Koos Jansen
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Koos Jansen
Posted on 2 Mar 2014 by

Chinese Physical Gold Demand YTD 369t Up 51 % Y/Y

The Shanghai Gold Exchange (SGE) is back on schedule publishing their trade reports on friday that cover the previous trading week. Last friday’s report covered the trading week February 17 – 21. For me the most important numbers is always the amount of physical gold withdrawn from the vaults as this equals Chinese wholesale demand. Withdrawals in week 8 (February 17 – 21) accounted for 49 tonnes, year to date there have been 369 tonnes withdrawn from the vaults. If we divide the later by the number of days of the corresponding period (52) we come up with an average demand of 7.09 tonnes per day – this includes weekends and the one week holiday at Lunar year when the SGE was closed.

I got a few request regarding demand compared to last year and daily moving averages. Great ideas which I have carried out (request are always welcome, we’re doing this together). Compared to last year demand is up 51 % over the same period. Of course we had the shocker in April 2013 when withdrawals exploded to 117 tonnes in week 17. I don’t expect any spikes that big this year so probably this year’s growth compared to 2013 in percentages will be decreasing when we’ll pass April. Nevertheless, the daily average of 2013 was (2197/365) 6.02 tonnes, while this year we’re up to 7.09 tonnes. China is on schedule to establish a new record, if the world can supply any more gold.

Although I’m not much of a technical guy, I made the following calculation for the 200 DMA. Because the withdraw numbers are weekly disclosed I divided 200 by 7 (days in a week) which equals 28.57. The 200 DMA in the chart below is the trend line of 28.57 red columns (weeks), which boils down to 200 days. The hight of the trend line still corresponds to the (weekly) withdrawal numbers on both axes. (200 DMA = 28.57 WMA)

SGE withdrawals 2014 week 8

We can see the the 200 DMA rising in 2013 to nearly 50 tonnes a week in June, then it fell slightly at the end of the year. Before the new year wholesale demand picked up again prior to an unprecedented buying spree on retail level and moved the trend line up at currently just under 50 tonnes a week.

The longer this insatiable demand continues the more I start to ask myself where this gold is coming from. We know from Swiss refineries they’re having a very hard time to source this much gold for China.

According to the World Gold Council all above ground gold accounts for 170,000 tons, in my opinion it’s impossible to know this amount. It’s a rather Keynesian thought that an institution can know how much grains of gold every single human being across the globe extracted from the earths crust in the history of humanity, and how all these grains were allocated or maybe lost throughout history. I think the total amount of above ground gold is as invisible as the hand that regulates the free market. Every economic agent can only be positive about it’s own gold holdings and decide to exchange these against goods or services, depending on the exchange rates set by the free market. Although all exchange rates are currently set by Keynes’ descendants, that doesn’t mean any institution knows the total amount of above ground gold.

 

It’s just a matter of strong and weak hands now. Most goldbugs are strong hands – because they not only hold gold for investment purposes, they also hold it because of their view on economic theory – while a random US citizen on food stamps that owns a golden earring is a weaker hand. Anyway, based on certain parameters (import, demand, mining) one would think that in coming months the price of gold and Chinese demand wil get in conflict; the situation simply can’t go on like this forever.

Meanwhile the mainstream media is slowly waking up to the possibility the price of gold has been manipulated for decades through the London fix, which in my opinion is just one aspect of the manipulation process. Although I’m sure this aspect will unravel the rest of the process as well. All in all lots of stress in the gold market, reflected by long periods of negative GOFO. I hope to write an article about the details of GOFO in the near future.

GOFO 2013 -2014

Overview Shanghai Gold Exchange data 2014 week 8

– 49 metric tonnes withdrawn in week 8  (17-02-2014/21-02-2014)

– w/w  – 23.86 %

– 369 metric tonnes withdrawn year to date

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

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

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.

SGE premiums

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  • Hugh

    Always nice to have updates on this data. It prevents constant MSM lies from being believed.

  • Banana Republic

    1. Why was the article about the suppressed FT article suppressed?

    2. The notion of “Weak Hands” is fanciful myth: how come these people on food stamps who are apparently so attuned to the spot price for Gold didn’t liquidate their spare earring positions a year ago when the price was above $1500 or 6 months ago when it was above $1400? Maybe they are just plain stupid – in which case why didnt they panic and sell when Gold dipped below $1200 in June and December? Were they less hungry then? There has been no obvious period of economic recovery over the past 6 years during which they would have been able to restock their inventories of Available For Sale earrings, so where has all this jewellry emerged from, and why only now?

    3. Similarly the monolithic construct of “Strong Hands” is also patently absurd – are we to believe that, once the Gold has left Switzerland on its way East of Suez, that’s it – vamoosh! It’s gone, never to be seen again at any price? Jewellers from Dubai to Mumbai to Shanghai must surely either have empty shelves or a nasty racist temperament if they are unwilling to sell to Westerners at any price

    4. And how many earrings are we talking about? At 1/10 oz a pair, you could fashion quite a few from the 7 million ounces currently held in COMEX warehouses, and even more from the 18 million ounces traded during a typical day on the LBMA. But of course, this is just imaginary, paper Gold which doesn’t really exist (except when its delivered out of the warehouse or drawn down from GLD, whereupon we all instinctively circle-jerk).

    5. Who knows how much Gold has ever been mined, or where it is? It’s irrelevant, because we know for sure that a) it is a finite but undiminishing amount b) there’s always some available, somewhere, at some price – it never goes out of circulation (hint: that’s the point of money) and c) that for every Buyer there is a corresponding Seller, and not every Seller is a fool or a desperado. Miners sell gold. Bullion dealers sell gold. Investment firms facing redemptions which are entirely unrelated to evolving economic circumstances or the dynamic of precious metals sell Gold. Central Banks seeking to prop up their currencies Sell gold. Are these the “Weak Hands” of ancient mythology?

    Lets face it – China’s demand (in fact, Global demand) went up massively from April – July last year, and the gold price continued to collapse. The gold price has risen in 2014, and coin sales by the US mint areapparently down 61% last month. Neither of these are causally related – they are just reflections of investor sentiment. There has been a protracted strike in the Platinum mining sector, resulting in a near-10% decrease in global supply. It has had next to no impact on price, because whether you believe that the markets are manipulated by the evil hand of [insert name of antagonist here] or is driven by the JPY/USD carry trade, the USD index, events in Ukraine or the South China Sea or wet dreams about a longed-for collapse in the Chinese economy, it is abundantly clear that the short term price movement in gold is not determined by

    1. COMEX or GLD inventories

    2. Trailer Trash liquidations of unwanted earrings

    3. Chinese housewives buying golden horses

    4. COT reports

    5. Anything you read on King World News, Harvey Organ or Turd Ferguson’s “Redneck Rampage” survivalist website

    but by a complex mixture of human, non-human, inhuman and sub-human participants, all of whom have their own private agenda, few of whom are acting in concert, and none of whom you are able to influence or control. Deal with it.

    • Mark Green

      Absolutely, seen again, but at what price? Please enlighten me, why is the gold going to China being recast into 1 kilo bars? Are we finally going to change to the metric system? For give me for my ignorance; however, it appears to me that we are going to get a new dealer…

    • AK

      You are absolutely correct that in the short term the physical
      demand of Gold has nothing to do with price at the Comex where the paper price is set or the other
      factors you mentioned. Conceivably you
      could have China buy 1,000 tons of physical Gold in one month if it was
      available and the Comex price could collapse to well below $1,000 at the same
      time.

      The Comex is no longer a delivery market and so physical
      demand is in no way tied to the paper price.
      However, since the physical price is still tied to the paper price set
      in the futures market, China and other big entities are taking advantage of the
      discounted prices and are buying more.

      The fact that the Comex price is completely disconnected from the physical demand has not really been a major problem and
      has allowed many investors to buy Gold at a discount but I doubt that this can
      continue much longer especially not when the mining industry has suffered
      massive losses due to the price suppression.

      Precious metal manipulation awareness is now going
      mainstream and sooner or later it will become widely known that when an entity
      is dumping millions of paper ounces of Gold and Silver in mere seconds in a
      thinly traded market that this has nothing to do with someone wanting to
      liquidate their position but rather is designed to drive down the price pure
      and simple. Nobody in their right mind
      would liquidate a massive position like that and not care about price.

      So call it what you want, but to me that is price
      manipulation, period the end.

      For those who think that this all conspiracy crap, consider
      the following quote from the former governor from the Bank of England who
      freely admitted that had they not gotten the Gold price under control in 2012,
      one or more major banks would have collapsed:

      “We looked into the abyss if the gold price rose
      further. A further rise would have taken down one or several trading houses,
      which might have taken down all the rest in their wake.

      Therefore at any price, at any cost, the central banks had to quell the gold
      price, manage it. It was very difficult to get the gold price under
      control but we have now succeeded. The US Fed was very active in getting the
      gold price down. So was the U.K.”

      Edward ‘Steady Eddie’ George, Governor Bank of England 1993-2003

      Personally, I don’t find that all too surprising. We pretty much know that all financial
      markets are “managed” to some degree, so why should Gold, the anti-dollar, be
      any different?

      The question is will this price suppression back-fire at
      some point and result in a disorderly spike in the price of Gold. Personally I think that this is inevitable
      provided the global physical demand continues to exceed available supply. In the long run fundamentals always win out
      over short term price distortions caused by intervention. We have seen this time and again during incredible
      price increases in Gold in the past decades and no doubt will we see it again.

      • Zhanglan

        ” an entity is dumping millions of paper ounces of Gold and Silver in mere seconds in a thinly traded market”

        let’s assume you mean 2 millions: that would equate to 20,000 COMEX futures contracts. even in April 2013, the volumes transacted “in mere seconds”
        came nowhere close to that.

        you are exaggerating. why do you feel the need to? and on what conceivable basis do you assert that global physical demand exceeds available supply? there is certainly strong demand, but there is also abundant available supply, and if you follow Keith Weiner’s analysis on monetarymetals.com you will see that the cobasis has recently been indicating that Gold has become more abundant following the recent rise in price

        i have absolutely no interest in entering into a dispute with you, but I sense that you are perhaps not completely in command of the facts

        • AK

          Zhanglan – thanks for your thoughts. Here are the stats of the paper contracts sold on the Comex during the raid of 12/19/13:

          1.327 million ounces of paper gold was sold
          in just 6 flash crash minutes. That’s a total of 46.66 tons at an average of 1 ton sold every 7
          seconds. No legitimate trading could ever go down like this.

          2:40
          AM:
          1,262 Feb. contracts sold -126,200 oz. /
          3.94 tons

          2:41
          AM:
          3,709 Feb. contracts sold – 370,900 oz./
          11.59 tons

          8:21
          AM: 1,654 Feb
          contracts sold – 165,400 oz./ 5.17 tons

          8:47
          AM: 2,295 Feb contracts sold – 229,500 oz./
          7.17 tons

          10:00
          AM: 2,530 Feb contracts sold – 253,000 oz./
          7.91 tons

          10:06
          AM: 3,482 Feb contracts sold – 348,200 oz./
          10.88 Tons
          So o.k. this particular day only resulted in 1.3 million ounces sold short in a very short amount of time. I wished I still had the stats handy for previous raids some of which were significant higher in volume. The point is that NOBODY would liquidate an enormous position like. Whoever is behind this clearly IS intending to drive down the price. But as you stated, you don’t really question the fact that manipulation is taking place.
          By demand exceeding supply I am primarily talking about new supply coming on the market from mining and recycling. All indications are, and I don’t have the exact numbers in front of me, that in 2013 Gold demand coming primarily from Asia and Central banks exceeded new supply. I am well aware that 170k of above Ground Gold exists, but there appears to be plenty of evidence that part of the demand coming out of Asia had to be satisfied by the supply coming from GLD liquidations, the Comex inventory and Gold stored in vaults in the U.K. If some of the reports that Koos shared on this site are accurate and I don’t really have any reason to doubt them, we are seeing a draining of the Western Vaults of their Gold to satisfy the demand coming from Asia.
          If there is so much Gold out there that can readily be supplied into the market, why would major bullion banks like ABN Amro or Rabobank have to default on delivering the physical Gold to their Gold account holders and be forced to cash settle? Why would it take so long to return Germany’s Gold? I don’t buy for a minute that Germany wanted the Gold to be shipped gradually over 7 years. They were told that it would take seven years because the Gold is not there or it is simply not unencumbered any longer and hence can’t be returned until some future date. Why should that be the case if there is so much Gold?
          From what we are seeing in just the first couple months China is continuing their Gold buying binge and at the current rate we can expect to see demand outstrip new supply from mining again in 2014. In the meantime if Gold prices stabilize or start to rise we should see demand in the West pick up as well which would mean that GLD and other ETFs should be adding not bleeding physical Gold. It seems to me that the supply could become pretty tight if current trends continue.
          Thanks for your concern that I am not completely in command of my facts but I honestly don’t think I am way off base here.

          • Zhanglan

            ” I don’t think I am way off base here”

            unfortunately, with the Gold price languishing below $1350, I am afraid that the rest of the market appears to disagree with you, despite events unfolding in the Ukraine

            Are you by any chance familiar with the BBC TV Blackadder “Potato” episode, in which the “Olde Sea Dog” Captain Rum explains what is meant by the phrase “Opinion is divided”? https://www.youtube.com/watch?v=_EfW9znJYjw

            It may well be that the markets are manipulated and unfair; but to simply moan about it and make wild and unfounded allegations does not provide a firm basis for a sound investment strategy; as Keynes observed, the markets can remain irrational far longer than you can remain solvent http://en.wikiquote.org/wiki/John_Maynard_Keynes (though I suspect that Blackadder might perhaps have had the edge when it came to planning a cunning way out of this predicament)

          • AK

            Zhanglan, if you buy into the theory of intentional price suppression, which I do, then it’s not hard to explain why Gold is languishing below $1,350 despite, in my opinion, overwhelmingly bullish fundamentals for Gold.
            Don’t get me wrong, I am not hoping and praying for higher Gold prices because I do worry what it will mean for our dollar and the underlying financial system when Gold finally does break free of the shackles of manipulation and propels to new highs.
            I fall in the camp of owning Gold for financial insurance and wealth preservation and I will hold on to my Gold regardless of price hoping that I will never need to cash it in just like I hope my family won’t need to cash in my life insurance policy anytime soon.
            Thanks for the clip, I will be sure to check it out….

          • Zhanglan

            Please accept my sincere apologies – I appear to have misunderstood you. Of course, I failed to take account of the simple fact that when Gold rallies from $1190 to $1340 that is entirely natural, whereas the moment it runs out of steam and pauses south of some-or-other trend line or arbitrary moving average, that is evidence of suppression and price manipulation. How very foolish of me.

            To my mind there are only 3 numbers worth worrying about – $1,000, $1,500 and $2,000 – and the rest is just noise. At present, with prices which are still lower than they were 3 months ago, you will have to please forgive me if I remain for the time being unable to wholeheartedly sign up to the “Gold to the Moon” thing – much less Silver, which has collapsed over the past 35 years (and especially the past 3) and appears channel-bound for the foreseeable future. Let the fundamentals be as they are (or, rather, as you somewhat selectively perceive them to be) – the current market price is the only one available to me right now, and there is precious little I can do to alter that, huff and puff as hard as I might

            It is not my intention to either spark a heated debate or to win you or anyone else over to my point of view, and I write my personal opinions here largely as a matter of record in the face of what I consider to be a torrent of distorted truths and deliberate misinformation. I do not feel any need to be “right”, much less to be seen to be so

            However, two things surely remain abundantly clear –

            1. Whatever the markets (and the forces that drive them) are, they are, and have always been. It’s not fair, but that’s life

            2. There will always be an abundant supply of Snake Oil salesmen, con men and narcissists, and an even larger number of willfully ignorant fools for them to prey on. That’s the way it has always been, and the hallmark of a charlatan is that he is superficially convincing (otherwise he is dismissed as a plain liar and ignored accordingly)

            My only hope is to expose the latter and make the former slightly more understandable; but in fact, there’s nothing that can be done to change either, and its hardly surprising that people with a constrained and blinkered outlook can’t see that they are being manipulated

            My closing recommendation is therefore to refer you to the lucid and original behavioural analysis published by Ben Hunt at http://www.epsilontheory.com I have never met nor even spoken to him, but he appears to have no particular agenda, and I have yet to find him lacking in technical expertise or knowledge of the matters he writes about. If only that could be said about everyone sounding off about Precious Metals

          • AK

            No need to apologize although I realize you are being facetious. Let me ask you a very simple question? What is the difference between manipulation and speculation when it comes to moving the Gold price? It is actually very simple. Manipulation has both an agenda and the means to single-handedly move the price. Now why is it then that manipulation only occurs on the down-side? Because the agenda of the manipulators is to give the dollar the appearance of stability. If the Gold price soars out of control, this is an indication that the dollar in in trouble and hence the Gold price has to be managed to the down-side.
            Now, let’s compare that to speculation. Speculation has no agenda. The speculators don’t care if the price goes up or down, they are simply momentum chasers who are happy to ring the register on the way up as they are on the way down. A single speculator or hedge fund is also unlikely to be able to move the price single-handedly in any direction by any significant amount.
            Have you ever wondered why the down-ward moves in the Gold and Silver markets tend to be much more violent on the down-side? That is because the manipulators and speculators are on on the same side of the trade. As soon as the manipulators start to push down the price by a significant margin the speculators are all too happy to jump on board to push the price down even further. Conversely, on the upside you have the speculators starting out with the upper hand but you ALWAYS have the manipulators jump in as the buyers of last resort to follow their agenda and prevent a meteoric rise in the price of Gold. That is why we are unlikely to see a $100 or $200 upward spike in Gold in a couple of days as we saw on the down-side. The manipulators ALWAYS cap the upside momentum.

            Be that as it may, manipulation or speculation, the reality is that both are part of our markets today and both will continue to influence price movements in Gold and Silver. Can this go on forever? I have no doubt they could continue to manage the paper markets indefinitely since there is an unlimited amount of paper Gold but on the physical side there are limits. I predict that when the tide starts to turn and the physical demand around the world significantly exceeds available supply that we will see a divergence of the Gold price in the paper and physical markets IF the manipulators in the paper markets don’t back off.
            As always, I appreciate your insight and excellent, thought-provoking comments.

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