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Presentation Koos Jansen At Scotiabank

I was invited by Scotiabank to speak about Chinese gold demand at their commodities outlook conference on 12 January 2016 in Toronto. Of course I was thrilled to come over and share what I’ve been studying for the past years – thanks again Scotiabank for inviting me!

In my 20-minute presentation I could clearly explain why I think Chinese gold demand is not what mainstream consultancy firms (GFMS, WGC, Metals Focus, CPM Group) would like you to believe. While I was there I also took the opportunity to talk to Jeffrey Christian, who was speaking right before me on conference day. Mr Christian is a Managing Partner of CPM Group, which is one of the consultancy firms whose Chinese gold demand statistics I’ve fiercely disputed over the years.

Previously, in 2014, me and Mr Christian have debated the subject of Chinese gold demand on these very pages. After I wrote CPM Group an open letter in response to their Market Alert, now sadly offline, Mr Christian took the time to debate me in the comment section of my blog. In my opinion this is how it should be, open debate between the mainstream firms and us the independent gold researchers. Mr Christian showed to be a good sport by discussing our differences.

In Toronto we could briefly resume talking about our differences offstage. We didn’t agree, naturally, but it was valuable to hear some of his arguments – that’s what fuels debate and incentivizes me to investigate certain segment of the gold market more thoroughly. On stage I was pleased to able to present my view on Chinese gold demand right after his.

Scotiabank koos jansen gold china sge

In a nutshell Mr Christian stated Chinese gold demand was roughly 933 tonnes (30 million ounces) in 2015, while I stated it was more like 2,000 tonnes, as China has imported roughly 1,400 tonnes, mined 450 tonnes and scrap was likely more than 150 tonnes for the year (the details about all data from 2015 will be published shorty).

Screen Shot 2016-01-27 at 12.56.16 pm
Courtesy Jeffrey Christian CPM Group.

Unfortunately the recording of my presentation is not allowed by Scotiabank to be republished on YouTube. So what I did is re-record the presentation. Below you can find the video, my voice in combination with the slides, which turned out to be a concise analysis of the Chinese gold market. The first part is about Chinese private gold demand and the structure of the Chinese domestic gold market. In the second part I speculate about purchases from China’s central bank that have to be added to Chinese private gold demand, according to my analysis.

Click here to download the slides in PDF format, or watch the video below.

Interview Willem Middelkoop About The Big Reset

The very reason I became interested in gold after the financial crisis in 2008 was because of Dutch gold guru, author, journalist, entrepreneur, and fund manager Willem Middelkoop. When I started reading his books I was immediately obsessed with economics and the gold market – along with thousands of others across the world.  Who would have thought that I would become a precious metals analyst a few years later?

It was an honor to have contributed to Willem’s latest book The Big Reset with translations from Chinese policy makers that stimulate their citizenry to accumulate physical gold and my initial research into the Shanghai Gold Exchange that revealed Chinese gold demand was approximately twice a large as what was previously thought in the English-speaking world.

When The Big Reset was first released in January 2014 I’ve conducted an interview with its author about the inevitable reset of the international monetary system (the interview was published in two parts on this blog – onetwo). Since then a lot has happened in the global realm of economics and at the same time The Big Reset became an international best seller. As we speak The Big Reset has been translated in Dutch, German and Chinese and is expected to appear in Portuguese, Arabic, Polish and Vietnamese.

To keep up with the most recent developments Willem has added 70 pages in the revised edition of The Big Reset. For me a reason to have another chat with him about what he saw has happened in the past two years:

The Big Reset

J: Is it a coincidence that after the financial crisis more tensions between the West and East emerged and is there a financial war played by the US?

WM: Economic warfare aims to capture or otherwise control the supply of critical economic resources or destroying a country’s currency.  The US understands better than anybody else that a country can sometimes be hurt more by doing this than by bombing its infrastructure. A recent example of financial economic warfare was the sudden crash of the price of oil and value of the ruble soon after the annexation of the Crimea by Russia, in the second part of 2014. In less than six months the price of oil halved. This large drop could not be explained by fundamentals like supply and demand. Some market commentators said it reminded them of the Cold War era when the US and the former USSR competed not only in a military way, but also tried ‘to play the economy’. Because the USSR was increasingly more dependent on food imports, especially grain, the export of oil had to bring in enough dollars. The US decided to use its influence on Saudi Arabia (OPEC) and persuaded them to expand the supply of oil, making the oil price plunge in the 1980s. It would soon prove to be a fatal attack for Russia and the Soviet Union collapsed in 1991. The fact that Saudi Arabia in 2014 again increased its oil production fuelled rumours of a new economic war against Russia. The collapse of the oil price led to collapse of the Russian ruble. The Russian Sberbank, confirmed that it had come under a financial economic attack in December 2014. Herman Gref, CEO of Sberbank, disclosed a foreign-based attempt to provoke a bank run during the December ruble crisis. In an interview he said that about $6 billion had been withdrawn from the Sberbank in a single day after a massive information attack, with people receiving text messages saying Sberbank was facing problems paying out deposits. Thousands of SMS-messages were sent, including a large number of mailings done from foreign websites.

Willem Middelkoop the big reset
Willem Middelkoop

J: What more do you see around the world in terms of financial warfare?

WM: In May 2015, the US had a number of high-ranking FIFA officials arrested in Switzerland in connection to a bribery case. Most observers did not understand that the US action was designed to pressure FIFA, ‘urging it to consider removing Russia as host of the 2018 FIFA World Cup because of its role in the Ukraine crisis and occupation of Crimea.’ China and Russia were also shocked to learn how the SWIFT international payment system was used as a means to attack Russia. In 2014, the United Kingdom pressed the EU to block Russia from the SWIFT network as a sanction for the Russian aggression in Ukraine. China responded quickly and launched its own alternative, the China International Payment System (CIPS). In addition, by 2012 SWIFT disconnected all Iranian banks from its international network. Alastair Crooke, a former MI6 official is one of the few individuals who has been very open about the purpose of this kind of financial and economic warfare.

J: Is this all meant to defend the US dollar hegemony?

WM: In a book, ‘Treasury’s War,’ the tool of exclusion from the dollar-denominated global financial system is described as a ‘neutron bomb.’ When a country must be isolated, a ‘scarlet letter’ is issued by the US Treasury that asserts that such-and-such bank is somehow suspected of being linked to a terrorist movement – or of being involved in money laundering. The author of ‘Treasury’s War’ Juan Zarate, chief architect of modern financial warfare and a former senior Treasury and White House official, writes this scarlet letter constitutes a more potent bomb than any military weapon. With Ukraine we have a substantial, geostrategic conflict taking place, being part of a geo-financial war between the US and Russia.

J: What’s China’s roll in this?

WM: It has brought about a close alliance between Russia and China. China understands that Russia constitutes the first domino; if Russia is to fall, China will be next. These two states are together moving to create a parallel financial system, disentangled from the Western financial system. That’s why both are accumulating so much physical gold. It includes replicating SWIFT and creating entities such as the Asian Infrastructure Investment Bank. One of the principal tools in the hands of Washington to control the global system was always the International Monetary Fund (IMF). Nations have to go to the IMF to ask for financial help, when in difficulties, but recently it was China – and not the IMF – which bailed out Venezuela, Argentina and Russia as their currencies crashed. China became concerned when the ruble crashed late 2014, and intervened to halt a run on the currency. The IMF and the World Bank are no longer at the center of the global financial order.

J: Why is this dollar hegemony so important for the US?

WM: ‘Great nations have great currencies and great currencies can give countries great power so they can even grow into empires’, political scientist Jonathan Kirshner once said. In order to maintain its monetary hegemony, the United States must weaken any potential competitors who will possibly challenge the US monetary hegemony. Wars in the Middle East are fought to strengthen the dollar’s position and fight regimes that have been supporting Russia. General Wesley Clark, the Supreme Allied Commander of NATO during the 1999 War on Yugoslavia, confirmed in an interview that the US had decided to work toward regime changes in seven countries, in order to secure US interest in the region before any new world power might arise.

J: Through the dollar the US has unlimited powers?

WM: Any country, like the US, that issues the dominant world reserve currency has almost limitless power to finance other countries. It gives the monetary hegemony ‘exorbitant privilege,’ as the French remarked in the 1960s. Because it can print the world currency the US can buy anything it wishes without having to worry about its liabilities. While the Soviet Union collapsed because they had to import food with hard-earned dollars from their oil exports, in the 70s and 80s, the US could start the Korean War and the Vietnam War with freshly printed greenbacks. By ‘obliging’ foreign central banks to keep their monetary reserves in Treasury bonds, the US in fact forced them to finance US military spending abroad, as Michael Hudson explains in his book ‘Super Imperialism’. In this new form of imperialism, the US is able to rule not through its position as world creditor, but as world debtor. America’s weakness as a debtor country has indeed become the foundation of the world’s monetary and financial system. A Chinese market commentator once remarked: ‘World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy … a dollar hegemony that forces the world to export not only goods but also dollar earnings from trade to the US … Everyone accepts dollars because dollars can buy oil.’ Only when dollar-holding nations decide to buy natural resources instead of US treasuries, is the dollar’s reserve currency status in danger. This is exactly the exit strategy China and Russia seems to be playing right now. In recent years, the Russians have sold most of their dollar holdings, while they tripled their gold position. The Chinese have stopped buying extra US Treasuries since 2010 while they have imported and invested in huge amounts of gold. These developments signal the first stages of the US dollar’s decay.

China’s Gold Army

As part of the wide analysis of the Chinese domestic gold market I would like to share that since the seventies there is a special army in China dedicated to gold. It’s called The Gold Armed Police – if you can read Chinese have a look at this Wikipedia page.

It’s no coincidence this army came into existence in 1979, eight year after the US left the gold standard and when China started opening up under the guidance of Deng Xiaoping. As, this was the moment the Chinese slowly started to reform their economy and made the first preparations in their gold market. They knew, among others, the global dollar standard wouldn’t last forever.

On 29 October 1976 representatives of the Chinese central bank and the Federal Reserve (US, Arthur Burns) met in China and discussed international economics. From Wikileaks:


In the quote from Wikileaks we can clearly read the Chinese were interested in gold. However, the Chinese economy was completely centrally planned at the time and they were not a member of the World Trade Organization or the giant exporter of goods they are now. Therefor, I suspect China had little resources to acquire gold – in the seventies China’s foreign exchange reserves were very small – while they urgently needed to increase their reserves.

Initially the Gold Armed Police was established to develop China’s domestic mining industry. China’s domestic mining output grew by an incredible 2,964 % from 1976 until 2014, according to data from the China Gold Association, and this was partially due to gold exploration by the Gold Armed Police.

Chinese mining 1949-2014 x

Remember that before 2002 the PBOC had the monopoly on all gold trade in China. Mining output (and potential import) was transferred to the PBOC that set the domestic gold price and distributed the gold to a limited amount of designated jewelry shops or kept the metal for its official reserves. The Gold Armed Police and the PBOC must be closely associated.

Next to exploration the Gold Armed Police was also assigned to guard the mines and to do other tasks. And here is where it becomes interesting. Gold market insider James Rickards has written in The Death Of Money (2014):

A senior manager of G4S, one of the world’s leading secure logistics firms, recently revealed to a gold industry executive that he had personally transported gold into China by land through central Asian mountain passes at the head of a column of People’s Liberation Army tanks and armored transport vehicles. This gold was in the form of the 400- ounce “good delivery” bars favored by central banks rather than the smaller one- kilo bars imported through regular channels and favored by retail investors.

Although Rickards notes the convoy was lead by the People’s Liberation Army I think it’s very likely the Gold Armed Police was involved in this transport that contained monetary gold directed to PBOC vaults. We can speculate the Gold Armed Police is active in distributing the PBOC’s monetary gold into the mainland.

The Gold Armed Police in April 2011, about 100 soldiers from the 7th detachment in Xinjiang.

The other day I spoke to a gold market insider, that likes to remain anonymous, who told me “some central banks send their own airplanes to London to pick up monetary gold” when we were discussing purchases from China’s central bank in the UK. I’m quite sure the PBOC has bought a substantial amount of gold in London in recent years and I suspect the Gold Armed Police is distributing the monetary metal.

So how does the PBOC buy gold in London? Through which proxy do they do they purchase the metal? Well, that’s hard to say. But, if I may freely speculate the Bank Of China is part of this. If we read the Chinese Wikipedia page about the Foreign Exchange Reserves of the People’s Republic of China (not the English page) it states:


The FX reserves of the Chinese mainland are State-owned assets and managed by SAFE and the PBOC, the actual business operations are carried out by the Bank of China.

SAFE (State Administration Of Foreign Exchange) is the largest Chinese sovereign wealth fund that manages the PBOC’s foreign exchange reserves.

The Bank Of China is a commercial state-owned bank and LBMA member that can be one of the proxies for the PBOC’s monetary gold purchases around the globe. So, possibly the Bank Of China buys gold in the London OTC market, which is then transported by the Gold Armed Police to PBOC vaults in Beijing.

Below is an article I found on The China Times about the Gold Armed Police:

Source The China Times, Global Edition

China has a military unit dedicated to gold exploration, this unit is the only one of its kind in the world.

The gold exploration unit was established in the beginning of China’s reform and opening up, when the country urgently needed to increase its gold reserves. The unit has found more than 1800 tons of gold so far, helping China become the world’s largest gold-producing country.

China’s annual gold production was merely 4 tons when PRC was founded. After the gold exploration unit of the Chinese People’s Liberation Army was established in 1979, 12 detachments were sent to all over China. The picture shows soldiers from the 7th detachment of the gold exploration unit singing songs on their way in March 2006.

Gold reserves are usually located in remote and inaccessible areas. The picture shows soldiers from the 8th detachment of the gold exploration unit fighting sandstorm in Lop Nur in August 2002.

In 1995, China’s gold production for the first time exceeded one hundred tons, taking the 8th place in the world. More than half of the gold reserves were found by the gold exploration unit. Eight years later, China’s annual gold production exceeded 200 tons. The picture shows a soldiers from the 8th detachment of the gold exploration unit carrying out explosion works in August 2002.

July 2000, soldiers from the 8th detachment panning alluvial gold in Xinjiang. In 30 years, the gold exploration unit has found many large-scale gold deposits, in total found more than 1800 tons of proven gold reserves.

Lop Nur, August 2002, soldiers from the 8th detachment cooking meals in tent, two days later, the tent was swept away by flood.

Lop Nur, August 2002, soldiers from the 8th detachment having lunch together.

April 2011, about 100 soldiers from the 7th detachment carrying out geology and resources survey tasks in Xinjiang.

May 2011, soldiers from the 6th detachment taking a break after long-hours hard work in Qilian Mountain, Qinghai.

Natural gold nugget found by the gold exploration unit in 1983, it contains 1114 grams of pure gold.

Switzerland Gold Export China October 29t, +34% m/m

First, withdrawals from the vaults of the Shanghai Gold Exchange (SGE), our best measure for Chinese wholesale gold demand, accounted for 49 tonnes in week 44 (9 – 13 November), up 9 % from the previous week. Year to date SGE withdrawals have reached 2,259 tonnes, which is already more than any previous yearly total.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 44

Seasonally, SGE withdrawals are the highest around new year, therefore I expect them to increase from current levels before the end of 2015 – perhaps transcending 60 tonnes a week. Chinese people traditionally exchange gifts during new year and lunar year, often in the form of gold.

As SGE vaults have likely been depleted from July until September – after the crash in the Chinese stock market withdrawals skyrocketed – I don’t expect Chinese gold imports will decline until the January 2016. Year to date China has net imported 1,058 tonnes, according to lagging data released by various customs departments around the world.

The most recent data from Swiss customs points out there were 29 tonnes of gold shipped directly to China mainland in October, up 34 % m/m. Year to date (Jan – Oct) Switzerland has net exported 217 tonnes directly to China.

Switzerland China gold trade 2012 - oct 2015

A couple of years ago all net gold export from the UK (a large supplier of gold to the East) to China flowed via Switzerland or Hong Kong. Because the UK has started to export gold directly to China since 2014, Swiss gold exports to China have been somewhat decreasing.

Year to date (Jan – Sep) Hong Kong has net exported 582 tonnes directly to China.

Year to date (Jan – Sep) the UK has net exported 210 tonnes directly to China.

Year to date (Jan – July) Australia has net exported 49 tonnes directly to China.

It’s virtually impossible to get physical gold in London

Just after my colleague Ronan Manly wrote a very extensive article on how much gold is left in London (not much), Petropavlovsk Chairman and Co-Founder Peter Hambro discusses gold at Bloomberg Television. He, like Manly, concludes there is very little physical gold left in London. From Mr Hambro:

My baseline is they [the Chinese] have been buying and the Indian have been buying in enormous quantities. It’s virtually impossible to get physical gold in London to ship to those countries. We get permanent requests from Russia, would we please sell our physical gold to India and China. Because there is no physical, only endless promises. And I really worry that the market, that paper market, could be stamped on and people will say “sorry we’ll have a financial close out”, and it’s all over.

Perhaps this quote explains why UK gold export directly to China in June was not a net outflow from the UK – because there is little gold left in London (Manly, Hambro) and thus the UK had to ramp up import from the US in June to send forward to China.

Screen Shot 2015-09-10 at 9.46.56 am

Click here to watch the full interview with Mr Hambro.

The Financial Times reported on similar gold shortages in London. From the FT (2 September):

The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants.

“[The rise] does indicate there is physical tightness in the market for gold for immediate delivery,” said Jon Butler, analyst at Mitsubishi.

I’ve also asked BullionStar CEO Torgny Persson in Singapore what he’s currently seeing in the precious metals markets. He replied there are shortages in both the gold and silver market. From Mr Persson:

Several refineries, mints and wholesalers are reporting that they have no gold and silver at all live available, that they have stopped taking orders for many different products. 

We still have most products in stock because we stocked up as massively as we could in the last weeks but for many products, we are unable to replenish as of now when we run out.

Big squeeze with shortages starting now both on the wholesale/retail level and at the bulk level… Unless the paper price is reverting up, it may not subside this time around and then the paper fiat mess (including paper prices of gold and silver) is in trouble. If it goes to the point of shortages at the bulk level like 1kg gold bars and 1000 oz silver bars, the emperor will stand without clothes.

To be continued…

Willem Middelkoop: A New Gold Standard In The Making

Written by Willem Middelkoop

“Putin is the biggest gold bug”, was the title of a recent Bloomberg op-ed by Leonid Bershidsky the founding editor of Vedomosti, Russia’s top business daily. He explains why the Russian central bank has accumulated almost 100 tons of gold in the last four months of 2014. It is an acceleration of the gold buying program which started in 2007, a year before the Lehman collapse.


Besides accumulating gold the Russians have been quite active sellers of US Treasuries. Between November 2013 and December 2014 they have sold around $30 billion of US government bonds while they grew their gold reserves from $43 to over $50 billion in a clear effort to de-Americanize the Russian economy. Just like the Chinese they as well signed bilateral currency-swap-deals in a move away from the dollar.


The Russian activities can be seen as part of an all-out financial war between Russia and the West as best described by Putin’s economic advisor Sergei Glazyev in a recent interview:

I believe that in a situation of growing military and political confrontation the gold price will move up again. And let’s not forget that America’s refusal to honour their debt will undermine trust in the dollar not just in this country but also in others. It will be a step towards the end of the American financial empire. It will give us a chance to be among the first to suggest a new configuration for the world financial system, in which the role of national currencies will be significantly higher.

The Chinese, who have shown all kind of financial and economic support for Russia in recent months, have been on a gold buying spree as well. In the last ten years Chinese buyers have accumulated over 10,000 tonnes of gold.

Total Estimated Chinese Gold Reserves 1995 - 2014

While Western banks are trying to scare customers away from buying gold, the Chinese have opened up over 100.000 retail outlets to promote gold and silver among the public. In my book I quote from an article by Sun Zhaoxue, the former president of both the China National Gold Corporation (CNG) and China Gold Association (CGA), first published by gold analyst Koos Jansen:

Individual investment demand is an important component of China’s gold reserve system; we should encourage individual investment demand for gold. Practice shows that gold possession by citizens is an effective supplement to national reserves and is very important to national financial security. Because gold possesses stable intrinsic value, it is both the cornerstone of countries’ currency and credit as well as a global strategic reserve. Without exception, world economic powers established and implement gold strategies at the national level.

Mr Sun outlines why substantial national gold reserves are so important for countries like China:

In the global financial crisis, countries in the world political and economic game, we once again clearly see that gold reserves have an important function for financial stability and are an ‘anchor’ for national economic security. Increasing gold reserves should become a central pillar in our country’s development strategy. International experience shows that a country requires 10% of foreign reserves in gold to ensure financial stability while achieving high economic growth concurrently. At the moment, the US, France, Italy and other countries’ gold accounts for 70%
 of forex reserves. After the international financial crisis erupted, (our) gold reserves were increased to 1054 tons
 but gold reserves account for less than 1.6% of financial reserves – a wide gap compared to developed countries.

According to him, the Chinese government is intent on accumulating additional high quality (gold) assets:

The state will need to elevate gold to an equal strategic resource as oil and energy, from the whole industry chain to develop industry planning and resource strategies… increasing proven reserves, merger and acquisitions, base construction and opening up offshore gold resources to accelerate increase of national gold reserves. Concurrently, actively implement a globalization strategy that will exploit overseas resources and increase channels to grow China’s gold reserves. We should achieve the highest gold reserves in the shortest time.

According to Bloomberg the Chinese have stopped buying US Treasuries as well. Instead the Chinese have signed contracts worth $100’s of billions with Russia; this is a strong diplomatic sign of support for Russia. The two countries even signed a contract for a $240 billion investment for a 7000 km high-speed link between Beijing and Moscow.

These developments illustrate a growing divide between the financial interest between East and West. Now sovereign bond and deposit yields at or below zero we have reached the financial endgame, as the Saxo bank and Deutsche Bank have been writing recently. The IMF has published a report in which the economists Rogoff and Reinhart point to the need for debt restructurings in advanced economies. Debt restructurings and finding a new world reserve currency are the main aspects of a coming Monetary Reset.

Recently we have seen some more confirmation major countries are preparing for a new phase of the international monetary system. During two conferences in China last year, a coming financial reset has been discussed. At the 2014 edition of the Chinese International Finance Forum (IFF) “[..] a new global financial order has been discussed with China.” According to the former ECB President Jean-Claude Trichet. Chinese media reported the three days the forum (including U.N., World Bank, IMF participations) discussed “the new framework for the global financial and economic system”.

Preparations for a monetary reset were also confirmed by Zhou Ming, General Manager of the Precious Metals Department at ICBC during the LBMA Forum in Singapore;

With the status of the US dollar as the international reserve currency being shaky, a new global currency setup is being conceived.

In 2012 the former Bank of England Governor Mervyn King already predicted advanced economies would probably not be able to get out of the current crisis without large debt restructurings and a recapitalization of the financial system (banks):

I am not sure that advanced economies in general will find it easy to get out of their current predicament without creditors acknowledging further likely losses, a significant writing down of asset values and recapitalization of their financial systems…. Only then will it be possible to return to a more normal provision of the vital banking services so crucial to an economic recovery.

Yes even Alan Greenspan acknowledged that, ‘It is mathematically impossible to cover future government promises’. The US unfunded liabilities (pension and health costs) are as high as $128 trillion.

Japan is the best and most worrying example of the sheer magnitude of public debt, which will reach 250% of GDP in 2015. At the end of 2014 the architect of Japan’s radical economic policies, often describe as ‘Abenomics’ Koichi Hamada called the aggressive moves by the Japanese central bank a Ponzi-scheme:

In a Ponzi game you exhaust the lenders eventually, and of course Japanese taxpayers may revolt. But otherwise there are always new taxpayers, so this is a feasible Ponzi game, though I’m not saying it’s good.

One more insider who is very vocal about the need for a monetary reset and who’s views we shouldn’t ignore, is the legendary hedge fund manager George Soros:

The system we now have has broken down, only we haven’t quite recognized it. So you need to create a new one and now is the time to do it… You need a new world order where China has to be part of the process of creating it. They have to buy in [which they are doing by buying gold] … And I think this would be a more stable one where you would have coordinated policies. I think the makings of it are already there because the G20 effectively is moving in that direction… So there is a general lack of confidence in currencies and a move away from currencies into real assets…. Especially in the area of commodities.

Gold Repatriations

The gold repatriation by several European countries is another sign we are reaching an end of a monetary calm period of over 40 years. The Europeans follow in the footsteps of other countries to repatriate their physical gold holdings from the US. According to a former Director of the United States Mint:

More countries are repatriating their gold. For them, an audit is not enough. They would like their gold back. Azerbaijan, Ecuador, Iran, Libya, Mexico, Romania and Venezuela is a short list of countries that have requests into their custodians to transfer some or all their gold back to their countries.

We can only conclude gold is making a remarkable comeback into our financial system and even that a new gold standard is being born without any formal decision. At least that’s how Ambrose Evans- Pritchard, an influential international business editor of The Telegraph, described the on-going efforts by countries to lay their hands on as much physical gold as possible:

The world is moving step by step towards a de facto Gold Standard, without any meetings of G20 leaders to announce the idea or bless the project… Neither the euro nor the dollar can inspire full confidence, although for different reasons. EMU is a dysfunctional construct, covering two incompatible economies, prone to lurching from crisis to crisis, without a unified treasury to back it up. The dollar stands on a pyramid of debt. We all know that this debt will be inflated away over time – for better or worse. The only real disagreement is over the speed… The central bank (gold) buyers are of course the rising powers of Asia and the commodity bloc, now holders of two thirds of the world’s $11 trillion foreign reserves, and all its incremental reserves. It is no secret that China is buying the dips, seeking to raise the gold share of its reserves well above 2%. Russia has openly targeted a 10% share. Variants of this are occurring from the Pacific region to the Gulf and Latin America. And now the Bundesbank has chosen to pull part of its gold from New York and Paris. Personally, I doubt that Bundesbank had any secret agenda, or knows something hidden from the rest of us. It responded massive popular pressure and prodding from lawmakers in the Bundestag to bring home Germany’s gold. Yet that is not the story. The fact that this popular pressure exists – and is well organised – reflects a breakdown in trust between the major democracies and economic powers. It is a new political fact in the global system.

These latest development can have big repercussions in the future, just like the repatriation of gold in the 1960s lead to the implosion of the London gold Pool in 1968 and the rise of the gold price from $35 in 1969 to over $800 in 1980.

These indications about the coming changes for our monetary system don’t mean we have to expect a monetary reset earlier than previously expected. The planned changes will take time to discuss and to prepare. But we will experience them in the next decade for sure. They could be introduced as one worldwide monetary reset or in a series of smaller steps.

Willem Middelkoop is founder of the Commodity Discovery Fund and author of The Big Reset

Guest Post: Is The $/Yen About To Take A Swan Dive?


When I looked at the chart of the $/Yen I recognized the formation immediately. Here is the current chart of $/Yen. Notice the breakout to the upside of a flat-bottomed triangle. Now where did we see something similar?


This is a chart of GLD going back five years. Notice how GLD topped, formed a flat bottomed triangle and broke up out of it. What happened next was a swan dive.


The similarities are most certainly there, as the $/Yen has run for years much like gold did into 2011. If that chart plays out the $/yen is set to plunge and that matters to gold investors for one reason. Gold trades in lockstep with the Yen/$ or the inverse of what is commonly quoted…$/Yen.


As gold plumbs major support in the low 1200’s the $/Yen has hit major resistance. When coupled with the COMP approaching a double top going back to the year 2000, one has to wonder if stocks aren’t about to rollover as the $/Yen goes down with it. All of which would give investors in gold a welcome break from the misery of the past 3 ½ years.

Written by: It’s a Mystery

Total SGE Withdrawals 255t In January, Up 4 % y/y

In the last trading week of January another huge quantity of gold left the vaults of the Shanghai Gold Exchange (SGE). According to the latest SGE data nearly 54 tonnes were withdrawn in week 4 (January 26 – 30), down 24 % w/w. Year to date a staggering 255 tonnes has been withdrawn, up 4 % from the strongest January ever in 2014.

Screen Shot 2015-02-06 at 11.44.19 AM
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 4 were at least 42 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 230 tonnes.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 4, dips

Shanghai Gold Exchange SGE withdrawals delivery only 2014 - 2015 week 4, dips

A quick calculation suggests China has imported somewhere in between 175 and 200 tonnes of gold in January. Happy New Year!

In a recent blog post Thomson Reuters noted banks that enjoy a PBOC gold trade license are obliged to import a minimum amount of gold each year. Supposedly this is why Chinese gold import (and SGE withdrawals?) ramped up in the fourth quarter of 2014.

Licensed importers need to import a minimum amount of gold bullion per year to demonstrate to government authorities that they have put their import license to good use. Therefore, after a series of relatively weak import numbers in the second and third quarters, importers had some catching-up to do by the fourth quarter.

So China imports gold, which is being sold through the SGE and withdrawn from the vaults, though this is not related to any demand? If there would be no demand for the imported gold in China, (i) there would be significant discounts on the SGE relative to London, (ii) Importing/consignment banks would suffer enormous losses. Doesn’t make sense to me.

On January 26 the SGE announced to allow its international members and customers to trade the deferred silver contract Ag(T+D), a domestic precious metals contract, starting February 2. Though, foreign traders will only be able to open long or short positions, receive/pay the deferred compensation fee and close long or short positions. Delivery let alone withdrawals will not be allowed. Herein we can clearly see the closed characteristics of the Chinese precious metals market; not only gold is prohibited from being exported, through VAT rules the State Council effectively blocks silver from being exported as well (in general trade). The possibility for foreigners to open Ag(T+D) positions are pure paper trades. From the SGE:

All members,

For the purpose of diversifying trading products for international members and customers, the Shanghai Gold Exchange (“The Exchange”) is going to open the trading access of Ag(T+D) contracts to international members and customers. From February 2nd, 2015, all international members and customers are allowed to participate in the Ag(T+D) trading, including opening long or short positions and closing out long or short positions; and yet delivery tendering, delivery equalizer tendering, or load-in and load-out of physical silver bullions are not allowed.

The trading margins and transaction fees for international members are consistent with domestic members and customers. The position limits of Ag (T+D) for international members and customers are also in line with domestic members and customers. International members and customers may apply to SGEI for adjustment of position limits as per their business needs.

Likely not many foreign traders have jumped in as of yet, total weekly silver volume in week 5 (January 2 – 6) was 9,704 tonnes, down 11 % w/w.

Shanghai Gold Exchange SGE weekly silver volume

Hard to say what will happen down the line, the internationalization of the SGE since September 2014 hasn’t been successful up until now. This would presumably change if China liberalizes its precious metals export policy, but does it want to? Not in the near future if you’re asking me.

Let’s see what happens next in the global realm of precious metals when Chinese banks will participate in the new London gold fix scheduled in March.

GFMS Reports Chinese Gold Trade Volume Incorrect By 100%

Thomson Reuters GFMS, one of the leading consultancy firms regarding precious metals supply and demand data has recently released the GFMS Gold Survey 2014 – Update 2. From the report:

Thomson Reuters’ supply and demand data are collected and collated by our team of research analysts based in Australia, China, Europe, India and the USA within an extensive field research programme which involves interviewing stakeholders across the supply chain in every market and utilizing the unique data sets available to us after researching the market continuously since 1967.

… [etc]

All this information, including mine cost profiles, analysts “view of the field”, disaggregated supply and demand data back to 2000, as well as base case and two alternative scenarios underpin price forecast for one, three, and ten year periods and are now available on Thomson Reuters Eikon.

For the ones that don’t know, Thomson Reuters Eikon is a data terminal that costs you something in between $800 and $1,800 a month, depending on how many bells and whistles you prefer.

In a previous post I noted I didn’t agree with GFMS on Chinese gold demand 2014, disclosed by them at 866 tonnes while supply in China was 1,833 tonnes (import 1,200 + mine 451 + scrap 182), resulting in a gap of 967 tonnes. But I would like to save the demand discussion for another post to expand upon.

The section in the GFMS report that shows gold trading volume on the largest exchanges of the planet looks like this:

Screen Shot 2015-01-31 at 9.51.43 PM

The table is obviously meant so readers can compare the gold volumes traded on the major exchanges; all data is computed into metric tonnes. The COMEX data is correct, the CME publishes gold futures volume as number of contracts, when I multiply all contracts traded in 2014 by 100 ounce, which is the size of one contract, and divide the total amount of ounces by 32151, the total tonnage is 126,007. (Just about the same as GFMS reports.)

Then, the Shanghai Futures Exchange (SHFE), the primary gold futures exchange in China. One gold contract/lot on the SHFE equals 1 Kg. The SHFE publishes gold futures volume as number of contracts, when I add all contracts traded in 2014 and divide the total amount by 1,000, the total tonnage is 47,500 tonnes. Seemingly the same as GFMS reported. However, volume on the SHFE is counted double-sided, or bilaterally. From the SHFE:

  1. The unit for trading volume, open interest and the change of open interest is lot, herein are double-side counted; trading value herein is double-side counted.

There for the total tonnage has to be divided by 2 if compared to COMEX volumes. The actual total tonnage traded on the SHFE in 2014 was 23,750 – counted unilaterally. GFMS has effectively double counted SHFE gold trading volume. This way GFMS has also disclosed all data from the SGE incorrect – Au(T+D) and the spot contract. From the SGE

The Volume [Kg] and Amount are calculated bilaterally.

The open interest and turnover on the SHFE and SGE are counted bilaterally as well. Additionally, take note I’ve written on August 27, 2014, GFMS was making exactly the same mistake on their silver numbers, in the World Silver Survey 2014:


Imagine you pay $1,800 a month for an Eikon terminal that feeds you inaccurate Chinese volume and open interest data. Previously I noticed an error in the Bloomberg terminal that discloses the Chinese price of silver including 17 % VAT, and thus feeding false data.

Of course it’s anyone’s choice to decide what data to use or how to interpreted data, this post is merely meant to share my view on Chinese precious metals trade data in a effort to help investors to get a better perspective on global markets.

Netherlands Did Not Increase Gold Holdings In December

Many newswires are reporting the Dutch central bank has increased its gold holdings by 10 tonnes in December 2014. However, the increase in holdings is not shown on the balance sheet of the central bank of the Netherlands.

Screen Shot 2015-01-27 at 2.47.37 PMJust a  moment ago the Dutch central bank (DNB) officially denied the increase of its precious metals holdings. So we can rest assure DNB did not buy any gold.

From the DNB website:

DNB has not increased its gold holdings

Press release. 27 January 2015

De Nederlandsche Bank (DNB) has not increased its gold holdings. Several media reported this Tuesday that based on IMF figures, DNB’s gold stock increased in December 2014. This is incorrect.

DNB’s correct and current gold holdings can be verified at The table shows that in December 2014, DNB’s gold stock consisted of 19.691 million fine troy ounces and remained unchanged compared to all preceding months.

This is the same information that DNB reports to the IMF on a monthly basis.

DNB released the announcement on Twitter at about 3 PM GMT+1. I made the screen shot of their balance sheet half an hour before this announcement. That’s all I know.

Booming SGE Withdrawals In Week 2, 2015: 70 Tonnes

Withdrawals from the vaults of the Shanghai Gold Exchange (SGE) in week 2 of 2015 (12 – 16 January) accounted for an incredible 70 metric tonnes. Aggregated withdrawals in the first two weeks of this year stand at 131 tonnes.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 2, dips

Shanghai Gold Exchange SGE withdrawals delivery only 2014 - 2105 week 2, dips

Corrected by the volume traded on the Shanghai International Gold Exchange (SGEI), withdrawals in week 2 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 122 tonnes.

The numbers just mentioned are truly amazing, 70 tonnes withdrawn in one week is the third highest amount ever. Only in January 2014 when the Chinese were also buying gold for the Lunar year – but the gold price in renminbi was lower, and in April 2013 when the price of gold fell of a cliff, were withdrawals stronger than last week. This is important, as illustrated in the charts above the Chinese tend to buy gold when the price is declining, last week they bought like there was no tomorrow while the price was rising sharply. Now that’s strong demand! Perhaps some investors in the mainland read the recommendations from ICBC, world’s largest bank, regarding physical gold hoarding:

ICBC gold buy reccomendations

In perspective; 65 tonnes demand (the bottom limit) can only have been met by mine supply, scrap supply or import supply. Domestic mine production was 8.7 tonnes; gold was not trading at a discount, but at a premium to London last week, which means scrap couldn’t have been abundant; estimating scrap that supplied the SGE at 4 tonnes leaves import to have been at least 52.3 tonnes (in one week). Nothing unusual if this would occur sporadically, but since 2013 China has net imported 2,838 tonnes for just non-government demand, continuously draining global above ground gold inventory – as world mine production is not sufficient. How long can this go on? Deutsche Bank estimates the PBOC imports an additional 500 tonnes a year, according to a report released in November 2014:

…But there have been a number of examples of publicly flagged large-scale official gold transactions that have had a limited market impact. In the IMF example above, gold prices rose steadily despite the IMF being a reliable seller of almost 20 tonnes each month. In another example, the Chinese government’s open market purchases of roughly 500 tonnes per year have not prevented the gold price from plummeting in recent years.

The world Gold Council (WGC) estimates there is about 170,000 tonnes of above ground gold. In my opinion it’s impossible to know how much gold has been mined in the history of humanity, though I suspect it’s more than 170,000 tonnes, also because of what we are witnessing these years regarding amounts of gold moving from West to East – the WGC started counting from 10,000 tonnes since the Californian gold rush. 

The Shanghai International Gold Exchange

To my advantage for estimating Chinese wholesale demand (that equals SGE withdrawals), SGEI trading volume has been insignificant since the SGEI was launched in September 2014. SGE management of course was aiming for substantially more volume at their new subsidiary. In order to boost liquidity they took a bunch of measures. On December 29, 2014, the SGE announced free storage and no load-in and load-out fees from January 1 to June 30, 2015.

All international members and customers:       

With a view to encouraging international members and customers’ participation in trading and delivery activities on the International Board and meanwhile reducing their cost, the Shanghai Gold Exchange determines to further exempt international members and customers from fees including inventory fees, load-in and load-out fees, vault transfer fees and other service fees generated from trading contracts listed on the International Board. The exemption period shall be valid from January 1st to June 30th, 2015.  

Two days later they exempted traders from paying transaction fees on the SGEI physical gold contracts iAu99.99, iAu99.5 and iAu100g.

All Members,

With a view to promoting the liquidity and enhancing the investment function of Au(T+N) products, the Shanghai Gold Exchange (the “Exchange”) determines to reduce the transaction fees of Au(T+N1) and Au(T+N2) by 50%, from the current 2‰ to 1‰. In addition, the Exchange shall also exempt all its members from transaction fees of contracts listed on the International Board including iAu99.99, iAu99.5 and iAu100g, so as to boost the trading activities on the international board. 

The above-mentioned preferential policies shall be valid from January 1st to June 30th, 2015.

Then on January 15, they decided to collaborate with the WGC to promote SGEI trading:

Today, the Shanghai Gold Exchange and the World Gold Council, the market development organization for the gold industry, signed a ‘Memorandum of Understanding’ regarding a ‘Comprehensive Strategic Cooperation Agreement.’ The Shanghai Gold Exchange is the largest physical gold exchange worldwide and the World Gold Council is the global authority on the gold industry. Together, these two organizations are joining hands to support the development of both domestic and international gold trading in China by leveraging the opportunity provided by the internationalization of the Chinese gold market, through the Shanghai Free Trade Zone, to support market expansion. The agreement will support the development of gold investment products and solutions for the industry and investors both regionally and globally.

I’m holding my breath on the collaboration with the WGC. In my experience they could have started by making the SGEI more accessible. Since September I was trying to become a customer through a number of Chinese banks, but I didn’t succeed. Enrollment wasn’t particularly easy.

Gold Trading Volumes

Total SGE trading volume has been declining for a few weeks, in week 3 (January 19 – 23) volume accounted for 238 tonnes, down 19 % w/w.

Shanghai Gold Exchange SGE weekly gold volume

Volume on the Shanghai Futures Exchange is moving in the opposite direction, volume has been increasing since December 26. In week 3 volume was 778 tonnes, up 10 % w/w. The open interest closed at 124 tonnes at the end of the week.

On the COMEX 3,054 tonnes of gold in futures contracts changed hands, down 13 % w/w. The open interest closed at 1,403 tonnes.

COMEX vs SGE + SHFE gold volume

Guest Post: I have a Theory On The Swiss Franc

I have had a theory about markets for as long as I have watched gold. The theory is everything is about gold. Well, maybe not everything but close enough. Which is why the move by the SNB had me look at the charts. And those charts tell me a story that is very different from the official one. Now please understand I have zero proof outside of the charts, so this is speculation on my part but it is reasoned speculation as you will see.

I believe the SNB was massively short gold and dropped the peg to cover their short. Here is why I believe it.

On September 6, 2011 The SNB instituted a peg to stop the Franc from appreciating against the Euro. On that day the gold price topped. If you believe gold is a commodity and not a currency, stop reading. If you do believe gold is a currency this is noteworthy.


What we have established is there is some tie between gold and the SNB. It could be a function of a consortium of CB balance sheets but the top in gold and the peg are connected.

Fast forward to 2014 and we have the Swiss referendum where the Swiss equivalent of Yellen, Thomas Jordan took to the pulpit claiming gold is a mistake. He was quickly backed up by a shrill formerly of Citi claiming gold is a 6000 year bubble. Bottom line from all of this is the SNB did not want to buy gold. Even though the amount needed and time allowed were very reasonable, Jordan wanted none of it.

That takes us to 2015. The SNB announced they made $38 billion in 2014. Per Bruce Krasting that total was 50% of the Swiss government budget. Does that sound like a CB that is in trouble to you? What we were told is the SNB capitulated on the peg because Draghi was about to crush the Euro and coupled with inflows from Russian oligarchs the SNB was under enormous pressure. Again, that may indeed be the case but they had just made $38 billion in 2014.

In that time frame the EUR went from a high of 1.39 to 1.20 against the USD. The EUR was a basket case in 2014 and the SNB was in trader terms “killing it!”

But something has happened in the markets the past several weeks. Gold started to break out as we detailed in previous writings. Gold in Euros led the way and exploded out of a base.


Next we have gold in Yen.


And of course gold in dollars broke out of the bullish broadening wedge and has made the big move we showed was imminent due to the BB pinch.


That leaves me to the chart of gold in Swiss Francs, but first a few notes. Koos Jansen has done an amazing job in deciphering the physical flow of gold from West to East. In a recent piece he noted that amount of gold that is imported into Switzerland, refined and then exported. If any country knows about the flow of gold it is Switzerland. They are the refining hub. Did the SNB look at the data and realize that the physical offtake was reaching levels where it could no longer be ignored?

Lastly, there is the issue of technical analysis. Why I would not consider myself an expert I have watched the charts of the metals for over fourteen years and I do have an idea of patterns and how they play out. What I am looking for from the gold community is the following. Can anyone show me a chart of gold priced in any currency at any time that saw a clearly defined breakout after a lengthy consolidation fail and fail so spectacularly?

The chart shows a period of eighteen months where the price of gold denoted in Francs went sideways. And, it followed every other chart of gold and broke out convincingly. What happened next is a failure and for gold, which is about as technical a trade as there is in the markets, this was rare, very rare. Is it unprecedented? It could very well be.


How technical? Look where the price stopped on the plunge. Amidst all the chaos I am supposed to believe that those two lines which are very close to parallel are a random occurrence? You may choose to believe that but in my experience they are nothing of the sort.


It could all be one giant coincidence but I don’t believe it for a second. In my humble opinion the SNB was short gold and they needed to cover and cover they did.

Written by: It’s a Mystery