Withdrawals from the Shanghai Gold Exchange (SGE) – currently the best indicator of Chinese wholesale demand – keep up a strong pace.
In week 48 (November 24 – 28) SGE withdrawals accounted for 54 tonnes, year to date 1,867 tonnes have been withdrawn.
Corrected by the trading volume of the SGE contracts that are available for foreign traders (to take delivery, withdrawal from the vaults and export from the Shanghai Free Trade Zone), the weekly withdrawals in the mainland were 46 tonnes at minimum in week 48; year to date the bottom limit is at 1,841 tonnes.
Putting 1,841 tonnes in our basic equation (import = SGE withdrawals – scrap – mine), we can estimate mainland China has net imported 1,212 tonnes of gold up until November 28. Seasonally December and January are the strongest months for Chinese demand; I wouldn’t be surprised if total Chinese net gold import reaches 1,350 tonnes in 2014.
If nothing changes in the way the SGE reports on aggregated withdrawals from vaults in the mainland and vaults in the Shanghai Free Trade Zone – where foreign traders can take delivery, withdrawal and export – 2014 will likely be the last year in which we can accurately grasp the size of Chinese wholesale demand and total net import by using SGE withdrawals as a proxy. At this stage it’s impossible to know how much of the contracts traded by foreigners are physically withdrawn from the vaults in the Shanghai Free Trade Zone and thus distort total withdrawal numbers as disclosed by the SGE. The next screen shot is from the latest weekly SGE report. In green the total withdrawals are highlighted.
Some more details
Bloomberg came out with a story on December 3, titled Shanghai Gold Trade Passes Record as China Seeks More Sway. There is some additional information I would like to share regarding this article. The writer notes:
The volume of all contracts on the Shanghai Gold Exchange, including those in the city’s free-trade zone, was 12,077 metric tons in the 10 months to October, compared with 11,614 tons during all of 2013, according to data on the bourse’s website.
- purple = unit, Kg
- red = total gold volume traded in 2013, counted bilaterally
1) The SGE volumes disclosed by Bloomberg are double counted. This is because volume, open interest, turnover and delivery – not withdrawals – are all published bilaterally by the SGE. Later on in the article, the writer compares these SGE volumes to the data from the London Bullion Market, that publishes numbers unilaterally. From Koos Jansen, August 2, 2014:
The numbers disclosed of the SHFE and SGE are double-counted. Volume and Open Interest on both exchanges are published bilaterally, in contrast to the COMEX that publishes these numbers unilaterally. Meaning: if the volume disclosed by the COMEX is 1,000, than 1,000 contracts changed hands – 1,000 contracts were sold and 1,000 were bought. If the volume disclosed by the SHFE is 1,000, than 500 contracts were sold and 500 were bought.
… To compare SGE & SHFE numbers to COMEX one has to divide the Chinese numbers by 2, only then are all the numbers single-sided.
Perhaps this is valuable information for you when comparing Chinese and Western precious metals markets.
2) The writer notes the total traded volume includes the contracts traded in the Shanghai Free Trade Zone, hinting at the fact those contracts might have caused elevated trading volumes on the SGE. However, the volume traded in the Shanghai Free Trade Zone has been very low year to date. The contracts traded in the mainland are the ones that caused the overall volume to surge.
For a thorough analysis on the SGE and its subsidiary, the Shanghai International Gold Exchange (SGEI), click here.
What caused the most recent spike (week 47 and week 48) was trading volume of the Au(T+N1) and Au(T+N2) contracts. These contracts hadn’t been traded since October 2013. The volumes of Au(T+N1) and Au(T+N2) are not disclosed on the English SGE website, just like SGE withdrawal and OTC data.
- yellow = date (week 48)
- purple = unit, Kg
- green = last week
- blue = this week
- red = Au(T+N1) and Au(T+N2) volume, counted bilaterally
- brown = OTC
3) So what? SGE total trading volume is still very little compared to the Shanghai Futures Exchange (SHFE), let alone the COMEX or the London Bullion Market. However, SGE withdrawal data is extremely significant, but these numbers are almost never disclosed by mainstream media outlets, nor by the World Gold Council, Thomson Reuters GFMS or CPM Group. Bloomberg and Reuters only published SGE withdrawals once (correct me if I’m wrong).
4) From Bloomberg:
Average daily volumes for the SGE’s 99.99 percent purity contract increased to about 20,427 kilograms (656,743 ounces) in October from 11,704 kilograms a year earlier, according to exchange data. By comparison, an average 17.4 million ounces changed hands daily between members of the London Bullion Market Association, according to the group’s data.
The next screen shot shows total trading volume of all SGE contracts in October 2014, we can see the 20,427 Kg number disclosed bilaterally.
On the website of the LBMA the clearing amount is disclosed unilaterally.
The clearing statistics represent the net volume of loco London gold and silver transfers settled between clearing members of the LBMA. The data is collected and published on a monthly basis and is based on daily averages.
Note, 17.4 million ounces (541 tonnes) are cleared daily in the London Bullion Market. But, clearing and volume are two different things! Because the London Bullion Market is an OTC market we know very little of what is taking place in this market, however, the latest estimates of 2011 show the daily volume traded in London is 5,000 tonnes – counted unilaterally.
In short, Bloomberg compared the monthly volume of one SGE contract, 20 tonnes, which is actually 10 tonnes if counted unilaterally, to a daily amount of 541 tonnes, which is actually more likely to be 5,000 tonnes if counted unilaterally.