Koos Jansen
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Koos Jansen
Posted on 27 Feb 2014 by

Gold Trade Numbers 2013 Broke All Records

In 2013 we’ve experienced what kind of extreme buying power China is able to unleash on the physical gold market; Chinese wholesale demand in 2013 was 2197 tons, this excluded PBOC purchases. While the mainstream media is still absolutely clueless on what actually happened and how much gold was distributed across the globe, the facts aren’t that hard to summarize. Let’s have a look at the facts, supplemented with commentary by yours truly.

As most countries disclose their gold trade numbers, by analyzing these numbers we could see a clear gold vein running from the London Bullion Market to the vaults of the Shanghai Gold Exchange (SGE) in China mainland, from where the gold enters the Chinese market place. This main vein ran through Switzerland and Hong Kong.

The London Vaults

Most gold in the UK is located at the vaults of the BoE, where gold from the LBMA, the official reserves from the BoE and official reserves from many other central banks are stored. Additionally there are many gold vaults owned by Bullion Banks (GLD) and private parties in London. In response to the drop in the price of gold in April 2013 we have seen significant outflows from the UK; net export broke all records.

UK Gold Trade 2009-2013

UK Gold Trade 2013

The UK net exported 1425 tons of gold in 2013, of which 152 tons net to the United Arab Emirates, 145 tons net to Hong Kong and 1329 tons net to Switzerland. In December total net export was 62 tons, up 68 % from November, while net export to Switzerland dropped to 52 tons. Net export (directly) to Hong Kong was 29 tons.

In 2013 GLD’s inventory dropped by 552 tons.

GLD gold inventory change 2013

Through The Swiss Refineries

From refineries in Switzerland we know that all the gold that came from the UK in 400 ounce London Good Delivery (LGD) bars was being refined into 1 Kg bars 99.99 % purity, and sent to the East. Switzerland has never traded and refined as much gold as in 2013; gross import was 3082 tons and gross export 2786 tons.

Switzerland has a long history in gold refining and vaulting, both businesses had to adapt in 2013. Refining exploded as some plants almost doubled their capacity, working in three shifts 24 hours a day to supply the East. From Looking at the chart below we can see Swiss net import decreased to 295 tons in 2013 from an average of 572 tons in 2002 – 2012, which suggests their vaulting business grew less than in recent years.

Switzerland Gold Trade 2002 - 2013
NOTE, this shows gross weight. Fine weight of import is substantially lower.

The Chinese are not only buying unprecedented amounts of physical gold, additionally they strive to have more power in the pricing of the yellow metal. I have published numerous translations – a memo on gold policy from the Chinese government to various ministries, gold institutions, exchanges and the central bank, an interview with the head of the precious metals department of China’s biggest bank on it’s gold aspirations and an article on Chinese gold policy written by one of the most influential leaders of the Chinese gold market – in which this is all clearly exposed. In my opinion the Chinese will eventually take over the entire (paper) gold market.

Swiss refineries are also refining LGD bars for Gulf nations in the new standard 1 K four-nines bars (LGD bars are shipped from the Gulf to Switzerland, 1 K four-nines bars are shipped back). The president of the Peoples Republic of China Xi Jinping has called for better ties for China and Gulf Nations and for an acceleration in talks towards a free trade agreement.

[youtube https://www.youtube.com/watch?v=WmQENfhy2Fc]

China’s Foreign Minister Wang Yi met with Israeli Prime Minister Benjamin Netanyahu, the Saudi Arabian crown prince, the Iranian Foreign Minister, as well as a multitude of players from the Gulf and North Africa in the last couple of months to develop trade with West Asia. Yi’s goal was to reinforce the oil supply chain from the Middle East, and improve ways to export Chinese goods. Additionally China is investing in large infrastructure projects (railways, harbors, etc) in West Asia to breathe new life into the Silk Road.

Silk route west asia china

At the same time four Gulf nations (Bahrain, Kuwait, Qatar and Saudi Arabia) are planning to setup a new common currency. All developments just mentioned are related as Asian nations seek allies to make a stand in a post US dollar system.

The Special Administrative Region Hong Kong

Hong Kong gold trade also broke all records. Net gold import jumped 1500 % from 37 tons in 2012 to 597 tons in 2013. Gross import in 2013 accounted for 2239 tons up 133 %, gross export 1642 tons up 78 %.

Hong Kong gold trade 2009 - 2013

The biggest supplier by far was Switzerland, as Hong Kong net imported 913 tons from the Swiss in 2013, up 613 % from 128 tons in 2012 (look at the chart below and spot the record). The Swiss gross exported 1236 tons more in 2013 than in 2012, apparently the bulk of this extra refining output went to Hong Kong.

HK Swiss gold trade 2003 - 2013

Hong Kong’s main gold export destination was China mainland. Net export was 1158 tons, up 108 % from 525 tons in 2012. Gross export was 211 tons, gross re-export (gold that passes through Hong Kong without being processed, i.e. 1 K bars) was 1284 tons.

Hong Kong - China gold trade 2009 - 2013

Hong Kong - China gold trade monthly 2009 - 2013

Gross import from the mainland was 337 – this reflects a lot of jewelry fabricated in Shenzhen that is being exported to Hong Kong. Shenzhen is located just across the border from Hong Kong, accommodates the biggest SGE vault and is known for it’s jewelry production industry. The jewelry that is being shipped to Hong Kong is ‘smuggled’ back into the mainland to some extent.

Shenzhen Hong Kong

In the mainland there is a 22 % tax on jewelry (17 % VAT, 5 % consumption tax), In Hong Kong there is 0 % tax on jewelry. It’s quite common for Chinese in the mainland to make trips to Hong Kong, buy cheap jewelry and other physical gold products and take this home without being bothered at the border. Customs are very stringent on gold exports from China mainland, on the import side Chinese can easily walk through wearing their new necklaces.

The Chinese jewelry company Chow Sang Sang estimates more than half their products sold in Hong Kong are purchased by mainland tourist. Additionally there are mainland tourists that purchase physical gold in Hong Kong and store it locally in safety deposit boxes at banks as well as vaults outside the banking system. This hidden mainland demand partially explains the unprecedented net gold imports by Hong Kong in 2013 (597 tons by 7 million inhabitants). The other explanation being Hong Kong vaults gold for investors from all over the world.

Chow Sang Sang jewelry sales broken down per region

Chinese demand per capita

Please be aware that China mainland can import gold through many other ports than Hong Kong (as I have written bout here). According to my analysis the mainland has roughly imported  2000 tons of gold in 2013 including PBOC purchases.

In Gold We Trust

Koos Jansen
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  • Klaasisbaas

    Wat een helder overzicht! En wat een werk. Goed gedaan.

  • Kaloti

    Don’t forget the JPM (Carmelite St/John Carpenter St), and the HSBC (bridge and tunnel crowd) vaults in London City in addition to the BoE.

    Yes, Eurostat data sets wil show UK exports but don’t forget US exports to Switzerland.

    Swiss refineries do a lot more than convert 400 oz bars to smaller bars. Pamp, Valcambi, Argor and Metalor are not just doing this flat out. They do other things..it’s not as if they are flat out converting 400 oz bars

    • In Gold We Trust

      Thanks for your comment. I have little info on the vaults you just mentioned. Is GLD partially stored in a separate HSBC vault? Or completely stored outside the BoE vault. To my understanding it was completely stored at the BoE vaults.

  • Hugh

    “In my opinion the Chinese will eventually take over the entire (paper) gold market.”
    So do you think with control of the paper market they would like to continue to manipulate the price lower so as to continue to buy real gold at a discount? What do you see as their likely plan?

    • Michaelprotects

      Of course not. Once they own the gold, they’ll want their investment to go to the moon. Beyond that, they want gold to be the defining line between rich and poor nations. No matter what a nations standing was before, their new standing could be dramatically altered by their gold(or lack of gold) ownership.

  • Michaelprotects

    By clearing out western vaults, China will simply invalidate western markets as gold commerce exchanges due to the fact that they cannot fill orders. No need for a shot to be fired.

    • Freda Peeple

      so why have COMEX inventories increased over the past 6 months?

  • 24 carat

    Gold-pricing wars between the West and East will end with the birth of a genuine Gold Value Standard. There can be no other reason for the continious shift of goldmetal from the West to the East. In order for China to win this goldpricing war,…it needs gold allies. All surplus nations, with constant accumulating $-reserves, are candidates for the ultimate coalition of the gold-willing.Gold valuation delinked from the dollar (or any other currency unit).
    That’s why China promotes gold to its people, in sharp contrast with Western planners, who remain convinced that gold and goldpricing are a 100% central bank matter.
    The times of hard currencies are definitely over. Even Germany realizes this. Currency is debt and gold is wealth !

  • http://google.com/+TiongHumSoh Tiong Hum Soh

    If China is using its US Dollars to buy gold at this record level, can we foresee that these Dollars are going to make its way back to the US and on to drive up inflation shortly?

    • Peter Trzaska

      At last! Someone gets what the decision taken at the highest echelon of power and which precipitated the price fall from 1925 back in Sept 2011. I’ve known exactly what was in place since then. The BIS could not have telegraphed their intentions more clearly. I’m not surrendering the whole story. But this indeed is what drove price down. This is what made every single analysis from every so called ‘expert ‘ these past 2 years so completely wrong. This is why EVERY of the experts whose boots are so beautifully licked by Stanczyk got every prediction completely wrong! Rickards, Embry, Turk, Sprott, Davies, ad infinitum. It’s why only I got price action right. I revealed this Sept 2011 truth to Bill Kaye. Private correspondence in the past fortnight, and he charged off to KWN to make the point, failing of course to offer proper attribution. (Never mind that. I have the original correspondence, his approaching me, and everyone who knows about Kaye’s plagiarism has understood that he must have got the info from someone else, that he himself never gets such valuable info)
      So here we have it. The gold expert narrative emptying your pockets for the past two years their insistent failure to jump off the price must go higher ship was due to their failure to read the most blatant signs from the BIS.
      These experts will keep on deceiving the ignorant among you for as long as you buy their outrageously naive and absurd narrative that LBMA and comex price is determined by supply n demand! Yes, that absurd, proven false, concept still drives their ignorant analysis.
      Gold Bullion moves at the behest of the BIS , and it he price at which it moves is decided by the BIS. In Sept 2011 the USD was too weak in gold. China wanted volume and quick. The BIS handed them the Gild Bullion marlket, dictated the pace of supply, and engineered a strong in USD gold price so that the Chinese accumulated significantly more Gold Bullion for their USD reserves. Simple. How the experts failed to see this, I’ll never ever know. it was telegraphed in the clearest terms!! Maybe those so highly respected experts don’t deserve that title. Many are those who’ve worked out that much at lest for themselves. The choice is yours. Stick with those selling you antiquated paradigms, idiotic analysis. Or look to those who know of which they speak.

      • AK

        So what’s your prediction from here on out? If Koos’ assertions are correct, the Western vaults have been drained of most of their Gold. China still has trillions in foreign exchange reserves including dollars and I would think they will continue to convert as much of those paper holdings into physical Gold, natural resources, land, real estate, businesses, etc. They know the intrinsic value of their foreign currency reserves and will want to convert them into something that will retain its value.
        You say that the price is not determined by the supply demand fundamentals on the Comex or LBMA, so at what point do the physical supply demand factor come into play? You say that the BIS is in full control but how can they control global demand for Gold with currencies around the world being destroyed. Perhaps Gold has moved at the behest of the BIS so far but at some point they will lose that control.

        • Freda Peeple

          modest, aren’t you Peter.

          Its odd how your lone voice of sanity back in 2011 can’t be found from Googling you by name. In contrast, it is now possible to Google up past winning lottery numbers – the only unfortunate thing being that these were never published by ‘the experts’ until after the event. Presumably, on those occasions when ‘the experts’ were wrong in their interpretation of the BIS tealeaves, they omitted to fess up and tell us they were mistaken. Funny thing, that….

          and the “empty vaults” meme? – from today’s KWN – http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/2/28_U.S._Secrets%2C_Criminal_Banking_Syndicates_%26_Empty_Gold_Vaults.html

          When I got permission from the government of Dubai to interview Ian MacDonald, who was the Executive Director of the Dubai Multi Commodities Center in 2008, Ian made the following incredible admission to me:

          “Some of the biggest suppliers have been the (Western) central banks to the market.” But what he said to me off the air was even more surprising: “The vaults must be getting pretty empty because the gold they are now sending me is scrap from the back of the vaults. It’s things like old gold coins, so we are literally having to refine this scrap gold into .9999 purity bars before we sell it into market.”

          That was 6 years ago, since when the price has rocketed up, gone down and then stayed in pretty much the same range over the past 6 months

          Clearly, whatever drives the Gold price, “empty vaults” are neither the cause nor a leading indicator of it

          • Uncle Sam Capone

            “Clearly, whatever drives the Gold price, “empty vaults” are neither the cause nor a leading indicator of it”

            “How do you deal toughly with your banker?”
            Make an offer he can’t deny!

          • Uncle Sam Capone

            Hillary Clinton, in China, 2009

            “We are truly going to rise and fall together,” she said to her
            audience. “Our economies are so intertwined, the Chinese know that to
            start exporting again to their biggest market the United States has to
            take some very drastic measures with this stimulus package, which means
            we have to incur more debt.”

            Read more: http://www.nydailynews.com/opinion/china-hillary-clinton-plays-weak-hand-article-1.370837#ixzz2udZMS476

          • Uncle Sam Capone

            In your face:

            “Clinton’s not to blame for her begathon, of course, though she could
            have been more circumspect on human rights. Just 20 years after the
            massacre at Tiananmen Square,
            I’m sorry she found it necessary to say so directly that rights issues
            “can’t interfere” with the big picture. The same pressure stops her from
            complaining that China is using the recession to gobble up metals, oil
            and natural gas around the world.”

          • AK

            I agree that in the short-term empty vaults and overwhelming demand for physical do not necessarily dictate the price. But I would argue that the “empty vault” syndrome is still mostly speculation, rumor and conspiracy theory to most people. Apart from ABN Amro and RaboBank cash settling their allocated Gold account holders, and the fact that U.S. won’t return the German Gold, there is relatively little evidence (at least evidence that is widely advertised) that we may be looking at a historic Gold shortage.
            I look at this as the perfect storm brewing. While physical Gold demand is stronger than ever, the lower prices will ultimately reduce new mining supply. Apart from that the entire Western Hemisphere appears oblivious to the currency and wealth destruction and continues to ignore and even despise Gold as a useless relic. This will change and sooner or later we will see a mad rush into Gold right as the availability of physical Gold will be at an all-time low.

          • Freda Peeple

            physical gold will remain as “available” as it ever was – new mine supply or not. it doesn’t corrode and is not consumed to any significant extent

            the key to price is not supply, but sentiment and in Asia, nobody is panicking, just keeping on keeping on what they have quietly done for generations

          • AK

            I guess you can argue that all above ground Gold is “available” because unlike Silver it is not consumed. Ultimately what matters is who holds the Gold and the reality is that Gold has been migrating from weak hands in the West to strong hands in the East. I doubt that the world will see any of the Gold that has been imported into China any time soon and hence all that Gold will not be “available” to investors in the West when they finally wake up to the dire economic reality that we find ourselves in.

          • Freda Peeple

            when they finally wake up to the dire economic reality that we find ourselves in

            by which time their paper money will be worthless so they couldn’t afford to buy gold anyway, whether it was available or not; there will be no “mad panic” – not in the medium-long term Gold price trend, and certainly not because of supply issues

          • AK

            Trillions of dollars of wealth don’t evaporate overnight. There will be plenty of opportunities for people with means to buy Gold along the way. The question is will there still be any Gold available to the average investor.

          • Freda Peeple

            “trillions of dollars of wealth don’t evaporate overnight”

            so, there will be no panic. (unless something like this happens to destroy trillions of dollars of wealth overnight) http://en.wikipedia.org/wiki/Executive_Order_6102

          • AK

            The only way the government would make the hoarding of Gold illegal again is if there was a panic. The most powerful, most influential people own plenty of Gold and I doubt they would let the government get away with making Gold ownership illegal. Also, since the U.S. is no longer on a Gold standard what would be justification for confiscating Gold? That would be admitting that Gold is in fact money and that only the government not the people are allowed to own real money. Besides since the vast majority of Americans don’t own any Gold since it is widely viewed as a useless relic, why bother? Confiscating a few gold eagles here and there wouldn’t really add much to the U.S. gold hoard.
            When the government gets that desperate they will go after the low hanging fruit like retirement accounts.

          • Freda Peeple

            you’re right, of course you are


            let’s hope so, anyhow

          • AK

            Freda, there is no hole in my logic. Think about all the fiat currencies and wealth that exists around the world. Pension funds, hedge funds, treasury bonds, stock market wealth, individual investment accounts and company cash hoards. The reality is that most of those entities have lots of cash but very little, if any Gold. What do you think will happen to some of that money when it becomes obvious that we are in a middle of an all out currency war and all the fiat currencies are systematically being destroyed through endless money printing? Do you think that just a small part of that money will find its way into Gold? And once it does and the Gold price starts to rise there will be more and more interest even in the Western Hemisphere to get into Gold as a currency hedge and as a means of wealth preservation.
            This does not account for the fact that pretty much all of the Gold held by central banks and bullion banks has been hypothecated and re-hypothecated and the people who think they own Gold will sooner or later realize that their Gold is no longer there. If this goes main-stream and it is starting to become more widely known, do you think this might just cause a panic as people with money will realize that they better get their Gold before it is too late.
            Given the trillions and trillions of fiat currencies that are not only in circulation but continue to be printed at record amounts, I think it’s safe to assume that at least a small part of that will chase after the remaining Gold. Will there be an all out panic at some point to acquire Gold with all the fiat currencies being engaged in a race to the bottom? I don’t see how you can not have a panic at some point as Gold is precious and scarce and that will become more and more obvious.

          • Any Old Irony

            Gold is not scarce, and is only ‘precious’ because of investor sentiment (to which I happen to subscribe, quite forcefully)

            If supposed scarcity is the primary driver behind price, then my left foot should be almost infinitely valuable, given that there is only one of them in existence. However, this perspective is what top scientists refer to as “a Minority Opinion”, because whether they agree with me or not, very few people are willing to pay an above-dogmeat price for it. People have other things to do with whatever surplus wealth they may have, and many would consider themselves fully invested – and indeed adequately diversified – in feet. As it is, therefore, despite the remarkably low inventory in deliverable left feet, the market has not yet fully appreciated quite how precious this particular appendage is (to me).

            The available stock of feet in circulation at any given point in history has been fairly evenly distributed, and there can surely not be any significant informational disconnect in terms of perceived utility or format; just like Gold, the number of feet has been increasing by a relatively predictable 1 – 2% per annum. Sure, I may attempt various tactical arbitrage moves in the short term (spreads, straddles etc) but in the long term, like Tutankhamen’s gold, my left foot will probably accompany me into the afterlife rather than proving to be either a tradeable asset or an enduring store of value for my offspring.

            My point is simply this; as in life, so in Gold – in order to preserve a balanced position, you have to learn to stand on your own two feet, and if you can’t do that, it’s surely time to leg it.

          • AK

            And by the way Freda, let’s not forget that the wealth from around the world is competing with China for the remaining Gold. China has in excess of $4 trillion in foreign currency reserves and I think they have made it pretty clear that they intend to use as much of it as possible to convert it into hard assets. They know that those currency reserves will become worthless over time and so they are divesting as much of these reserves as they can.
            China imported “only” around 2,200 metric tons last year because that is all they could get their hands on. I am not sure if they were limited by available supply or by refinery capacity but it’s safe to assume that they will continue to import as much as they can without completely draining the market of its Gold and thereby causing a price spike. Their currency reserves would be able to purchase the “available” Gold on the open market many times over, so don’t tell me that there is no supply constraint. China will continue to buy in an orderly manner to make sure they can buy gold as cheap as possible. But sooner or later everybody will realize what they are up to and why and at that point there will be a mad scramble for the remaining crumbs of Gold that China left for the rest of the world.

          • Any Old Irony

            keep dreaming, AK

            you clearly have NO idea what you are talking about

          • AK

            Now there is an intelligent statement. So basically everything I stated, most of it being factual information that can’t really be disputed, is complete nonsense? Instead of making a blanket statement based on your personal belief why don’t you give me some counter-arguments that hinge on actual facts and not your opinion.

          • Any Old Irony

            1. “wealth from around the world is competing with China for the remaining Gold”

            This is called “a market”, and has existed for several thousand years; in and of itself, this is not an indication of investor panic or a sudden or imminent price spike

            2. “I think they have made it pretty clear that they intend to use as much of it as possible to convert it into hard assets”

            Really? Who has “made it pretty clear”? China is still very actively buying US Treasury bonds, and remains the second largest holder

            3. “they are divesting as much of these reserves as they can”

            Chinese foreign currency reserves are increasing

            4. “China imported “only” around 2,200 metric tons last year because that is all they could get their hands on.”

            Really? So there are NO available gold supplies anywhere else on the planet? GLD and other ETF’s have none, COMEX has none, there is in fact NO LBMA? I think you are smoking something, my friend.

            5. “Their currency reserves would be able to purchase the “available” Gold
            on the open market many times over, so don’t tell me that there is no
            supply constraint”

            Could you explain the logical nexus between those two statements? ANYBODY could purchase e.g. the entire COMEX inventory for a relatively piffling amount of money, not just the Chinese. They haven’t done so because a) nobody especially wants to and b) more Gold would move onto COMEX to replenish inventories as the price rises. That is why total COMEX inventories have RISEN as the Gold price has recovered over the past 6 months. There are 170,000 or so tons of Gold in the world – all of it to a greater or lesser extent “available” – or are you suggesting that China now owns ALL of it?

            6. “China will continue to buy in an orderly manner”

            CORRECT. We agree – there will be no panic, and no “Gold to the Moon” spike. You see, you can display signs of rational thought when you put your mind to it. You should be congratulated and encouraged to do so more often

            7. “everybody will realize what they are up to and why and at that point
            there will be a mad scramble for the remaining crumbs of Gold that China
            left for the rest of the world.”

            Oh no, that didn’t last long, did it! Who is “everybody”? Everybody everybody, Everybody that matters, Everybody that invests in Gold, Everybody with ‘special knowledge’, or everybody who happens to agree with your opinion? Remaining crumbs? There are lots of ‘crumbs’ available in lots of places – go to a jewellery store or bullion dealer. Go to China and buy Gold if you have to. It’s available, all the time, everywhere, to EVERYBODY

          • AK

            Thanks for your detailed response. I appreciate the fact that you are taking the time trying to educate someone as clueless as myself.

            1. What you refer to as a “market” that has existed for thousands of years in my opinion is not a free market, but a market with constant interventions designed to suppress the price of Gold and Silver.

            Consider the following quote from the former governor of the bank of England which was made after the Gold price had been taken down:

            “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

            It’s not mystery that just about all financial markets are managed to some degree. Clearly, a rapidly rising Gold price would make the masses question the value of their own currency. Gold is the anti-dollar and the higher the gold price goes the less confidence the masses will have in their fiat currencies and the more they will look to Gold to preserve their wealth. Hence the Gold price has to managed. The problem with intervening in free markets is that the price gets distorted. It’s like a spring that continues to build tension until one day it snaps free. We have seen that in past with Gold breaking free and increasing multi-fold in a few short years.

            I happen to believe that the constant price intervention and anti-Gold propaganda in the West has suppressed demand to an unnatural level. People in the West have no interest in Gold and view it as useless and something that continues to decline in value. So, while China and most of Asia is accumulating Gold, the demand in the West is close to nonexistent. What happens, when that change. Will Asia’s demand go down when people in the West wake up to the fact that owning some Gold might be a good idea while their currency is being printed into oblivion?

            2. There has been plenty of rhetoric from Chinese officials that make it pretty obvious that the Chinese do NOT see it in their best interest to continue to accumulate foreign reserves. Plenty of those quotes have been shared on this web-site. The world is in a middle of a currency war and all the major currencies are being devalued at a record pace. It doesn’t take a rocket scientist to figure out that the Chinese are concerned about the future purchasing power of their massive currency reserves.

            3. In the meantime, you are correct that their reserves are still growing because they have to as long as China remains the manufacturer to the entire world and carries a HUGE trade surplus. That surplus has to be paid for in foreign currencies which adds to their pile.

            The more reason why China is concerned about their growing reserves and is actively trying to divest as much of that huge cash hoard as possible. Consequently they will buy as many natural resources, land, real estate, mines, companies, food and yes even Gold and Silver as they can.

            I think to some extent the Chinese are trapped because there are not sufficient fixed assets including Gold available to them to make a meaningful dent in their currency reserves but that won’t keep them from trying.

            4. Again, on this very site there were some great articles that talked about how the big Swiss refineries were working 24/7 to keep up with the enormous Gold demand coming out of Asia. There was even talk about these refineries for the first time ever having difficulty sourcing Gold And more evidence that Gold bars coming out of London were coming from the deepest corners of the vaults. I can’t vouch for the accuracy of these statements but I have read numerous reports that the massive London Gold vaults are virtually empty.

            So, yes I think that China was unable to source more Gold on the open market than they imported last year. Clearly they are on a mission to accumulate as much as Gold as possible and unlike you I don’t think there are unlimited amounts of Gold available despite the 170,000 tons that have been mined.

            5. The point I was trying to convey is that China has enormous cash reserves and I believe that they are on a mission to accumulate as much Gold as possible. Their ability to do so is not constrained by lack of funds but rather by lack of supply. If there were unlimited amounts of Gold available where is all that Gold?

            Yes Comex inventory has increased slightly but let’s not forget that 85% of Comex inventory was drained last year. GLD bled another 500+ tons last year. It appears that most if not all of that Gold migrated to China and was needed to satisfy their insatiable demand.

            You stated, that the German Gold was not evaporated but was leased out and is not theirs to receive. I couldn’t agree more, pretty much ALL the gold held by central and bullion banks is leased, swapped, hypothecated and re-hypothecated. That is why there are numerous paper claims to every ounce stored at these banking institutions. So what happens if more entities suddenly want their Gold back? I think we are seeing early signs of that as more and more Gold investors are getting their Gold out of the system.
            Unlike you, I don’t believe that Germany is deliberately stalling to retrieve their Gold. There is mounting political and public pressure in Germany to retrieve their Gold as quickly as possible. Germans are outraged and they no longer trust the NY Fed.

            I definitely see the potential for an eventual run on gold as more people learn how little physical Gold exists to back the multiple claims of paper claims.

            BTW, remember ABN AMRO and RaboBank? Why would they cash settle the customers with allocated Gold accounts if there was plenty of Gold everywhere?

            So let me summarize why I believe we will at some point see a disorderly rise in Gold and Silver prices:

            The entire world is drowning in debt and most of that debt is backed by nothing but faith in the fiat currencies. These currencies are being “printed” into existence at record amounts around the world. This is unprecedented and unsustainable. At some point we will either see significant inflation due to continuous money printing or we will have to default on the massive amounts of debt and unfunded future liabilities (which I understand amount to around $200 trillion just in the U.S.).

            In the meantime financial institutions have amassed somewhere around $1.4 QUADRILLION worth of financial weapons of mass destruction also known as derivatives. Honestly I don’t even know what that means but the fact that a single bank has as much as $100 trillion in derivatives exposure when the GDP of the entire world is only around $70+ trillion does not give me a lot of confidence that our financial system in stable and in good shape.

            Let’s follow this up with the fact that Gold prices have been and continue to be manipulated and that Gold continues to be demonized in the main stream media thereby suppressing Gold demand through-out the Western Hemisphere. Gold is not really viewed as a monetary asset and it certainly is not viewed as a safe haven asset as it should. That will change.

            I can think of numerous scenarios where the entire world will lose confidence in fiat currencies and will accept that all the debt that the world has accumulated can never be repaid. I think this will happen gradually and I think we are already seeing it in Asia and that is why they are buying Gold.

            This awakening and loss of confidence in fiat currencies will snow-ball and more and more people will turn to Gold as a hedge to failing currencies. Sooner or later I think we will learn just how tight the Gold market is and if that should become apparent then the demand will only sky-rocket even more because people want nothing more than something that they may no longer be able to buy.

            So you think I may be ill-informed and a bigoted fool, but honestly with all the problems we are facing and no solutions in sight, I just don’t see how Gold will NOT be playing an increasing role in stabilizing our broken financial system. We are so far past the point of no return and we have a whole flock of black swans circling, each one of which could result in a financial crisis that will make 2008 look like a minor disturbance.

            You see, when (not if) the next financial crisis hits, we are out of ammunition.
            We can’t lower interest below zero (although this has been tried) and we certainly can’t print hundreds of trillion of dollars to get us out of the next crisis without risking hyper-inflation, although we will likely try because that’s all they know.

            I believe that Gold will once again play a pivotal role in our financial system and will once again be considered money as it has for thousands of years. How and when and in what capacity is anyone’s guess and I certainly would not want to put a dollar denominated price tag on Gold in the future. But given all the fundamentals I would be very surprised if dollar denominated Gold will not continue to climb in the foreseeable future.

            All that said, I don’t think people should be “all-in” but in light of the problems we face, everyone should own some physical Gold and Silver held outside of the banking system. I think the Chinese are on to something and I certainly would not want to bet against them.

          • Any Old Irony

            “In the meantime financial institutions have amassed somewhere around
            $1.4 QUADRILLION worth of financial weapons of mass destruction also
            known as derivatives.”

            have you ever traded a derivative in your entire professional life? Picking up a catchy strapline like “financial weapons of mass destruction” does not make you appear erudite, but gullible. I attended the first ever ISDA meeting in London in 1985 and have been actively professionally involved in derivatives markets ever since and I can assure you that you – as with so many of the talking heads who you appear eager to parrot – know absolutely nothing of what you are talking about

            Hey, you may be right, and as I am heavily invested in Gold, I sincerely hope you are. But I doubt it, really I do, and if the claptrap you have regurgitated above is the best logical basis you have for your misguided beliefs, then I fear not only for your wealth and prosperity, but also for your mental health

          • AK

            Why is it so difficult to express an opposing view without throwing insults?
            I find it hard to believe that you don’t think that over quadrillion dollars worth of derivatives are not a problem. It was Buffet who coined the phrase “financial weapons of mass destruction” and although I am by no means a Buffet disciple, I think he is on to something. Banks are so overleveraged and have so much exposure to these financial hedges that not too much has to go wrong for these derivate books to blow up. This is what happened in 2008 and this is bound to happen again.
            It doesn’t take a genius to figure out that the current system is not sustainable. The same goes for mounting debts and unfunded liabilities around the globe and all the money printing to monetize the debt. This can’t go on forever. I don’t buy into the fear mongering of many alternative news sites although most do a far better job of painting the real picture than the mainstream media.
            But I do believe in simple mathematics and anyway you slice it we are well past the point of ever being able to achieve a sustainable fiscal balance which means at some point we will see sovereign nations default on their debt or somehow try to inflate their way out. I don’t know how this will all play out but I see more than enough systemic risks to justify a good holding of fixed assets that don’t have any counter-party risks. When we have the next financial crisis I am not so sure that we will be able to print our way out of it, so those financial assets with counter-party risks could take a serious hair-cut. I also believe that we will see bail-ins in the future as well as mandatory treasury bond purchases of retirement accounts because the government will be out of options and will need to start going after retirement accounts. MyRA as introduced by our fearless leader will only be the first step in that process.
            But even if we don’t, Gold and Silver held in your possession are a mandatory diversification for your paper assets. I don’t expect to get rich from my Gold and Silver holding, I simply want to make sure that when we see the next financial crisis, I have something that will always have value. If nothing else, I will have something I can pass on to my kids which will give them insurance for future financial catastrophes. It is naïve to think that we won’t have another crisis and just like you should have property and car insurance you should have insurance of your paper financial holdings in form of fixed assets with no counter party risks. Will another such a crisis result in drastically higher Gold and Silver prices? I have no idea, but I would be surprised if it didn’t.
            No need to respond to my post, but if you do, keep your insults to yourself.

          • Any Old Irony

            A seamless jump from “sooner or later we will see a mad rush into Gold to “Will another such a crisis result in drastically higher Gold and Silver prices? I have no idea” with no intervening logic to get in the way of the babbling emotional stream of consciousness

            You appear on here making sweeping unfounded statements, challenging people to refute your “facts”, and when they do you turn tail, go off-piste and start complaining about being insulted

            Grow up, man!

            In the meantime, I think the following selection of emotional bleats drawn from your recent rantings serves as a valuable resource for aspiring wannabe Celente’s, Pento’s and von Greyerz’s and stands as a testament to the debilitating side effects of an overactive imagination coupled to a gullible mind:

            “the perfect storm”

            physical Gold demand is stronger than ever

            the availability of physical Gold will be at an all-time low

            a mad scramble for the remaining crumbs of Gold

            Gold “breaking free” and increasing “multi-fold” (sounds like the Tribes of Israel!)

            anti-Gold propaganda in the West has suppressed demand to an unnatural level [Hang on a minute – weren’t you just saying that demand was at an all-time high and the Chinese simply can’t find any more of the stuff?]

            The entire world is drowning in debt [Classic KWN]

            the entire world will lose confidence in fiat currencies

            “a whole flock of black swans circling” [No, come on, two entire flocks, surely – at least> Maybe even a quadrillion? Why not? Whatever happens, their numbers are sure to skyrocket (having hitherto been unnaturally suppressed to an all-time low]

            And many, many more…..

          • AK

            Just one quick point of clarification since you seem to be putting words in my mouth. There is overwhelming physical demand in Asia while demand in the West has been suppressed due to the declining prices and people buying into the mainstream media anti-Gold propaganda. How is that contradictory?
            I don’t know what planet you are living on but if you think mounting debts around the world, endless money printing and an out of control banking system that continues to pile on trillions of dollars in derivatives are not a problem and just some figment of my overactive imagination coupled to a receptively gullible mind, you are delusional.
            Here you go another sweeping, unfounded statement. What debt? What money printing? What derivatives?

            Seriously?? So what planet are you from??

          • Grumpy Dan

            oh dear.another discussion forum descends into the “if you don’t agree with me, you’re delusional” playpen. wise up, grow up and/or shut up. DantheManfromOman

  • Peter Trzaska

    It couldn’t really be any clearer, could it? The new Gold Trade Standard is here. We await only the formal public re-pricing.

    • Freda Peeple

      not all of us are blessed with your near-visionary clarity, Peter

      perhaps you could help us lesser mortals by sharing some small part of your immense – and, let’s face it, unique – wisdom by hinting at the price at which the new Gold Trade Standard will be announced?

      it being abundantly clear & all, it surely cannot be a trade secret, but even so, let’s protect innocent civilians by abstracting it by factors of 10: is the all-too-clear New Reality $100 (as in inflation-adjusted 1971 Nixon Gold), $1,000 (approximately where we are now in the greater scheme of things), or closer to $10,000? Or are you in the $100,000 camp, or don’t fiat dollars count any more so it doesn’t matter? Surely, you must know this – you know, give or take a factor of 10?

      the world waits with bated breath for this gobbit of wisdom to be cast before us

  • Hugh

    Yes we’ve had huge demand but what comes next with the Thai, Turkish, Indian, Russian and Chinese currencies under attack? I believe there is a concerted Western effort to destroy the gold buying power of those countries. Gold demand may drop dramatically. Ultimately though gold must keep up with real inflation or the miners shut down.

    • AK

      Hugh, I think the destruction in the value of the currencies you mentioned will result in significantly higher demand for Gold as even the gold-bears will realize that if they want to preserve some wealth they better get out of fiat and buy some precious metals. The more obvious the global currency destruction becomes the higher the demand for Gold and we can already see how high the demand is now. So once it will become obvious to most people that there is very little Gold left while currency devaluation is in full swing, there will be an all out panic to accumulate as much Gold as possible.
      You have to remember that there are trillions in liquid assets around the globe, so even with currencies being devalued there is more than enough fire power to wipe out the Gold market many times over.

      • Zhanglan

        “I’m often asked what I read for Epsilon Theory, and the answer is that my daily fodder is the same as everyone else’s – the NYT, the WSJ, the FT,
        Bloomberg, etc. But I think that I read media differently from most people, and that’s the key for an Epsilon Theory perspective. I’m not reading these articles for facts, but for the effort to lead opinion .. to communicate an opinion as if it were fact. It’s not hard to read this way. Every time you see a word like “because” or anytime you read a “reason” why something happened the way it did, you just need to detach yourself from the article and consider how you are being played.

        I don’t mean that in a malevolent sense. It’s what social animals DO. It’s what it means to be a social animal. Ants, bees, termites, and humans – the most successful species on the planet – are constantly signaling each other so that we can make sense of our world together. That’s the secret of our success as social animals – E Pluribus Unum, as it says on the dollar bill – and we can no more separate ourselves from playing and being played than we can from our individual consciousness. We swim in a sea of communication and signaling. It is our media in the same sense the word is used for the agar in a Petrie dish, and that’s how I think of media in the sense of newspapers and television and the like.

        The inherent problem is that any market movement is over-determined.
        There are far more reasons that might account for a market move than actually
        account for the move, and that’s without any consideration of stochastic factors or game-playing behaviors. But the questions of “Why is the market up?” or “Why is the market down?” are the only questions that matter in the heat of a big move up or a big move down, and no one who is in the business of answering such questions is ever going to say “I don’t know” or “no reason”. You MUST provide an acceptable answer, or whoever is asking the question is quickly going to find someone else to replace you. Fortunately, you can’t be proved wrong if you ascribe market causality to a contemporaneous event, so it’s the totally safe play to say that the November 24th 2008 market was up “because” of Geithner. And once a prominent opinion-leader like the WSJ says it’s true, it’s not only a safe answer.it’s the only answer that’s safe.

        The ability to convince someone that you know WHY a security is up or a security is down is at the heart of the entire financial advisory industry, maybe the entire financial services sector. It is the Power of Why, and it has no inherent connection to any true causal connection or the way the world truly works. Maybe it’s all true. Probably it’s partially true. But it really doesn’t matter one way or another.

        Once you start thinking of everything communicated by humans as a signal, as an intentional effort to make you see the world differently than you saw it before, your world will change. This is the great insight of Information Theory – that information is measured by how much it changes your mind, that the strength of any communication has nothing to do with truth or accuracy, but only with the subjective impact it has on your perceptions – and it’s an enormously useful insight for making sense of markets.

        Two days ago the WSJ ran the online headline “China Intervenes to Lower Yuan” together with a series of articles to support the thesis that recent declines in the yuan’s value versus the dollar were the result of Chinese central bank intervention and some sort of master plan to achieve some set of policy goals. I want to include and comment on a selection from one of those accompanying articles – “Why the Yuan’s Decline Matters” – not to criticize the author (I could just as easily chosen any number of other authors from any number of other media outlets), but as an example of what I mean by the Power of Why.

        Here’s what happened:

        China’s yuan has fallen steadily against the U.S. dollar in the past week. On Wednesday, The Wall Street Journal reported that it wasn’t market forces or traders behind the move, but that the Chinese central bank was deliberately pushing the currency lower. That a central bank would do this on purpose has caught some off-guard, especially since the yuan was long seen by investors as a currency that was only going up.

        Why does this matter now? Why are they doing it?

        Currently, the yuan trades within a tight range set by The central bank every day. But, short-term traders and increasing demand is almost constantly pushing the currency higher within that range. By denting the currency’s value on purpose, the central bank is trying to spook away these traders who will now have to worry about the possibility China does this again.

        With fewer “speculators” trading the yuan, China hopes to have an easier path to
        widen the yuan’s trading range further and, in the much longer term, make the
        yuan a free-floating currency that’s driven only by economic and market forces.

        Why does China want to free its currency in the long term? Having a freely traded currency opens up a wide door for the yuan to become much more prominent in trade and payments across the globe. Perhaps most importantly to China, a freely convertible currency also makes the yuan a more attractive option for other central banks’ stockpiles of cash, also known as their foreign exchange reserves. Currently the U.S. dollar dominates as the number-one reserve currency in the world-that’s why so many central banks hold U.S. government bonds even when the U.S. economy doesn’t look too rosy. China wants the yuan to challenge the dollar’s long-established role, and gradually freeing its currency is a critical step to get there.

        Why else?

        China is also trying to push its economy away from relying so much on exports and investment. It, instead, wants more of its growth to come from domestic demand. Making the yuan behave more like a market-driven currency fits into this broader plan.

        Okay. So the party line (no pun intended) is that the Chinese government is massively intervening in their currency market to make the yuan “more like a market-driven currency”. The party line is that the Chinese government is forcing its currency lower in order “to push its economy away from relying so much on exports and investment”.

        Two reactions. First, I consider myself to be something of a connoisseur of opinion-leading writing, and from an artistic or aesthetic point of view I am quite simply blown away by the creativity and execution of this Orwellian masterpiece. It’s the same reaction I have when I see a politician oh-so-naturally jab at the air or flash a wry grin during a particularly moving speech. It’s a beautiful thing to see a professional excelling at his or her craft, and never so much than at moments like this when the craft becomes art.

        On the other hand – from a risk management point of view – these articles made me throw up in my mouth a little bit.

        Governments don’t make their currency cheaper to reduce their reliance on exports and investment. They make their currency cheaper to spur export-led growth. The problem that the world has with China as a currency manipulator is not that the yuan has been going up. The problem is that it hasn’t been going up fast enough. And now it’s being forced down.

        Look, I understand why the Chinese government wants the yuan lower. The political imperative in China is still growth. Period, end of story. Net exports are the swing factor in every country’s GDP growth rates, and China is not an exception, it is the foremost exemplar. Do you think China is happy about the Japanese yen going down, down, down? Do you think China is happy about competing in export markets for advanced industrial products – because that’s what Chinese manufactures do today – with an inexorably appreciating currency? Do you really think they’re going to sit there and just take it?

        I also understand why the Chinese government would prefer to characterize their actions as part of some grand domestic reform agenda, where they just need a wee bit more anti-market, export-supporting currency manipulation in order to move forward towards a glorious future of pro-market, domestic-focused life in the brotherhood of liberal nations. Pardon me if I am skeptical.

        And finally, I understand why the financial media reports the Chinese government’s party line (including some after-the-fact “we really didn’t intervene that much” stories in the FT yesterday) as a True Fact rather than as a Narrative. When a market event like a plummeting yuan occurs the only thing that matters is presenting a plausible WHY, and China provided just that.

        Whether that story is the whole truth, some partial truth, or the equivalent of crediting Tim Geithner’s nomination for a 6% move up in the market .. well, that’s really beside the point if you’re a financial media publisher. But it’s certainly not beside the point if you’re an investor or an allocator.


        W. Ben Hunt, Ph.D.
        Chief Risk Officer

        4265 San Felipe, 8th
        Floor, Houston, TX 77027
        Direct: 713.548.2627 | Fax: 713.993.4098

    • Freda Peeple

      the Chinese currency is no more “under attack” now than it has been by the USA since 2001 http://www.atimes.com/atimes/Global_Economy/GI21Dj01.html and Abe’s Japan since 2012 http://www.ft.com/intl/cms/s/0/ebdf92aa-c13d-11e2-9767-00144feab7de.html#axzz2udRIm2zf

      this week’s piffling devaluation has been deliberately engineered by the PBOC – by many estimates the Renminbi has been seriously overvalued for more than 3 years, and this has led to an influx of ‘hot’ QE money which China could well do without http://www.euromoney.com/Article/3225417/Renminbi-overvalued-by-30-China-macro-risks-rise.html

      Each year miners produce less than 3,000 tons, whilst the total amount of above-ground Gold is around 60x that amount. The short-medium impact of constraints on new supplies is fairly insignificant – certainly in price terms – and for all the supposed shortages, impending COMEX collapses and empty vaults, the Gold price is still far below where it was 6 months ago at the end of August 2013

  • Any Old Irony

    Here is an interesting article from the People’s Daily which people might like to read: http://english.peopledaily.com.cn/98649/8545893.html

    And here is the original article in the FT by Gillian Tett on which it is based: http://www.ft.com/cms/s/0/36f4df62-8e88-11e3-98c6-00144feab7de.html

    Finally, here is a response to that article which mirrors my own personal opinions on this matter: http://www.ft.com/cms/s/0/f98b3fd6-97ec-11e3-ab60-00144feab7de.html

  • Russell

    I have a few questions where I don’t really understand the numbers.

    In the first paragraph you say “Chinese wholesale demand in 2013 was 2200 tons, this excluded PBOC purchases”. But in the last paragraph you say “the mainland has roughly imported 2000 tons of Gold including PBOC purchases”. So are you saying that the wholesale demand (2200 tons) includes what China mined?

    When discussing Hong Kong, you say that “Net gold import jumped 1500% from 37 tons in 2012 to 597 tons in 2013”, but then when talking about imports from Switzerland, you say Hong Kong net imported 913 tons in 2013. How can their overall net imports be 597 tons, but their net imports from Switzerland be 913 tons?

    Whats the difference between net imports/exports and gross imports/exports?

    • In Gold We Trust


      Because they net exported gold to the mainland. If you look at the chart, a lot came in and a lot went out. From some countries HK net imported gold, some they net exported to. What was left behind was their total net import.

      Net import is import minus export. Gross import is just import.

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