The numbers have been published by the Shanghai Gold Exchange (SGE) on the amount of gold withdrawn from the vaults in week 44 (October 27 – 31); just of over 47 tonnes were withdrawn, another strong week. Year to date 1654 tonnes have been withdrawn – SGE withdrawals equal Chinese wholesale gold demand, as has been confirmed by the SGE and the China Gold Association (CGA).
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.”
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.
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 on the Shanghai Futures Exchange (SHFE) is still trading in backwardation, since August 6.
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.
SHFE silver inventory stands at 124.9 tonnes.
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.
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)
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.
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.