Koos Jansen
BullionStar Blogs
Koos Jansen
Posted on 10 Nov 2014 by

Chinese Gold Demand Strong, Mainstream Media Twisting

The numbers have been published by the Shanghai Gold Exchange (SGE) on the amount of gold withdrawn from the vaults in week 44 (October 27 – 31); just of over 47 tonnes were withdrawn, another strong week. Year to date 1654 tonnes have been withdrawn – SGE withdrawals equal Chinese wholesale gold demand, as has been confirmed by the SGE and the China Gold Association (CGA).

SGE gold withdrawals week 44 2014
Blue (本周交割量) is weekly gold withdrawn from the vaults in Kg, green (累计交割量) is the total YTD.

These numbers are hard to reconcile with a Wall Street Journal (WSJ) article from November 3, which quoted a leading Hong Kong-based executive with an international bank, who didn’t want to be identified, stating: “The physical buying in gold has dried up.

Shanghai Gold Exchange withdrawals 2014 week 44, dips
Chinese gold demand increases on falling prices. (gold can be bought on the SGE, but withdrawn from the vaults a next week, this can somewhat distort the illustration of my thesis in this chart)

Reuters also reported on November 3 about weak Chinese gold demand:

Chinese unmoved by gold price drop, see it cheaper still

Even with gold prices dropping to near 4-year lows, buyers in China – the world’s leading market – aren’t tempted, suggesting prices have further to fall.

When gold prices are in a slump, Chinese buyers, eyeing a bargain, traditionally move in and stop the rot. But that doesn’t seem to be happening this time around.

World gold prices are at their lowest since 2010 and slid $25 an ounce on Friday as the U.S. dollar strengthened, but Chinese buyers still aren’t biting, predicting prices have further to drop.

On November 5 I wrote an article in which I strongly disagreed with the WSJ and Reuters and thoroughly expanded  why Chinese gold demand has been very strong in recent weeks.

On November 9 Reuters came out with a new article covering Chinese gold demand. This time they reported Chinese gold demand was strong in week 45 (November 3 – 9)! From Reuters November 9:

A rush of physical buying in the past week – from jewelry in Shanghai to coins in Germany – may prove to be a dead-cat bounce that is too feeble to offset a broader trend of selling by investors betting on further gains in the dollar, U.S. equities and an improving U.S. economy, according to the survey of more than two dozen analysts and traders.

In contrast to what they’ve reported on November 3, Reuters now states Chinese demand was strong – but, of course, will weaken in the future.

I’ll leave the quality of Reuters’ reporting on Chinese gold demand up to you.

Next to quoting sources the WSJ and Reuters (November 3) stated SGE gold traded at a discount to London that day, hence Chinese gold demand was weak. According to my data, which tracks the end of day (EOD) premium/discount, SGE gold was not trading at a discount on November 3. A journalist from Reuters told me the discount often occurs intra-day, subsequently ending the day at a premium (I don’t have the tools to chart the intra-day premium/discount, yet).

However, as I stated in a previous post, the SGE price of gold, the EOD SGE premium and SGE withdrawals are all correlated. In the chart above we can see SGE withdrawals increasing when the price of gold (in yuan per gram) declines. In the chart below we can see the EOD SGE premiums rising when the price of gold drops. This clearly illustrates the Chinese buy on falling prices. 

Shanghai Gold Exchange premium 2009 2014
In general, the price of gold on the SGE and SGE premiums move as an inverse of each other.

According to my thesis Chinese gold demand is not only up because SGE withdrawals are strong, also because the price is falling and EOD premiums have not been negative for over a month. (conversely, in March and July 2014 SGE gold was trading at a discount when withdrawals were down.) And so, I see absolutely no signs of weak Chinese gold demand.

Silver

Silver on the Shanghai Futures Exchange (SHFE) is still trading in backwardation, since August 6.

SHFE silver backwardation November 7, 2014

The discount on silver on the SHFE (ex VAT), though,  tumbled from 4 % to 8 %. This can have been caused by the revelation about Chinese traders that found a loophole to export silver bullion, circumventing VAT laws, to arbitrage the pure price spread between China and London. When this story came out I presume Chinese authorities stepped in and closed to loophole.

Shanghai Gold Exchange SGE silver premium 2014

SHFE silver inventory stands at 124.9 tonnes.

SHFE silver inventory, November 7, 2014

Worth noting is that gold and silver trading volumes on the SHFE and SGE are in an uptrend. In week 45 (November 3 -7) 12,098 tonnes of silver were traded on the SGE, an all-time record.

SGE weekly silver volumes

Silver volumes on the SHFE are once again transcending the COMEX volumes. In week 45 total volume traded on the SHFE was 81,886 tonnes, up from 45,064 tonnes in the previous week. The open interest (OI) closed on November 7 at 6,619 tonnes, which was also an all-time record. Silver volume on the COMEX was 50,785 tonnes, up from 43,077 tonnes a week earlier. The COMEX open interest closed at 26,230 tonnes.

(all counted unilaterally / single-sided)

COMEX vs SHFE silver volume and open interest

Gold volumes on the SGE have also been increasing in recent weeks, this is most likely due to the fact many SGE gold products can be traded by foreigners since September 18, 2014. In week 45, the total trading volume of all gold products on the SGE accounted for 229 tonnes.

SGE weekly gold volumes

Gold volumes on the SHFE are still dwarfed by the COMEX. However, the gold OI on the SHFE also hit a record in week 45 (November 3 -7) at 138 tonnes. The traded volume was 762 tonnes, up from 504 tonnes a week earlier. COMEX volume was also up at 3,431 tonnes, from 2,859 tonnes a week before.

COMEX vs SHFE gold volume and open interest

Koos Jansen
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  • Markus

    Koos, you are a blessing to the precious metals community!!!
    Thank you so much for your great work and continuous effort to bring up the truth and to help people to make the right conclusion to prepare accordingly and to protect themselves!

  • Jerry G

    Thanks Koos for your constant monitoring of SGE demand. The constant western media bias of reporting negative articles on gold, with their misrepresentation of facts you bring to light regularly is purposeful as the western financial media is a lapdog of central planners.

    I admit I am a gold bug of sorts only trying to protect myself and my family from future market and currency catastrophies. I do hang out on Yahoo finance where articles from Bloomberg, Rueters and others constantly post negative articles. I reply to many of them using your information or just telling them to look you up and decide for themselves. Now they either drop the article or perhaps don’t allow my reply to be posted. Bloomberg has messed with my login and Yahoo hardly lets me post anything the past few weeks.

    This is crazy when you can’t even reply to an article, calling them out with opposing information and just get left out. It is a shame your findings are being disregarded to the degree they are just to expand their negative sentiment agenda toward western investors.

    Keep it up Koos the light will shine on the truth as time goes on.

    • KoosJansen

      Patience Jerry. The message is spreading…

  • Jerry G

    Thanks Koos for your continued efforts to get the truth out on actual SGE demand.

  • AC

    Koos, your SGE weekly silver volumes seem too high. 81,886 tonnes for week 45 is more than 3 times world annual silver production. Also the numbers on the left side of the graph don’t correspond as week 45 shows over 12,000 tonnes.

    • KoosJansen

      SGE volume was 12,098 tonnes in week 45. See the grey SGE chart.

      SHFE volume was 81,886 tonnes in week 45. I changed the chart as the last weeks pole was too close to the ax line. Now, it is visible. Thanks for your feedback! See COMEX vs SHFE silver chart.

      Additionally I change the COMEX vs SHFE gold chart by removing the right ax labels, makes it more clear.

      Here you can see the silver trading volume on the SHFE for week 45.

  • rowingboat

    Good to see cumulative 2014 delivery coming back versus last year too, down just 8% for the year compared with 18% in July / August. Any speculation why Chinese gold demand was relatively weak in Q2 early Q3 Koos, compared with 2013? I can think of the credit tightening that occurred back then as one possible reason. If those few weeks were an anomaly, it could get interesting very quickly. In fact, in the second half of 2014 deliveries have actually been higher versus the second half of 2013, agreed?

    • KoosJansen

      Perhaps unwinding of Chinese Commodity Financing Deals (leasing) given the SGE discount. Don’t know, perhaps a few aunties threw in the towel.

  • Long John Dickweed

    What were the volumes traded specifiically on the SGEI? In previous posts you had subtracted these from your figures.

    • KoosJansen

      1.6 tonnes. It’s irrelevant at this time.

  • Frank_O

    Thanks Koos for the alternate source of information on gold & silver besides what we get from the Western MSM. :)

  • http://cashforgoldfather.com/ Gold Father

    Great information. This is the first post I have read from you and definitely came away with more knowledge than I was expecting. Keep up the good work! Thanks for sharing

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