Koos Jansen
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Koos Jansen
Posted on 6 Jul 2014 by

Does The PBOC Purchase Gold Through The Shanghai Gold Exchange?

Nope – that’s my answer. It’s my assumption the People’s Bank Of China (PBOC) does not buy any gold through the Shanghai Gold Exchange (SGE), for a number of reasons. In previous posts I’ve speculated about these reasons, here’s a recap; from Koos Jansen (April 15, 2014):

The main objectives for the PBOC to accumulate gold are:

  • Supporting the renminbi for its internationalization (adding trust and credibility)
  • Owning hard currency as the cornerstone of capitalism.
  • Owning reserves that protect the Chinese economy from external/internal shocks and inflation.
  • Owning reserves that are not controlled by a foreign nation (the US).
  • Diversifying its excessively large USD reserves prior to an irrevocable USD devaluation.
  • Hedge their exorbitant USD reserves.

In my opinion the PBOC (or its proxies SAFE and CIC) does not purchase gold from domestic mines or from the SGE. The PBOC’s incentive is to exchange USD’s for gold, preferably buying undervalued gold with overvalued dollars. Hence the PBOC buys in utmost secrecy, not to affect the market.

It wouldn’t make sense for the PBOC to buy gold from domestic mines because they would have to pay in RMB. This wouldn’t fit all their objectives mentioned above. Additionally Chinese law dictates all domestic gold mining output is required to be sold through the SGE (page 15). All physical gold on the SGE is quoted in RMB, so its not likely the PBOC buys gold through the SGE . On top of that I have several sources in the mainland, including a teacher in ‘economics and the gold market’ at the Henan University of Economics and Law in Zhengzhou City, that all tell me the PBOC would never buy gold on the SGE.

My assumptions have just been strengthened as new evidence came out showing the gold sold at the SGE does not end up at the PBOC. At the LBMA Forum in Singapore the chairman of the SGE, Xu Luode, stated Chinese consumer demand hit 2,000 tonnes in 2013, and at another speech he stated 1540 tonnes was net imported that year. This net import figure disclosed by Xu is highly unlikely to include PBOC purchases (PBOC’s gold demand is China’s best kept secret).

Torgny Persson, chief executive officer of BullionStar.com who attended the LBMA Forum in Singapore, wrote me:

In the speech Mr. Xu mentioned and I quote the official translation in the headphones “..as the Chinese consumption demand of gold hit 2,000 tons in 2013.”

My interpretation is that consumption demand is non-government demand and excludes PBOC purchases. Xu came to this number, 2,000 tonnes, because he summed up Chinese net import (1540 tonnes) and domestic mining output (428 tonnes), as he stated in a speech at the Fourth Commercial Bank Gold Investment Forum. The China Gold Network reported

Xu pointed out that the current gold market, especially the physical gold market is actually in the East, mainly in China. Last year China’s own gold-enterprises produced 428 tons; at the same time China imported 1,540 tons of gold, adding up to nearly 2,000 tons.

At the Shanghai Finance Forum Xu mentioned the same numbers, according to the website Xinmin News 365.

SGE withdrawals accounted for 2197 tonnes in 2013, but because 229 tonnes of this was supplied from recycled gold Xu only mentioned the amount of gold that was net added to non-government reserves; net import was 1540 tonnes, plus domestic mining 428 tonnes, is 1968 tonnes. Recycling gold through the SGE doesn’t affect non-government reserves. The Chinese gold market, with the SGE at its core, is designed by the State Council to track the quantity and quality of gold added to Chinese non-government reserves. Through the SGE 1968 tonnes of gold was added to non-government reserves, hence Xu stated “Chinese consumption demand of gold hit 2,000 tonnes in 2013”.

To confirm Xu’s statement at the LBMA Forum in Singapore I called the SGE on monday June 30, 2014. The gentleman I spoke to was Jesse Yang, who had witnessed  Xu’s speech, as well as Torgny Persson. However, Yang didn’t listen to a interpreter on headphones, he could understand Xu’s speech in Chinese. This is a screen shot of the delegate list of the LBMA Forum in Singapore:

Shanghai Gold Exchange and ICBC precious metals department delegates at LBMA Forum Singapore 2104.

Shanghai Gold Exchange and ICBC precious metals department delegates at LBMA Forum Singapore 2104.

Over the phone Mr Yang told me:

What Xu stated was that in 2013 more than 2,000 tonnes was delivered into consumers hands and that could be interpreted as demand.

Again, this relates to non-government demand and these numbers exactly fit the volumes traded at the Shanghai Gold Exchange in 2013. The statements by Xu and Yang reaffirm the PBOC does not purchase any gold through the SGE.

Koos Jansen
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  • Justdoitalex

    Koos, is there any way to estimate the demand of the PBOC?

    • In Gold We Trust

      Not really. I guess they buy a few hundred tonnes each year. Sometimes I hear from insiders some hard numbers, but nothing I can verify.

      • Our Man NowBack in Bukit Batok

        Checkmout % reserves held in Gold, and although China has an abnormally low proportion invested in Gold, as the surplus increases so presumably do the PBOC holdings; 1% of $4 trillion is still a very large number of tons

      • Our Man NowBack in Bukit Batok


        2% x $4,000,000,000,000 /1314 / 32000 = about 1,900 tons of Gold

        Mind you, as a % that’s only 1/4 of what e.g. Switzerland and Russia hold, so that surely has to be a lower bound rather than an accurate estimate

  • Lulzasaur

    Koos, could the PBOC buy gold directly from non-government reserves? Would it be plausible for the PBOC to setup a shell company to buy gold through the SGE?

    • In Gold We Trust

      Its not about they can’t buy gold through the SGE. The PBOC can easily open an SGE account and buy all the gold it desires – or they can buy at the SGE through a proxy/shell company – but they would pay in RMB. My point was they want to exchange their USD for gold and all evidence suggests they do this abroad (not at the SGE).

  • relayer

    Yes. So the PBOC gets its gold from the LBMA?

    • In Gold We Trust

      Likely. And perhaps overseas mines and alike..

      • Albert

        Wasn’t the London gold going to SGE?

        • In Gold We Trust

          Also, everything the PBOC does we can’t see.

  • ManAboutDallas

    What’s the normal reaction to being handed a hot potato? Yes. End of discussion.

  • Lulzasaur

    Hey Koos,

    I know you have many contacts in China. I was wondering if there was any validity to this ZH article:


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