Koos Jansen
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Koos Jansen
Posted on 9 Mar 2014 by

Chinese Gold Demand 418 Tonnes YTD, West Confused

Another week (24-02-2014/28-02-2014), another 49 mt of Chinese gold demand in the form of withdrawals from the Shanghai Gold Exchange vaults. Withdrawals year to date account for 418 mt. This brings February Chinese gold demand to 172 mt, down 30 % from an all-time 246 mt record in January. Let’s not talk about the COMEX.

SGE vs COMEX ™ Feb 2014

In the West there is still confusion about Chinese gold demand. News outlets and banks are trying to figure out how in 2013 China net imported 1158 mt through Hong Kong, plus a few hundred metric tonnes through other ports, mined 428 mt domestically, while demand according to the World Gold Council was just 1066 tons. The Financial Times and the Telegraph couldn’t explain it. February 27 Citibank came out with a report named “Chinese Gold Demand: Unraveling the Case of the Missing Gold”.

Citi Chinese gold demand 2013

Slide Citibank

In my opinion this analysis is actually a step in the right direction; Citi acknowledges Chinese supply and demand was 2200. In 2013 SGE withdrawals accounted for 2197 mt, these numbers are clearly related. The formula for the Chinese gold market is: total supply = mine + import + scrap = SGE withdrawals = total (wholesale) demand. Simply because of the structure of the Chinese gold market. However, this is where Citi and I split up. I called Citi and I spoke directly with the analyst from the report. What surprised me was that this gentleman had never heard of SGE withdrawals! Hence our dispute.

First let’s get their numbers straight. They don’t disclose all the numbers on the supply side, but I zoomed in on the chart and calculated the amounts by measuring how many pixels each bar counted, compared it to the scale etc..


Citi Chinese gold supply and demand

The outcome on the supply side is roughly: scrap 240 mt, gross import 1480 mt, mine 420 mt.

The demand side: consumption 1176 mt, gross export 373 mt, residual 640 mt.

1) Export is not demand

In the chart above gross import is in fact net import. Very little of the gold exported from the mainland to Hong Kong was bullion withdrawn from the SGE vaults.

A very long and complicated story short: In the mainland there are two types of trade, general trade and processing trade. General trade can be considered as normal trade. If gold is imported in general trade this is required to be sold through the Shanghai Gold Exchange. Only 11 banks have general trade licenses from the PBOC, though for every shipment they need anew approval. It’s not likely the PBOC would approve gold export in general trade.

Processing trade is something else. In this trade form raw materials from overseas are imported, processed into products and then these products are exported again. This processing can only be done in Customs Specially Supervised Area’s, or CSSA’s. Processing trade doesn’t require a permit from the PBOC, as the gold that is imported will be exported after being processed. An example for a processing trade would be; gold is imported in Shenzhen, fabricated into jewelry and then exported to Hong Kong. The trade would show up in Hong Kong’s customs report.

Pocessing trade

Why am I telling you this? Because the gold that in 2013 was exported from the mainland to Hong Kong was all processing trade and did never go through the SGE. Concluding 1480 mt was net imported and that residual demand was much more than 640 tons in 2013. This chart I published on February 19 (the “Difference” is actual residual, WGC demand is more or less the same as CGA consumption demand):

SGE withdrawals vs WGC

2) Residual demand is not jewelry stockpiling

According to Citi this is what residual demand is:

…This includes stockpiling (by commercial banks,jewelers, etc.) as well as direct investment consumption…

I asked the analyst from Citi about residual demand, he said they don’t really know so they came up with this explanation. As we can see in the chart above residual has been 2000 mt in the last seven years. Was this mostly commercial banks and jewelers stockpiling? Of course not. I can understand some jewelers added some gold to their inventory when prices dropped significantly, for example in April 2013, but this stockpiling analyses is untenable. Citi continues:

In 2014… the result should be another large increase in Chinese imports and another large “gap” in supply and demand data.

Another large gap in supply and demand? Really? When I called the SGE in November 2013 they told me this gap (some call it residual, some net investment) is just individual account holders at the SGE withdrawing physical gold from the vaults. So residual demand is just direct investment and we shouldn’t treat it as a demand category that is insignificant.


Overview Shanghai Gold Exchange data 2014 week 9

– 49 metric tonnes withdrawn in week 9  (24-02-2014/28-02-2014)

– w/w + 0.62 %

– 418 metric tonnes withdrawn year to date

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

SGE withdrawals 2014 week 9

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.

SGE withdrawals week 9 2014

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).

SGE premiums

Below is a screen shot of the premium section of the SGE weekly report; the first column is the date, the third is the international gold price in yuan, the fourth is the SGE price in yuan, and the last is the difference.

Schermafbeelding 2014-03-07 om 23.22.55

In Gold We Trust


Koos Jansen
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  • Sufiy

    Keep the great work Koos! It is the unprecedented demand, China take alone annualised world-wide Gold production now! Serious gold miner acquisition will be the very logical next step for China now:

    Peter Schiff and GATA’s Bill Murthy: The Real Value of Gold

    It is time to listen and remind ourselves about the real value of Gold and what is coming next with all geopolitical games unfolding at the crucial levels for US Dollar and Gold markets. China is the major subject of conversation here again and Russia is already talking about the asymmetrical retaliation to the imposed by the West sanctions around the Ukraine situation. Gold manipulation can not go foreverwith China buying the record amount of Gold officially and who knows what are the real numbers in its state-level military plan to accumulate Gold for the De-Dollarisation reset?
    Peter Schiff’s question about China buying more Gold companies could be answered very soon if the rumours about CITIC being involved in talks with Barrick Gold about Pascua Lama will be confirmed. This huge mine is located on the border of Argentina and Chile, it is in the very advance development stage and China will be just the right partner for Barrick over there.


  • Joshua Roberts

    “When I called the SGE in November 2013 they *tolled me this gap (some call it resi”
    should read *told

    That’s all I have for you, a typo, because your work is Superb. I have nothing to add (damn that feels good, being able to just shut up and hand people this article, sans commentary or guidance as to geopolitical/macroeconomic because you handle the subject in such a granular, zero bullshit manner). You blew this story wide open from jumpstreet and the dinosaur whore finance “journalists” can’t even keep up (that would require actual work). Take your bases chief, you continue to knock em out of the park.

  • Zhanglan

    Is there any evidence that Chinese jewellers are stockpiling rather than selling? Is there any evidence of “illiquidity” in the Chinese real estate sector?”

    The almost total and willful ignorance about the realities of economic and social conditions in China is exceeded only by the wet dream tumescence of Western commentators trumpeting the latest “proof” that China is collapsing / conspiring with the Russkies / bullying everyone

    I really can’t be bothered to wade into the utter nonsense surrounding PMI figures and export numbers, around the “lowest ever” 2013 GDP print which was exactly the same as in 2012, 0.2% above target and 0.1% above consensus expectations, about the Ghost Cities which have been presaging a collapse in the Chinese real estate market since time immemorial, about the shadowy Shadow Banks hiding in the shadows and how a technical default on a $50 million equivalent domestic RMB bond is about to spell the end for Chinese banking. It’s just rubbish

    The obvious conclusion is surely not that nobody really understands what is going on in China, but that it is far easier and more gratifying for commentators in the west to present a version of China which is in line with existing stereotypes, hopes and fears – why grapple with a very messy reality when you can have Fox News form your opinions for you?

  • USGrant

    Yours is the best analysis of Chinese Demand out there. Typo: last paragraph in 2) “tolled” should be “told” or better “informed”.

  • Matthew

    You assert:

    In the chart above gross import is in fact net import. Very little of the gold exported from the mainland to Hong Kong was bullion withdrawn from the SGE vaults…Concluding 1480 mt was net imported and that residual demand was much more than 640 tons in 2013.

    So where did the gold come from that was turned into gold jewellery for export?

    • In Gold We Trust

      It was imported for processing trade. That gold went in the mainland but wasn’t required to be sold through the SGE, it was merely meant for processing, and being exported afterwards.

      • Matt

        So you are saying that Hong Kong does not record it in its export statistics?

        • In Gold We Trust

          ? I’m saying in 2013 Hong Kong exported 337 mt to the mainland for processing trade that was imported after the processing was done. This gold was not traded through the SGE. The rest of the net-exports to the mainland was general trade and supplied the SGE (1158 mt).

          • Matt

            Then why did you say:

            Concluding 1480 mt was net imported and that residual demand was much more than 640 tons in 2013.

          • In Gold We Trust

            Coz total supply must have been 2200 (SGE withdrawals). 2200 – 430 (mine) – 290 (scrap) = 1480 net import. please click all the blue links provided and read my other articles to understand.

          • Matt

            I’ve read that stuff but let’s try to understand what you are saying here.

            Is it that while you agree 1,480t comes in via HK and 373t goes out, because co-incidentally you think that a very similar amount to that 373t came in to China from non-HK sources, you therefore (?) believe you might as well take the 1,480t as the net flow?

          • In Gold We Trust

            In fact some numbers we don’t know for sure. 2197 mt is for sure, 428 mt is for sure, but scrap isn’t (I don’t know for sure and Citi doesn’t know for sure). That’s why I think total Chinese net import is somewhere around 1500 mt. Citi states gross export as 373 mt, while HK customs declared gross import from the mainland was 337 mt.
            I and my mainland source are assuming the gold that was exported from the mainland to HK is processing trade. The PBOC would not allow gold be exported in general trade.



            “Gold is a resource that the State restricts being taken out of the country. Any unit or individual must have a permit issued by the PBoC to export gold.”

          • Matt

            Ok thanks. I guess Citi for their 373t are including gold coin exports, which I think are incorrectly stated due to the value being so small.

            I actually agree with you on the net import figure.

          • In Gold We Trust

            Was that you who pointed me on the HK coins value? I mailed HK customs, they said it was all legal tender coins (for example gold and silver panda’s). Previously that told me it was pure gold… I don’t count the coins in trade anymore.

          • JerseyJoe

            Koos Any speculation on why premiums have turned negative of late? If I read your note correctly, the SGE spot is below that of London? Do I have that right? It seems odd and open to arbitrage – in reverse (ie East to west).

          • In Gold We Trust

            Don’t know. Maybe some BB were pumping a bit too much to the East.

          • JerseyJoe

            Thx and incredible sleuthing! Thanks for all you do.

          • Salacious Monk

            Arbitrage? How do you manage to do the arbitrage?

            1. Do you think the discount is large enough to cover the shipment and insurance cost?

            2. If you want to buy gold on the SGE and ship it to London, this is general trade. A PBoC permit is required if you move the gold outside China. Unless you are among the selected banks and companies, the PBoC won’t give you the permit. Besides, even if you are among the selected banks and companies, a PBoC permit to export is not easy to get otherwise gold won’t be “a resource that the State restricts being taken out of the country. “

          • JerseyJoe

            Give me a break – I am not talking about me – the bullion banks and there agents trying to sponge back whatever they can.

  • In Gold We Trust

    Thanks for typo guys 🙂

  • Any Old Irony

    Celebrating China’s First Bond Default: Copper Limit Down, Yuan Crashes Most In Six Years



    Suck on that, Commies! That’ll teach you to invade Tibet Ukraine!

  • 24 carat

    The Eastern accumulation of physical gold is an anticipation (gold policy)
    on the coming $-reserve dumping.The evolving geopolitical situation of dismantling Russia puts increasing pressure on $-dumping.Total world debt increased from $ 70 trillion (2007) to $ 100 trillion with a world GDP of only $ 72 trillion to keep on servicing this debt.
    The ultimate $ defense is a sudden and massive $-devaluation against gold to finally stop and turn the historic decline of money rotation (velocity). A sudden and unexpected $ devaluation against gold will stop the running distrust crisis and install renewed optimism in economic growth versus a devalued debtload. The same dynamic as in the 1971-1980 period (petro-$ distrust) and the economic rise afterwards.
    The reason why this devaluation takes so long is simply because it will be so devastating. Massive loses for the absolute majority of the world’s non gold holders. The present job-losing stagflation economy landed in a gigantic catch-22. $ 100 trillion of global debt versus 30.000 tonnes of central bank gold is only 1,2 % goldreserve coverage. The ECB has 15% of goldreserves on its balance sheet. Expect a goldprice revaluation of at least x10 to make the killing debtload bearable against a world GDP of $ 72 trillion to service that debtload. The central bank governors will have to inflate the global economy out of this catch-22. The prospect of new jobcreation and profits must first go through a painful massive devaluation and wealth amputation. Keep watching the struggle between $ dumping and currency wars as $-defense. Ignore the goldpricing wars.

  • Zhanglan

    West very confused. East also …..


    “Chinese demand for gold is seen as falling 17% this quarter, from [to?] 250 mt from 300 mt, as prices for the metal rally, according to the China Gold Association. (BBG)”


    • In Gold We Trust

      They’re not confused, there are pure lies. The CGA has the task to convince the world Chinese demand is 1000 mt a year. Though in 2011 they reported it was already 1043 mt. Change in policy > certain reports ceased to be published, like the CGMR (last one is from 2011) http://www.sge.com.cn/publish/sgeen/docs/20121129150156292870.pdf

      • Zhanglan

        I think you are perhaps too harsh in your opinion, Koos; if this statement is published on Bloomberg, then surely it must be true, no?

        After all, even though the Chinese may be hardened liars, Bloomberg is an American company, and can therefore be relied upon to tell the truth, the whole truth and nothing but the truth.

        It’s Chinese name – no doubt carefully chosen, because it bears none of the Anglo-Saxon connotations of either flowers or hills – is “彭博”
        which translates as “aggressive optimism” (Péng bó), just as the literal translation of “America” (“骗子小偷”) is “peaceful law-abiding nation eternally wedded to the principles of quiet diplomacy, democratic accountability and unquestionable integrity” (or something like that)

  • Any Old Irony


    “Of course this all sounds great until growth is affected – or a coal plant is shutdown causing contagious defaults across the shadow banking system….”

    Oh yes! Pollution! Shadow Banking! Shadow Banking! China is DOOMED! Run away!


    • Any Old Irony

      and in case you hadn’t picked up the fact that it’s all due to the weather SHADOW BANKING here is some more insightful analysis (and it’s all true. every word of it)

      trust defaults (crushing confidence in credit markets), shadow-banking collateral unwinds (crushing commodity prices), and exports collapsing (crushing dreams of a global economic recovery) http://www.zerohedge.com/news/2014-03-10/tale-two-bubbles

      defaults of several Chinese shadow-banking Trusts …… shadow trusts …… long over-due first defaults of trust products ……. fast rising default risk …… shadow banking deceleration ….. will inflict real pain on the economy. The season of weak Chinese data has just begun. http://www.zerohedge.com/news/2014-03-10/china-loan-creation-tumbles-lowest-credit-growth-20-months

      Did I scare you enough yet? How about I say “shadow banking” a few more times?

      Boy, I cannot wait for those uppity Commies to get their comeuppance, what with them stealing all our jobs and manipulating their funny-money currency and stealing all our gold and air pollution and eating dogs and all!

      • Any Old Irony

        Look, I sense you people are not getting the message yet; let’s try again:

        The Sheer Credit Horror About To Be Unleashed In China http://www.zerohedge.com/news/2014-03-11/magic-collateral-frank-look-sheer-credit-horror-about-be-unleashed-china all $20 million of it! ..“… and multiply by a few thousand for all the other shadow (and not so shadow) players “ (and then add in that evergreen favourite “social unrest” and news of a suicide! Yippee!!! Is there a video of it?)

        This still not getting you over the line yet? OK, let’s try for some more – http://www.zerohedge.com/news/2014-03-11/chinese-credit-concerns-clobber-copper-collapse-continues-lowest-july-2010Chinese Credit Concerns Clobber Copper; Collapse Continues“China credit contagion concerns surge ….. 12 major potential defaults in the trust industry and look at the eye-watering size os some of these Bad Boys –

        19 Feb 2014, Rmb109mn borrowed by Liansheng

        30 May 2014, Rmb140mn borrowed by Nonggeshan

        27 Jul 2014, Rmb319mn borrowed by Hongsheng

        7 Sept 2014: Rmb400mn borrowed by Zengdai

        Those 4 alone account for almost $150 million of dodgy assets – enough to take down any self-respecting ecvonomy, let alone the evil, corrupt, shadowy Commie dictatorship that is present-day China
        My prediction: China will still be here in 2015, in pretty much the same shape. You can Trust shadow me on that

  • tom thumb
  • rowingboat

    “So residual demand is just direct investment and we shouldn’t treat it as a demand category that is insignificant.”

    Precisely! And it is only treated as ‘insignificant’ or ‘residual’ because we can’t measure it directly to pin down who the buyers are. How bloody stupid! Yet investment is the most powerful factor governing price, which ultimately manifests itself in the import/export data.

    Of course divestment occurs too, which has been happening from the West in spades. Exactly who have been selling is not important, but it’s probably the same people who were importing gold for many years. What did UK net export last year, 1420 tonnes, 3-times GLD selling??

    So China’s demand now equals mine supply yet, presumably, given that most of the world’s bullion is held in the West, this W-E flow could continue for longer than many expect. The most interesting feature above is the falling premium as demand continues to increase. No doubt this is due to the further reforms introduced by China in late 2013.

    • rowingboat

      The falling premium could also be due to increasing recycled supply, but this is unlikely. To confirm we should soon see much higher imports into mainland China from HK than occurred in December and January. Maybe these will jolt mainstream analysts awake.

  • jude jin

    a lot of traders make a living trading the gold/silver premium in china. recently, gold/silver premiums have dropped a lot in china. i don’t think this has much to do with physical tightness. it is more a phenomenon of milking the pure directional speculators by the more powerful spread traders. it certainly reflects somewhat traders’ sentiment towards near-term price movement.
    with silver, whenever the premium is very low, a powerful rebound is not far away. so i use it as contrarian indicator. pessimism signals bottom. shanghai futures market updates open interest in real-time. it is much better than the opaque comex

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