “surprising” 155 tonnes were net exported to Switzerland – from where 59 tonnes were net exported to China. From what we know China net imported at least 217 tonnes in December 2015, which is the highest amount ever (computed from data by countries that export gold to China, 29 tonnes from the UK, 59 tonnes from Switzerland and 129 tonnes from Hong Kong).

SGE withdrawlas vs China gold import monthly
Strong gold import by China in Dec is partially explained by restocking of the Shanghai Gold Exchange vaults that suffered large outflows in July, August and September due to the crashing Chinese stock market and devaluation of the renminbi.

So how come the gold price has been going down from April 2013 until December 2015 while Chinese demand has been so strong? First of all, because the West has been a strong supplier of physical gold. In my view physical supply by the West and the gold price are linked. For instance, if we compare the average monthly gold price to net gold trade by the UK this interconnection becomes apparent.

UK net gold flow vs gold price

We can see that whenever the UK is exporting gold the price is declining – and vice versa. Effectively, China has been able to purchase huge amounts of gold by the grace of London selling the metal. But what if London is running out and global demand picks up on the back of failing QE and negative interest rate policy (NIRP)? In that scenario likely the gold price would climb higher, which, coincidentally, is what we’re seeing at the time of writing. Year to date the gold price measured in US dollars has increased 18 % from $1,061 at 1 January to $1,251.80 at 11 February.

Screen Shot 2016-02-11 at 7.48.41 pm
This graph is conceived with BullionStar Charts.

How much gold is left in London? We can make a rough estimate, although we don’t know how much of this residual is in weak or strong hands. Research by Ronan Manly from BullionStar and Nick Laird from Sharelynx pointed out there were roughly 6,256 tonnes of gold in London in June 2015. However, of this total at least 3,779 tonnes is monetary gold owned by central banks around the world stored at the Bank Of England (BOE), which is not for sale. The remaining 2,477 tonnes in non-monetary gold was potentially for sale (note, this number included 1,116 tonnes that was allocated as ETF gold in London at the time). In any case, we know now that from June until December the UK net exported 390 tonnes of non-monetary gold, which leaves approximately 2,087 tonnes in non-monetary gold in the UK as of 31 December 2015. Assuming the People’s Bank Of China hasn’t purchased some of this gold and covertly exported it to Beijing in the past months.

As long as London is selling gold and China is buying the price can go down. However, if London stops selling (or becomes a buyer) the price can make a reversal.

SGE Continues To Publish Withdrawals Figures?

It seems the Shanghai Gold Exchange (SGE) is continuing to publish the amount of gold withdrawn from the vaults on a monthly basis. For the month of January “SGE withdrawals” accounted for 225 tonnes, down 1 % from December. After the first weekly SGE reports in 2016 did not disclose SGE withdrawal data and phone calls to the bourse in Shanghai answered these numbers would not be published anymore we can wonder why the Chinese have changed their stance.

It’s advised to have read The Chinese Gold Market Essentials Guide before you continue.

The SGE releases reports with trading data in several intervals in either English or Chinese. Until the last week of 2015 SGE withdrawals, a measure for Chinese wholesale gold demand, were published in the Chinese weekly and monthly reports. Then, an announcement published on the English website of the SGE on 11 January 2016 stated the “the Exchange has adjusted some terms in the Delivery Reports”.

This is where the confusion started because the SGE announced in English to adjust its nomenclature in the Chinese “Market Data Weekly Reports and Market Data Monthly Reports” – I cannot find the same announcement in Chinese. Their intensions were positive though, as there often has been disorientation regarding terms the SGE used inconsistently in the past. In example, the term “delivery”.

The announcement stated the SGE would adjust “distributing market data … effective as of Jan. 1st 2016 and are clarified as follows”:

1.The term “delivery amount” refers to the sum of the trading volume of physical products and the contract delivery volume of deferred products. The term “delivery ratio” refers to the proportion of delivery amount to the total trading volume of both physical and deferred contracts.

2.The term “load-out volume” refers to the total volume of standard physical bullions withdrawn from SGE-certified vaults by members and customers.

3.The terms “accumulative delivery amount”, “accumulative trading volume” and “accumulative load-out volume” respectively refer to the sum of delivery amount, trading volume and load-out volume from the beginning of the year to the statistical time point. The term “accumulative delivery ratio” refers to the proportion of accumulative delivery amount to the accumulative trading volume.

4.Delivery-related data of silver products are added into the reports.

What I found early January was that the first Market Data Weekly Report did not honor the new guidelines from the announcement. In the first weekly report the delivery amount did not match its description, and there was no “load-out volume” (/withdraw volume) to be found. After several phone calls to the SGE to ask if the “load-out volume” data would ever be published we were told no. In the second weekly report the delivery amount did match its description, but there was still no “load-out volume” to be found.

However, this morning Nick Laird from Sharelynx pointed out to me the first Market Data Monthly Report has been released and this report has a different format than the Market Data Weekly Reports. In the Monthly report we can read at the very bottom:

本月出库量  225,081.30

累计出库量  225,081.30

I will spare you my analysis of Chinese characters, but according to a friend in Singapore and Google Translate the top line means “current month volume out of the warehouse” and the bottom line means “cumulative volume out of the warehouse”. I did not reach out to a professional translator, however, I called the SGE again and finally ended up talking to someone at the “delivery department”. This person confirmed to me (over the phone in English) that indeed the “load-out volume” was disclosed at the bottom of the monthly report.

I like to be very cautious in stating the SGE will henceforth publish withdrawal data in the monthly reports. Having seen changes in the first two weekly reports and inconsistent formats in the weekly and monthly reports makes me wonder if we can rest assured the SGE will publish the “load-out volume” in the future.

Hopefully, the SGE decides to continue publishing withdrawal data and the writers of the new weekly and monthly reports were just finding their way to adjust to the new guidelines. Why they would publish withdrawal data only in the monthly reports and not in the weekly reports beats me. Let us be patient and see what the coming reports have to offer. I’ve also send an email to the person I spoke to at the SGE delivery department to ask for written confirmation regarding the “load-out volume” disclosed in the monthly report, which perhaps will be replied with an elucidating statement.

SGE withdrawals at 225 tonnes in January 2016 are 12 % down from January 2015 and 1 % down from the previous month.

Shanghai Gold Exchange SGE withdrawals 2009 - 2016 January

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.

SGE Withdrawals Break Yearly Record. World Gold Council Continues To Hide Insatiable Chinese Gold Demand.

The amount of gold withdrawn from the vaults of the Shanghai Gold Exchange (SGE), which equals Chinese wholesale gold demand, accounted for 45 tonnes in the trading week that ended on 6 November. Year to date SGE withdrawals have reached an astonishing 2,210 tonnes, which is more than the full year record set in 2013 at 2,197 tonnes. With nearly two months of trading left in the Chinese gold market, SGE withdrawals are estimated to reach more than 2,600 tonnes.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 43

Please read The Mechanics Of The Chinese Domestic Gold Market for a comprehensive explanation of the relationship between SGE withdrawals and Chinese wholesale gold demand.

If Chinese gold import will be higher than in 2013 remains to be seen. Two years ago China imported 1,507 tonnes in standard gold bars. According to my estimates China is on track to import 1,400 tonnes in 2015. This year’s SGE withdrawals can have been supplied by more recycled gold than in 2013 that in part replaces gold import.

SGE withdrawals = mine + import + recycled gold supply.

SGE withdrawals can only be supplied by domestically mined gold, imported gold or recycled gold (ie scrap). Because China is one of the few countries that doesn’t disclose its gold trade data we must estimate Chinese gold import from data provided by gold exporters such as the UK, Switzerland, Hong Kong and Australia. Their foreign trade statistics show China has net imported more than 1,032 tonnes of gold in the first three quarters of 2015. In addition, Chinese domestic mining output has been 357 tonnes, according to the China Gold Association, which is prohibited from being exported. Without counting scrap supply apparent physical gold supply in China was 1,389 tonnes in the first nine months of 2015, yet, the World Gold Council disclose Q1-Q3 Chinese gold demand at 736 tonnes. Again, for years in a row now, there is more than twice as much physical gold being supplied to China than what is presented as demand to the average gold investor by the authority on gold (the World Gold Council).

China gold import + mine + SGE

How can so much gold be supplied to China without someone buying it and thus being genuine demand? It cannot. Chinese gold demand as disclosed by the World Gold Council (WGC) is fallacious.

Western consultancy firms have presented numerous arguments to explain the difference between SGE withdrawals and Chinese consumer gold demand, but none of them have proven to be complete. First it was industrial demand that should have caused the difference (WGC 2013), then it was stock movement change (GFMS 2013), then it was round tripping (WGC 2014), then it was gold leasing (WGC 2014), then it was official purchases (WGC 2013), then it was recycled gold (CPM Group 2014, GFMS 2015), even gold export from China has been tested to fool gold investors (PMI 2015). Although some of these arguments are partially true (read this post for an overview) they cannot fully explain the difference, which is at least 2,500 tonnes.

Does the mainstream media ever investigate this odd discrepancy? Of course not, according to them gold is just a pet rock. Nobody cares about 2,500 tonnes of gold that have vanished into a black hole somewhere in China. Whilst, coincidentally, China is the second largest economy in the world that has stated the US dollar should be replaced as the world reserve currency. At the same time the global economy is still struggling to recover from the biggest financial crisis in recent history by printing money, which seems to do nothing more than buy time. But Western media refuse to connect the dots.

Also note, none of the arguments listed above have been carefully described by the consultancy firms that presented them. A few sentences in a report from the World Gold Council were enough to convince the Financial Times to copy-paste the conclusion, although being factually incorrect. Never do the firms thoroughly describe the process of gold leasing or round tripping. Please, show me how gold leasing has inflated SGE withdrawals by 2,500 tonnes and I would be happy to further investigate the flows of gold through the SGE. The most recent sign from mainstream analysts with respect to this topic was communicated through a tweet. 140 characters achieved to set in motion a renewed wave of believe Chinese gold demand numbers make perfect sense.

Doesn’t this subject deserve a little more debate? By the way, isn’t there a contradiction in “numbers complex” and “huge gap between SGE withdrawals and demand data is simple”?

And there is more. Some analysts speculate the PBOC is the secretive buyer of the ‘surplus’ imported gold in China. I would not agree (click here, here and here for my posts on this subject) and I suppose the WGC agrees with me. From the WGC in 2014 [brackets added by me]:

China’s authorities have a range of options when purchasing gold. They may acquire some of the gold which flows into China [required to be sold through the SGE]…. but there are reasons why they may prefer to buy gold on international markets: gold sold on the SGE is priced in yuan and prospective buyers – for example, the PBoC with large multi-currency reserves – may rather use US dollars than purchasing domestically-priced gold. The international market would have a lot more liquidity too.

The WGC suggests the PBOC does not buy gold through the SGE, which implies official Chinese gold demand complements SGE withdrawals and thus the difference of 2,500 tonnes. But then the supply and demand balance from the WGC is still missing 2,500 tonnes. Or is it…?

After six year of silence China’s central bank, the PBOC, announced in July 2015 it had accumulated 604 tonnes in official gold reserves (that jumped from 1,054 to 1,658 tonnes). In the books from the PBOC the 604 tonnes were added to their reserves in the month of June. Subsequently, in July, August and September the PBOC increased its reserves by 50.5 tonnes in total.

The World Gold Council includes all official gold purchases in their Gold Demand Trends (GDT) reports. Below is the total supply and demand table from the WGC released in the GDT report released for Q3 2015.

Screen Shot 2015-11-16 at 3.40.53 pm

As we can see central bank purchases are included, though if we look at total official gold demand for Q2 2015 it states 127.9 tonnes (Q3 2015 is 175 tonnes). Apparently, the World Gold Council did not include the 604 tonnes increment from the PBOC in their total supply and demand balance – and likely will not in any forthcoming balance. But the PBOC must have bought it from somewhere right? 604 tonnes couldn’t have fallen from the sky, it must have been supplied by disinvestment, mining output or scraps. Shouldn’t this demand by the PBOC have been disclosed somewhere in a supply and demand overview? We were already missing 2,500 tonnes from the WGC numbers and now we have to add another 604 tonnes.

From the GDT Q3 report we can read:

The People’s Bank of China (PBoC) confirmed in July that its gold reserves had expanded by over 50% since its last announcement in 2009. At 1,658t, that put China at number six in the global rankings. Subsequently, the PBoC has begun regularly to report changes to its gold holdings and has confirmed an additional 50.1t of purchases between July and September.

Did you notice the WGC refrains from mentioning the PBOC bought 604 tonnes, but conveniently writes the PBOC had “its gold reserves … expanded by over 50 %”? This way another 604 tonnes are hidden from the World Gold Council’s total supply and demand balance, which in my opinion is nothing more than a vague mirage of true global gold supply and demand.

2015090115441348

SGE Withdrawals At Record High 1,958t YTD

Year to date withdrawals from the vaults of the Shanghai Gold Exchange (SGE) came in at a staggering 1,958 tonnes on 25 September 2015 – a record high – according to data released by the SGE on Friday. In week 38, which runs from 21 September until 25 September, 66 tonnes of gold were withdrawn from the vaults. The weak price of gold throughout 2015 and the crashing Chinese stock market has stimulated the Chinese people to purchase gold in great quantities.

As I’ve been away from reporting on SGE withdrawals for a while, I’ll try to catch up in this post (which has been preceded by my post from 12 October about Chinese gold import in the first six months of 2015) on trading activity at the SGE and several other topics in the Chinese gold market. We’ll run through it!

It’s advised you’ve read “The Mechanics Of The Chinese Domestic Gold Market” to have a basic understanding of the physical supply and demand flows through the Shanghai Gold Exchange. In short, SGE withdrawals equal Chinese wholesale demand.

In my previous post we’ve learned that in 2015 there is probably more recycled gold supply flowing through the SGE relative to what is withdrawn. In 2013 the mixture between recycled gold, imports and mine supply was 11 %, 69 % and 20 %. In 2014 and 2015 the share of recycled gold has grown, although definitive data has yet to be published, which lowers the share of gold import that supplies the SGE. Nevertheless, China is on track to import more than 1,300 tonnes of gold in 2015, making it by far the largest buyer ahead of India.

The next chart that runs from January 2013 until August 2015, displays the composition of known Chinese new gold supply (import + mine) plotted against SGE withdrawals.

SGE withdrawlas vs gold import China and WGC demand monthly

Kindly note, Chinese gold import as shown in the chart above only reflects gold export data from Hong Kong, Switzerland, the UK and Australia. However, China also imports gold from other countries that are less transparent in publishing merchandise trade statistics.

The gaps between SGE withdrawals and the center columns can have been filled either by recycled gold or import. All easily accessible data from global customs departments combined points out China has imported at least 865 tonnes of gold year to date. The recycled gold that is supplied to the SGE can be:

  1. Gold-for-cash. This is a phrase coined by the World Gold Council, for the sake of simplicity I’ll stick with it. Gold-for-cash includes jewelry that is sold to refineries. It’s true supply because gold is exchanged for yuan, therefor it is captured by any metric as supply.
  2. Gold-for gold. This includes, for example, scrap spill over from jewelry or industrial fabricators. The scrap metal cannot be used for production and will be exchanged for new bars or wires. These transactions potentially find their way through the SGE (inflating SGE withdrawals). Because the supply part of gold-for-gold is offset by an equal amount of demand it has no net effect on the supply-demand balance and is therefor by most metrics not captured as true supply.

Trading volume on the Shanghai International Gold Exchange (SGEI) has been declining in recent months. Meaning, it’s not likely there is much physical gold flowing through the international bourse in the Shanghai Free Trade Zone. If gold is withdrawn from vaults in the Shanghai Free Trade Zone this would be captured in SGE withdrawals, potentially blurring our view on wholesale demand in the mainland. Because SGEI volume has been tiny, I assume it has had little impact on SGE withdrawals so far. In the chart below the blue line represents the contract iAu9999 that is traded on the SGEI, the other contracts we can see in the chart are traded on the SGE. After a peak in March SGEI volume has fallen to almost zero.

SGE & SGEI contracts bullionstar

Let’s have a look at the weekly SGE withdrawals chart.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 38

What I notice is that SGE withdrawals continue to be inversely correlated to the price of gold; the lower the price of gold, the higher SGE withdrawals. Though, the devaluation of the renminbi on 11 August 2015 has not stopped the Chinese from buying. Another boost for SGE withdrawals has been the crash of the Chinese stock market. The Shanghai Composite Index (SCI) peaked on 11 June 2015, when SGE withdrawals were seasonally low. But from that moment on SGE withdrawals have made an exceptional run up and the SCI a huge downfall, from 5,000 points to 3,000.

SCI vs SGE withdrawals

In July, August and September SGE withdrawals have shown exceptional strength. Premiums have kept up over this period – reflecting pressure on imports.

SGE premiums

In addition, since the devaluation of the renminbi (mid august) the gold price has rallied and the US stock market has declined. We will follow these trends.

COMEX spx
The white line is the gold price in US dollars, the green line is the S&P 500 index.

Sharps Pixley came out with an article this week (referring to a Bloomberg study) about the large discrepancy between SGE withdrawals and Chinese gold demand as disclosed by the World Gold Council (WGC). The argument presented is that Chinese Commodity Financing Deals (CCFDs) are inflating SGE withdrawals, which can only be true to a certain extent in my opinion. What is described in the article, to my understanding, is round tripping that is done between Hong Kong and Free Trade Zones in China mainland. These gold flows are separated from the Chinese domestic gold market, where imported gold is required to be sold through the SGE, as I’ve written in my post “Chinese Gold Trade Rules And Financing Deals Explained. Round tripping does not inflate SGE withdrawals and therefor cannot cause the discrepancy between SGE withdrawals and WGC demand. Other CCFDs include gold leasing at the SGE. Technically, this can inflate SGE withdrawals though speculators that lease gold to acquire cheap funds are more likely to sell it spot at the SGE, in order to use the proceeds, instead of withdrawing the metal. For them the metal is not important, they just want to borrow gold at a low interest rate to promptly sell it for yuan. This way a cheap loan is acquired.

Friday we learned the People’s Bank Of China (PBOC) has increased its official gold reserves in September, this by time by a modest 14.9 tonnes, while its foreign exchange reserves declined by $43.3 billion to $3.514 trillion. Total PBOC official gold reserves are now at 1,708.5 tonnes. According to my analysis there are now approximately 14,593 tonnes of gold in China mainland (if the PBOC has bought all its monetary gold abroad since 2007).

Total Estimated Chinese Gold Reserves 1994 - 2015 inc pboc
For more information about how this chart was conceived click here. 

On Thursday the PBOC published a press release on its website that states the weight of the new Panda bullion coins will no longer be denominated in troy ounces but in a grams. The global standard for bullion coins is troy ounces, the Chinese are now going solo by changing their base weight. Internationally gold is quoted in US dollars per troy ounce, while the Chinese price gold in yuan per gram. The decision to mint the new Panda’s in grams can be seen as Chinese gold policy is becoming more independent, breaking away from the US dominated sphere.

gold-panda-2016-30gram silver-panda-2016 30 gram

H/t @BullionBaron

The new Panda coins will be launched 28 October 2015. Gold Panda coins will be available in 1 gram, 3 gram, 8 gram, 15 gram, 30 gram, 50 gram, 100 gram, 150 gram and 1 kilogram, and silver Panda coins in 30 gram, 150 gram and 1 kilogram.

How Much Gold Is China Importing And Does It Still Correlates to SGE Withdrawals?

We have some catching up to do in terms of discussing Chinese gold import in H1 2015 and how this relates to withdrawals from Shanghai Gold Exchange (SGE) vaults. For this post it’s advised you’ve read The Mechanics Of The Chinese Domestic Gold Market to have a basic understanding of the physical gold supply and demand flows through the Shanghai Gold Exchange within the Chinese domestic gold market.

SGE withdrawals in 2015 are stronger than ever. Although, SGE withdrawals are (seemingly) less correlated to Chinese gold import this year, nonetheless Chinese gold import in the first six months of 2015 was higher relative to the same periods in the years before. 

Chinese Gold Market Recap

I started reporting on SGE withdrawals in 2013 because I noticed these numbers exactly equaled Chinese gold demand as disclosed in the China Gold Association (CGA) Yearbooks 2007 until 2011. In addition, the structure of the Chinese gold market appeared to be designed to direct all Chinese gold supply through the SGE. Therefor, what comes out of the SGE (withdrawals) must equal total supply, which must equal total (wholesale) demand.

SGE withdrawals equal domestic mine output plus recycled gold supply plus import. Therefor, by using withdrawal data from the SGE, Chinese domestic mine output figures from the CGA and estimate the amount of recycled gold supply, we could calculate import.

Mine + recycled gold + import = SGE withdrawals

And:

Import = SGE withdrawalsminerecycled gold

SGE withdrawals proved to be a very effective tool to estimate import figures and measure Chinese wholesale gold demand. That is, until the Chinese gold market changed. In 2014 the Shanghai International Gold Exchange (SGEI) opened its doors, potentially inflating SGE withdrawals from the Shanghai Free Trade Zone without this gold ending up in the Chinese domestic gold market, and recycled gold supply increased significantly relative to 2013. From late 2014 I started writing SGE withdrawals were more difficult to analyze because of these changes in the Chinese gold market. After a period of abstinence from my side in reporting on SGE withdrawals, in this article we will resume to analyze the physical supply and demand flows in the Chinese domestic gold market.

The challenge is that China does not disclose gold import data in its regular customs reports. To find out how much China is importing we must use the foreign trade data statistics from all countries that export to China. A few years ago the bulk of Chinese gold import came in through Hong Kong and so gold export data from the Hong Kong Census and Statistics Department roughly elucidated how much China was towing in. Currently, China is importing gold directly from many other countries. To grasp how much gold China is importing I’ve started to chase the foreign trade statistics from all the major gold hubs (UK, US, Switzerland, Singapore, Hong Kong, Turkey, Dubai) and the big miners (Russia, South Africa, Ghana, Australia, Brazil, Canada, Mexico, Peru, Uzbekistan). Unfortunately this study is taking far longer than I was hoping for – in some countries the customs representatives, when finally contacted, are very sluggish in replying to my emails. I will share the data I have collected so far.

How Much Gold Has China Imported In H1 2015?

On 4 September I published an introduction to this research. The article was about the gold exports from the UK directly to China, which has been 112.5 tonnes in the first half of 2015.

H1 2015 UK net export to China: 122.5 tonnes. 

UK - CN Gold Trade 2012 - June 2015

According to Swiss customs they shipped 137.5 tonnes of gold to China in the first six months of this year.

H1 2015 Swiss net export to China: 137.5 tonnes.

Switzerland China gold trade H1 2015

Direct gold exports from the US to China is very small, according to official data, it was about 1.6 tonnes in H1.

H1 2015 US net export to China: 1.6 tonnes.

US - China gold trade

According to the local Census and Statistics Department Hong Kong net exported 370.3 tonnes of gold to China in H1.

H1 2015 Hong Kong net export to China: 370.3 tonnes.

Hong Kong - CN monthly gold trade January 2009 - June 2015

Australia’s gold export to China is tricky to analyze. Strangely, Australia reports gold shipments as “being exported to China” even though it’s transferred via Hong Kong. Have a look at the chart below.

Australia COMTRADE vs HK census june 2015

Australia also reports gold shipments as “being exported to Hong Kong”, but this is close to zero. Now, if we compare the “Australia gold export to China” from COMTRADE (red bars in the chart above) with “Hong Kong gold import from Australia” (blue bars in the chart above), these have been nearly equal until January 2015. Clearly, what Australia reported as “gold export to China” was first shipped to Hong Kong from where it was re-exported to China. Hong Kong has reported these imports from Australia also as an export to China, as we know that the gold Australia exported to Hong Kong was destined for China mainland. If, in order to compute China’s total gold import, we would add “Australia gold export to China” to “Hong Kong gold export to China”, this would result in double counting equal the volume of “Australia gold export to China”.

In the chart above we can see that since January 2015 “Australia gold export to China” starts transcending “Hong Kong gold import from Australia”. The red bars move up from the blue bars. From that point in time Australia started shipping bullion directly to the mainland, in addition to the Hong Kong route. By subtracting “Hong Kong gold import from Australia” from “Australia gold export to China”, what remains is what Australia directly exported to China, which is the figure we’re looking for.

H1 2015 “Hong Kong gold import from Australia”           = 41 tonnes

H1 2015 “Australia’s gold export to China”                      = 76 tonnes

76 – 41 = 35 tonnes

H1 2015 Australia net export to China: 35 tonnes.

The remaining countries that transparently report gold trade with the mainland are Japan, having net exported 2.9 tonnes to China in H1 2015, and Canada, that exported 2.5 tonnes.

Let’s add up all proven net gold exports to China:

122.5 (UK) +

137.5 (Switzerland) +

1.6 (US) +

370.3 (Hong Kong) +

35 (Australia) +

2.5 (Canada) +

2.9 (Japan)

= 672.3 tonnes

H1 2015 proven Chinese net gold import: 672.3 tonnes.

The Federal Customs Service of Russia states it has exported 93 kilograms of gold to China in 2012 and 2013, nothing more since then. Although I suspect this is not true, I can’t prove it yet. 

Screen Shot 2015-10-09 at 11.30.09 pm

Gold export numbers from South Africa, Singapore, Dubai, Ghana, Brazil, Mexico, Peru and Uzbekistan I have not yet obtained – or in some cases I have my reasons to doubt the accuracy of the data.

Connecting The Dots Between Chinese Gold Import, Chinese Domestic Gold Mining Output And SGE Withdrawals

Aside from the discussion on the metrics of Chinese gold demand, I will focus on the size of wholesale demand as measured by SGE withdrawals and how this relates to Chinese new gold supply. Out of interest how much physical gold China is accumulating, I like to track new gold supply consisting of net gold import plus domestic mining output – the gold added to China’s total reserves.

As the China Gold Association (CGA) has not yet updated Chinese domestic gold mining output up until June 2015, I have used an estimate of 239 tonnes for Chinese mining in H1 2015 (calculated as: half of China’s mining output 2014 increased by 5.6 %, which is by how much Chinese mining expanded in 2014 relative to 2013).

All together, in H1 2015 China has net imported 672.3 tonnes of gold and mined 239 tonnes, totaling 911.3 tonnes.

Let’s have a look at a chart to compare H1 2015 physical gold flows to previous years.

SGE withdrawlas vs gold import China and WGC demand
Exhibit 1. The center column represents estimated Chinese new gold supply (domestic mine output + import). For the sake of simplicity I have left out trade statistics from the US, Japan and Canada – a few tonnes of trade would distort our view of the bigger picture.

This year SGE withdrawals have been stronger than ever, having reached an astonishing 1,178 tonnes in H1 2015. However, the first thing we notice when eyeballing the chart above is the gap between estimated Chinese new gold supply (the center column in the chart) and SGE withdrawals. It is highly probable that recycled gold, whether that is gold-for-cash or gold-for-gold, supplying the SGE has increased this year (depending on how much China has imported from ie Singapore, South Africa and Russia). The gap previously cited accounts for 267 tonnes; this must have been supplied either by unknown imports or recycled gold. The ratio between both is impossible to reveal at this stage.

In the chart above we can see the gap was smaller in H1 2013 than in H1 2015. Though the gap can be deceiving. We know for a fact China has not only imported gold from Hong Kong and Switzerland in 2013. Net export from Hong Kong to China in 2013 plus net export from Switzerland to China in 2013, adds up to 1,403 tonnes. Whilst, the CGA has reported Chinese total net gold import in 2013 accounted for 1,506.5 tonnes. Therefor, China must have imported 103.5 tonnes of gold in 2013 from countries whose trade statistics I haven’t included in this post. The usual suspects are Singapore, South Africa and Russia, perhaps also Ghana. We can safely conclude that because China has imported gold from the usual suspects in 2013, it can also have imported gold from these countries in 2015.

CGA Gold Yearbook 2013 supply
CGA Gold Yearbook 2013: framed in black is total supply 2013 in tonnes. Purple = domestic and overseas mine output, green = recycled gold, blue = bullion import.

Important to note, Chinese new gold supply in H1 2015 (domestic mine output plus import from Hong Kong, Switzerland, the UK and Australia: 911.3 tonnes) was higher than new gold supply in H1 2014 (domestic mine output plus import from Hong Kong, Switzerland and the UK: 795 tonnes) and higher than new gold supply in H1 2013 (domestic mine output plus import from Hong Kong and Switzerland: 861 tonnes).

My conclusion is, although SGE withdrawals are (seemingly) less correlated to Chinese gold import in 2015, caused by more recycled gold supply flowing through the SGE, estimated Chinese gold import in the first six months of 2015 was higher relative to the same periods in the years before. Annualized Chinese gold import 2015 is 1,345 tonnes.

Demand figures from the World Gold Council on China’s gold hunger are still dwarfed by the amounts of physical gold that are very clearly supplied to China mainland.

That’s all I have for now.

India Precious Metals Import Explosive – August Gold 126t, Silver 1,400t

In the month of August 2015, India imported 126 tonnes of gold and 1,400 tonnes of silver, according to data from Infodrive India. Gold import into India is rising after a steep fall due to government import restrictions implemented in 2013.

Year-to-date India has imported 654 tonnes of gold, which is 66 % up year on year. 6,782 tonnes in silver bars have crossed the Indian border so far this year, up 96 % y/y.

Gold import is set to reach an annualized 980 tonnes, which would be up 26 % relative to 2014 and would be the second highest figure on (my) record – my record goes back to 2008.

India Yearly Gross Gold Import
On average, the Indian imports equal about 30 % of yearly world gold mining.

Silver import is on track to reach an annualized 10,172 tonnes, up 44 % y/y! This would be a staggering 37 % of world mining.

India Yearly Gross Silver Import

August trade data is preliminary and will be revised. However, these revisions are usually not significant. On 24 March 2015, I wrote an article based on preliminary data that suggested March silver import would transcend 130 tonnes, a few months later official data from the DGCIS disclosed that the Indian silver import figure for March was 132 tonnes.

India Gold Import Is Rising

When the gold price made its famous nosedive in April 2013, demand from the East – India and China – exploded. The Chinese government counted its blessings and encouraged its populace to import an unprecedented 1,500 tonnes. In contrast, the Indian government was not willing to allow its people to satisfy themselves in buying gold. The reason being, a current account deficit.

The Indian government decided in June 2013 to raise the import duty on gold from 4 % to 8 % and in August 2013 from 8 % to 10 %. Additionally, in August the 80/20 rule was implemented – forcing traders to export 20 % of all imported gold. As a result (official) gold import dropped from an all-time high in May 2013 at 165 tonnes, to a mere 16 tonnes in September 2013. We can only speculate how much was smuggled into India at the time.

India Gold trade 8-2015
Note, this chart excludes jewellery trade.

The restrictions shocked the Indian precious metals market and premiums on local gold skyrocketed to 25 % (including the 10 % import duty) in December 2013. When the market eventually found a way within the existing framework to supply those in demand, premiums came down and official imports rose; illustrating the Indian people are not likely to stop buying gold, as they’re aware “their rulers are thieves”.

Finally, the 80/20 rule was withdrawn in November 2014 allowing gold to be imported more easily. The premium at Indian bullion shops over the international gold price (XAU/USD) has been slightly above the 10 % gold import duty this year.

Indian gold Premiums august 2015

The next strategy from the Indian government and the World Gold Council is to monetize gold “to reduce reliance on import” (click to read the proposal). The most recent draft describes how people can deposit their gold at a bank for interest and the banks can use this gold to lend out, though the exact workings of the renewed scheme are still unclear. In my humble opinion monetizing gold in India will not succeed and imports will not be dampened. The Indian people don’t want to lend their gold and they don’t want to melt their inherited emotionally-critical wealth.

Indian gold monetazition scheme
Source

India Silver Import Is Rising

When the Indian government raised the import duty on gold in 2013, it simultaneously raised the import duty on silver to 10 %. However, the premium on silver didn’t reach 25 % like gold. Many people switched to purchase silver instead of gold. Import since 2013 has increased dramatically.

India Silver import trade 8-2015
Note, this chart excludes jewelry trade.

Last May India imported a record 1,542 tonnes of silver, in August an estimated 1,400 tonnes was shipped in, which would be the second highest number on record – my record goes back to 2008.

This year India is set to import 37 % of global silver mining output. Perhaps more interesting, annualized import equates to 18 % of total above ground silver inventory, based on numbers from GFMS.

Gold is hardly used in industries, more so hoarded by investors and central banks and has a high stock to flow ratio. GFMS estimates there is 180,000 tonnes of above ground gold of which India is set to import 980 tonnes (1 % of above ground stock). Silver has many industrial applications, is used up and is not anymore hoarded by central banks. Resulting in relative low above ground stocks which are partially being imported by India – not likely to be exported any time soon. Potentially creating scarcity at current prices. In a forthcoming post we will zoom in on the supply and demand metrics of the Indian silver market.

Record Monthly Gold Export UK to China

The UK net exported a record 32.4 tonnes of gold directly to China mainland in June 2015.

In 2014 the conventional conduits of bullion flows to China, from all around the world first to Hong Kong and then to the mainland, have been replaced by direct exports. For example, the UK is exporting bullion directly to China since April 2014 – as I reported at the time. The result of the rearrangement in these gold flows is that Hong Kong’s export to the mainland has lost its accuracy as an indicator for China’s gold hunger. In a few posts we’ll have a look at trade data from several gold exporting nations and trading hubs to grasp how much gold China is importing this year.

Starting April last year, UK shipments of gold directly to China have been going up. In June 2015 the UK net exported a record 32.4 tonnes of gold to China, up 6.5 % m/m, up 116 % y/y.

UK - China Gold Trade 2012 - June 2015
Exhibit 1.

Let’s see if we can learn some more from the UK’s trade data. Remarkably, the UK became a net importer of gold in June with 2 tonnes net imported. Falling total gold exports and rising total gold imports caused this. Concluding, although China imported a record monthly tonnage from the UK in June, the Brits did not suffer a net outflow because of concurrent strong imports into London. UK total gold import in June was 49.3 tonnes, compared to a gold net export to China at 32.4 tonnes. Have a look at the below chart for some clarity.

UK Gold Trade 2012 - June 2015
Exhibit 2.

In the above chart, we can see the UK’s total net export has been going down in the past few months (black line), although we know that net export to China has increased (exhibit 1). Who was exporting gold to the UK to be sent forward to China? In June it was the US at 19.5 tonnes, which was the highest amount since February 2012, and Canada at 18.4 tonnes.

Chinese gold wholesale demand measured by SGE withdrawals was high in June at 196 tonnes (exhibit 2). We shall see what the supply composition (mine/import/scrap) was of SGE withdrawals when gold export data from more countries is released.

SGE Withdrawals vs WGC Demand Q1 2015.

Welcome back to my weekly post on the Chinese gold market, usually centered around data regarding Shanghai Gold Exchange (SGE) withdrawals from the vaults. I’ve been away for a short while because I had some health issues – I’ll be fine, I just need a little time. The good news is I slowly started working a few days ago! Let’s see what I didn’t cover in recent weeks in terms of SGE withdrawals, trading volume and Chinese gold imports. I’ll try to catch up in a few post that cover important developments.

SGE withdrawals from May 4 until May 8 (week 18) accounted for 37 metric tonnes. As a rule of thumb this amount of gold is equal to Chinese wholesale gold demand – read this post for a comprehensive analysis of the mechanics of the Chinese gold market and all metrics used to measure demand. Year to date an incredible 858 tonnes has been withdrawn from SGE designated vaults, up 9 % y/y from 2013, up 19 % y/y from 2014.

Screen Shot 2015-05-15 at 1.20.56 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.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 18 dip

Shanghai Gold Exchange SGE withdrawals delivery only 2014 - 2015 week 18 dip

To get a better grip on SGE withdrawals let’s have a look at trading volume on the Shanghai International Gold Exchange (SGEI), as this can distort Chinese wholesale gold demand measured by SGE withdrawals – read this post for an analysis on SGEI volume in relation the SGE withdrawals.

Weekly volume SGE SGEI contracts

We learned on April 11, trading volume of the most popular contract on the SGEI (iAu99.99) transcended all other SGE contracts. However, this appeared not to be sustainable in the succeeding weeks; SGEI volume dropped to low levels. I would say the potential impact of SGEI volume on SGE withdrawals is limited at this stage.

Capturing Chinese wholesale gold demand and mainland import derived from SGE withdrawals for Q1 2015 gives, roughly, 600 tonnes and 400 tonnes, which are both conservative. Total withdrawals in Q1 were 625 tonnes, but let’s assume some of this was exported through the SGEI – read this post for an analysis on the workings of the Shanghai International Gold Exchange.

According to the China Gold Association domestic mine output was 111 tonnes in Q1. If we use the basic equation (SGE withdrawals = mine + scrap + import) to subtract 111 (mine) and 89 (scrap) from withdrawals (600), this leaves 400 tonnes (import).

Record Q1 SGE withdrawals and strong import numbers are very significant data points for the gold industry (if not the global financial system). Did the World Gold Council publish anything about extraordinary Chinese gold demand? Nope. To get a more clear view on Chinese gold demand, I have collected gold export data from three major gold hubs; Hong Kong, the UK and Switzerland. Hong Kong has net exported 210 tonnes of gold to China mainland in January – March 2015.

Hong Kong - CN yearly gold trade January 2009 - March 2015

Hong Kong - CN monthly gold trade January 2009 - March 2015
China exports to Hong Kong have collapsed.

Switzerland has net exported 90 tonnes in Q1 2015. In March the Swiss exported 46 tonnes directly to China, which is only 14 % less than the all-time record set in May 2013 at 53 tonnes.

Switzerland China gold trade Q1 2015

The UK has exported 20 tonnes directly to China in Q1.

UK - CN Gold Trade 2012 - March 2015

The UK’s direct export to China YTD is not a shocking amount, though, most gold in China is still supplied by the UK – home of the London Bullion Market. In the next chart we can see UK total net gold trade and UK net gold trade with Switzerland versus SGE withdrawals. It’s not hard to see the correlation between demand in China (SGE withdrawals) and net export from the UK, which is send through Switzerland and Hong Kong to China mainland.

UK Gold Trade 2012 - March 2015

So, just three countries have exported 320 tonnes to China in three months. Chinese gold import added by mine supply (111 tonnes) and a little scrap easily exceeds 460 tonnes. So, 460 tonnes is the minimum of Q1 total supply for China, yet, demand as disclosed by the World Gold Council (WGC) was 273 tonnes; the mystery continues.

From what I’m seeing Chinese gold demand in Q1 was 500-600 tonnes, though the WGC wants us to believe it’s only slightly more than half of this (273 tonnes). The gap, as I’ve previously called it, has mushroomed to over 3,000 tonnes of gold in total since 2009!

More clearly we can see this gap between SGE withdrawals and WGC demand growing in the chart below. In addition, the gap between SGE withdrawals and import from Hong Kong, the UK and Switzerland is also growing. The gap between import and WGC demand has diminished in 2015 compared to 2014.

Technically, the only way the gap between SGE withdrawals and import – from Hong Kong, the UK and Switzerland – and WGC demand can be filled is by scrap supply or additional imports. However, in my opinion scrap (/recycled gold) couldn’t have supplied the SGE to such an extent, which leaves the question; what country is supplying vast amounts of gold to China?

Chinese supply and demand WGC vs SGE Q1 2013 - 2015

That’s it for now. In upcoming posts we’ll continue to analyze international gold trade and the gap between WGC demand and SGE withdrawals.

Chinese Gold Demand 947 MT YTD

Chinese gold demand, as measured by SGE withdrawals, accounted for 27 metric tonnes in week 26 (June 23 – 27), year to date the counter stands at 947 tonnes. A quick calculation tells us 639 tonnes (SGE withdrawals – scrap – mining) had to be imported for this, annualized 1278 tonnes. Note, these are estimates. For a clear structure of this blog I will expand in a separate post on a recent article by Reuters titled “China gold imports may drop 400T hit by financing curbs”.

My research indicates that SGE withdrawals equal Chinese wholesale gold demand. For more information read this.

Shanghai Gold Exchange withdrawals 2014 week 26

This is a screen shot from the weekly Chinese SGE trade report; the second number from the left (blue – 本周交割量) is weekly gold withdrawn from the vaults in Kg, the second number from the right (green – 累计交割量) is the total YTD.

Schermafbeelding 2014-07-05 om 17.49.42

This chart shows SGE gold premiums based on data from the SGE weekly reports (it’s the difference between the SGE gold price in yuan and the international gold price in yuan).

Shanghai Gold Exchange gold premium

SGE Withdrawals 36 MT in Week 25, YTD 920 MT

Robust demand at the Shanghai Gold Exchange in week 25 (June 16 – 20), physical gold withdrawn from the vaults accounted for 36.3 metric tonnes, according to the Chinese SGE weekly report published last friday.

Schermafbeelding 2014-06-29 om 16.09.44
Header: weekly quotes

In my opinion Chinese (wholesale) demand, that equals SGE withdrawals, is still trending upward (if we ignore the variant demand from April to November 2013 due to the drop in the price of gold). In the chart below there is a clear pattern in SGE withdrawals; around every new year and the Chinese lunar year there is a spike in withdrawals, this is due to Chinese tradition to buy gold as a gift in this period. In between these spikes withdrawals are relatively steady, with the exception of 2013. The trend to watch is the course of the spikes around new year and the interval periods. So yes, demand came down from extraordinary levels in 2013. Is Chinese demand in a downtrend? I wouldn’t say so.

Schermafbeelding 2014-06-30 om 16.18.41

The Chinese calendar differs from the Gregorian we use in the West. The lunar year always starts between January 21 and February 20. This year the lunar year was celebrated at January 31, the year of the horse.

Chinese calender versus Westren calender
Source: Wikipedia

Overview Shanghai Gold Exchange data 2014 week 25

– 36.3 metric tonnes withdrawn in week 25 (16-06-2014/20-6-2014)
– w/w + 9.81 %
– 920 metric tonnes withdrawn year to date.

My research indicates that SGE withdrawals equal Chinese wholesale gold demand. For more information read this. The SGE chairman, Xu Luode, confirmed this correlation last week at the LBMA forum in Singapore. Additionally I called the SGE this morning to have Xu’s statement confirmed. The SGE employee I spoke to said: “Xu noted more than 2000 tonnes was delivered into consumers hands and that could be interpreted as demand.”

Shanghai Gold Exchange withdrawals 2014 week 25

This is a screen shot from the weekly Chinese SGE trade report; the second number from the left (blue – 本周交割量) is weekly gold withdrawn from the vaults in Kg, the second number from the right (green – 计交割量) is the total YTD.

Schermafbeelding 2014-06-29 om 16.10.47