Koos Jansen
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Koos Jansen
Posted on 15 Jan 2015 by

Chinese Lunar Year Gold Buying At Full Steam: 61t Withdrawn From SGE Vaults In 1 Week

As I mentioned last week, January is the time of the year for the Chinese to buy golden gifts for their love ones. And that is exactly what they are currently doing en masse, according to the latest data from the Shanghai Gold Exchange (SGE).

Screen Shot 2015-01-15 at 12.32.55 PM
Blue (本周交割量) is weekly gold withdrawn from the vaults in Kg, green (累计交割量) is the total YTD.

An astonishing 61 tonnes have been withdrawn from the vaults in SGE trading week 1 (January 5 -9), the strongest week since early October 2014. SGEI volume was very little at 3.5 tonnes; meaning withdrawals from vaults in the mainland must have been at least 58 tonnes. (Read this post for a comprehensive explanation of the relationship between SGEI trading volume and withdrawals.)

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 1, dipsx

Shanghai Gold Exchange SGE withdrawals delivery only 2014 - 2105 week 1, dipsx

As most of Chinese gold demand needs to be sourced from abroad (import), this is draining global gold inventory. One of the largest suppliers to this market is the UK, home of the London Bullion Market. It remains to be seen how long the UK can export to China – the question is will all gold from London be shipped to the Orient, or will it stop before they’re empty. From the LBMA website, January 2015:

There are seven custodians offering vaulting services in the London bullion market, three of whom are also clearing members of the LBMA (Barclays, HSBC and JP Morgan). There are also four other security carriers, who are also LBMA members (Brinks, G4S Cash Solutions (UK), Malca Amit and ViaMat). The Bank of England also offers a custodian service (gold only). In total it is estimated that there are approximately 7,500 tonnes of gold held in London vaults, of which about three quarters is stored in the Bank of England.

In July 2014, the LBMA mentioned:

In total there is approximately 9,000 tonnes of gold held in London vaults, of which about two thirds is stored in the Bank of England.

This is not an exact scientific way of measuring changes in London’s gold stock over a given period, but it is significant. According the Eurostat the UK has net exported 1,871 tonnes from January 1, 2013, until November 31, 2014. Let’s see how this will play out this year.

year of the goat gold bullion coin 2015 2


(h/t @ronanmanly for LBMA data)

Koos Jansen
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  • Brande Balsheide

    Mr Jansen,

    Could you give your opinion/elaborate a bit on the significance of the tons of gold stored in the London vaults. They say themselves that it decreased from 9000 to 7500. How “significant” is this…?


    • KoosJansen

      The LBMA discloses round numbers, so they’re likely not accurate, though it’s more than obvious many tonnes are being drained.

    • rowingboat

      For context go to the EuroStat website and view their database of historical import & export of gold (and silver too).

      Rather than tonnage I convert ‘value’ to fine tonnage using WGC data of average annual gold prices (not all reported gold is in fine form).

      By my calculation from 2001-12 in the bull market, the UK net imported 5500mt so therefore approximately 1/3 of this has since been exported in 2013/14.

      • KoosJansen

        Cross check Eurostat data 2007 – 2009 value and tonnage, doesn’t make sense to me. Still errors.

        • rowingboat

          Looks OK to me… my calculation & comparison of net imports:

          2007: 442mt (value) versus 438mt (tonnage)
          2008: 424mt (value) versus 362 (tonnage)
          2009: 1,110mt (value) versus 1,093 (tonnage).

          Note how In 2009 Hong Kong was the UK’s third largest supplier behind South Africa and Switzerland (162mt).

          • KoosJansen

            Hmmm. I was checking the monthly data. I will check again.

          • rowingboat

            Save yourself time by selecting ‘Euro-28 Intra’ and ‘Euro-28 Extra’. I finally worked this out after many days of extracting data for individual countries. Useful detail but very time consuming!

            Also select ‘Euro-27 Intra’ and ‘Euro-27 Extra’ for years 1999-2001. ‘Euro-25 Intra’ and ‘Euro-25 Extra’ for 1995-98. And ‘Euro-12 Intra’ and ‘Euro-12 Extra’ for 1988-94.

          • KoosJansen

            You can also make ‘aggregated partners’, ie like selecting all countries at one hit. I’m working from

            EU Trade Since 1999 by HS2,4,6 and CN8 (Daily Updated) (DS-057380)

      • Brande Balsheide

        So even with 7500 tons stored the GOFO rate frequently moves into backwardation… Whats the explanation there, are the bulk of that tonnage “reserved” somehow, or…?

        • rowingboat

          It’s the ‘post 2008 normal’ with short term interest rates close to zero. Steve Saville provides an explanation here:
          Also check Bron Suchecki’s and Keith Weiner’s blogs.
          Goldman Sachs predicts more of that 7500mt will be readily sold in the next several years; while others say BS. Either way time is running out thanks to India + China who will collectively import more gold in 2015 than they did in 2014, imo.
          Also we need to subtract central bank holdings in London. My guess is that 3500mt of that 7500mt is central bank gold. It makes sense because central banks were net sellers up to 2010.

  • Kirill Klip

    What Chinese Know The Others Don’t?

    Gold Surges More Than 2% On Unexpected Swiss Bank Capitulation On Euro Cap.

    We have the total blow out in the FOREX today on unexpected SNB move to discontinue its Euro peg. Now you can appreciate what will happen to Gold and Silver in the future when US Dollar – the most crowed Long trade will be unwinding. Gold is breaking above the very important 1250 level and Silver is above $17 now. Swiss Franc has surged 14% against Euro and Swiss market is down -14% – the largest one day drop in its history. This is what happen when Central Bank’s put is taking out. Now with Oil down more than 50% and this FOREX extraordinary move we can expect the spectacular blow up in one of the major financial players. Gold price will be the indication of the level of stress in the financial system.
    CNBC has aired very interesting interview with the head of IMF Christine Lagarde. According to her: IMF was NOT informed in advance by SNB about its change of policy. In Central banks world it is a No-No. So what is really going on now?


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