Koos Jansen
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Koos Jansen
Posted on 8 Mar 2015 by

How The World Is Being Fooled About Chinese Gold Demand

Kindly note the pattern

There is a story being told to the masses about Chinese gold demand that is grossly incorrect. The huge discrepancy between numbers from the World Gold Council (WGC) and actual gold demand is so wide yet cunningly hidden I must conclude there is essential information about physical gold demand deliberately kept privy.

Let’s go back to April 2013; the price of gold made a nosedive, which spawned an unprecedented physical buying spree across the globe, most notably in China. Withdrawals from the vaults of the Shanghai Gold Exchange (SGE), that equal Chinese wholesale demand, closed at 2,197 metric tonnes December 31, 2013, up 93 % y/y.

However, the WGC (the global authority on gold) initially stated Chinese consumer gold demand had reached 1,066 tonnes in 2013, an astonishing 1,131 tonnes less than wholesale demand. In the China Gold Association (CGA) Gold Yearbook 2013 it was disclosed China had net imported 1,524 tonnes and domestically mined 428 tonnes. Without counting scrap supply this adds up to 1,952 tonnes; adding scrap total supply has been well over 2,000 tonnes. It’s impossible consumer demand was only 1,066 tonnes.

Finally the WGC admitted their initial estimate of 1,066 tonnes of Chinese gold demand was grossly understated. By email they wrote me on February 12, 2015:

Dear Mr Jansen,

Thank you for emailing the World Gold Council, we apologize that your previous enquiry was missed.

Our figure for Chinese consumer demand in 2013 has since been revised upwards to 1,311.8 tonnes from the original figure of 1,066 tonnes published in the full year 2013 Gold Demand Trends report.  

That’s an increase of 23 % by the largest physical buyer on the planet. Although still far from actual demand, 23 % is quite a revision. Was there an official press release from the WGC to inform the world on this revision? No (I’ve asked the WGC, but I got no reply). Did the mainstream media properly cover the 23 % revision? Not that I’m aware of.

Actual Chinese gold demand 2013 has been knavishly hidden from the masses (99 % of the financial industry copies WGC numbers).

In 2014 the WGC again grossly understated Chinese gold demand. SGE withdrawals accounted for 2,102 tonnes, though the WGC stated Chinese consumer demand was only 814 tonnes. Again, a gap of more than 1,100 tonnes. All arguments the WGC has brought up to explain the surplus in the Chinese gold market can only make up about 15 % of the gap (gold-for-gold supply and stock movement change).

For 2014 grossly understating Chinese gold demand wasn’t enough for the Council to distract the world’s eye from China’s gold hunger; more was needed. By a few tonnes the WGC put India’s consumer gold demand ahead of China. In their Gold Demand Trends Full Year 2014 Indian demand is disclosed at 843 tonnes, transcending Chinese demand (814 tonnes) by 29 tonnes, just enough. Most media simply copied these numbers and are stating India is now the world’s largest gold consumer – no critical thoughts added. In my opinion this is the biggest fallacy in finance of our time.

WGC demand vs SGE withdrawals 2

In 2014 China imported at least 1,250 tonnes and domestically mined 452 tonnes. According to GFMS scrap supply was 182 tonnes, adding up to total supply at 1,884 tonnes. But, we’re supposed to believe India is the largest gold consumer on earth at 843 tonnes? Yes.

I’m open minded towards the possibility there is an agenda that is allowing China to buy as much gold for as little fiat as possible to make them accumulate whatever necessary before a monetary reset. I see no other explanation for the events unfolding in front of our eyes.

Can you imagine what would have happened to global gold sentiment if the WGC had disclosed 2013 Chinese demand at 2,100 tonnes and 2014 Chinese gold demand at 1,850 tonnes? Sentiment would have been influenced to say the least.

As I wrote in my first post on why SGE withdrawals equal Chines wholesale demand September 18, 2013:

If you think about it, the redistribution of gold is the only logical thing to happen given the state the world economy is in. … gold has to go to China in order to equalize the chips.

More Awareness About Chinese Gold Demand

Luckily my camp is growing. More and more analysts are using SGE withdrawals as a proxy for Chinese wholesale demand instead of inaccurate WGC data. CNC Asset Management wrote in a newsletter September 25, 2014:

To understand China’s real physical gold demand, investors should simply look at the weekly withdrawals from Shanghai Gold Exchange vaults. We visited the Shanghai Gold Exchange (SGE) in May and talked to the senior executives of the exchange. After reviewing the exchange’s trading mechanism, we are of the view that the weekly withdrawal figures provide a much more accurate data series that reflects China’s aggregate wholesale demand in a timely way.

More recently MarketWatch published SGE withdrawals and its significance, and Dr. Martin Murenbeeld, Chief Economist at Dundee Capital Markets, wrote in his newsletter on February 2015:

It follows from this opaque picture of Chinese supply and demand that some observers, including ourselves, have decided Shanghai Gold Exchange (SGE) deliveries data provides the best window on what might be happening on the demand side in China. (There are a number of observers who have noted the widely circulated estimates of gold demand are woefully inaccurate, precisely because these data are so significantly lower than SGE deliveries data.)

Latest data from the SGE shows withdrawals in the last five days around Lunar Year (February 16, 17 and 25, 26, 27) accounted for 38 tonnes. Total SGE withdrawals in the first two months of 2015 surpassed 410 tonnes. SGE withdrawals Q1 can reach 550 tonnes or more. However, don’t expect Chinese gold demand published by the WGC on Q1 to be anywhere near these figures.

Koos Jansen
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  • DameEdnasPossum

    The inevitable monetary reset approaches.

    Those with the gold make the rules.

    So just keep stacking.

    • enginer

      The Rothschilds have long had ties with China,starting before Mao, and they know which side of their bread the butter is moving to. Follow the money.

  • Navigator

    The next obvious question is how accurate are WGC estimates of Indian demand?

    • OldPoop

      Koos, a lot of that gold did not stay in China any longer than it took to smuggle it into India. The Indian Mafia and their government bedmates severely limited legal importation of gold into India so they could charge $100 – $200 and ounce markup on smuggled gold, because the Indian demand for gold is almost inelastic. When India recently relaxed the restrictions some, China’s imports dropped some. If all the restrictions are ever removed on Indian gold then the Chinese numbers might be more accurate.

      • KoosJansen

        when did Chinese import drop?

        • Edwin Jater

          We are a company located in Nairobi Kenya,we deal in gold(AU) from Tanzania and Congo. Right now we have over 100 kgs available for sale, purity is above 97% and 23+ karats. Price is $29,000 a kg,we do CIF. If interested we may discuss more viaedwinjater@gmail.com.

  • Douglas M. Green

    Jim Rickards just wrote an article saying gold is kept low to placate the Chinese who are stacking to be a playa during the reset.

    • Dale Holmgren

      That’s only partially true. Gold is really being kept low to placate ME while I continue to stack. China and I both want to be playas! We can all be playas, just keep buying at these low levels.

      • Edwin Jater

        We are a company located in Nairobi Kenya,we deal in gold(AU) from Tanzania and Congo. Right now we have over 100 kgs available for sale, purity is above 97% and 23+ karats. Price is $29,000 a kg,we do CIF. If interested we may discuss more via edwinjater@gmail.com.

    • SLK_R

      How does it placate china by a low price? Fiat price does not matter, other than making mortals cough up. Only availability of quantity matters.

      Rickards has also repeated ‘chips must go to china so they can be there at the reset’, but never giving a reason.

      This is also the reason that WGC is helping china so obligingly. But why ????? Has china threatened to blow it all up by stepping up buying?

      • Jim O’Hara

        I believe the narrative is that pre-1971 the major trading powers kept currency wars in check by exchanging gold when there were trade surpluses. China’s economic boom happened post 1971, so instead of gold they got US Treasuries to settle imbalances. Now we are confronted with an unraveling of all the major fiat currencies, necessitating a “Bretton Woods 2.0″ where new “rules of the game” will be written. China’s lack of gold compared to its money supply is an issue that would impact their level of participation at BW 2.0, so there’s an effort underway to get China’s gold reserves built up enough before the currency reset. I’m not exactly sure what your “Why?” is in reference to, but if it’s “Why is the WGC placating” the answer might be (as you suggested) China has several financial “nuclear options” it could exercise to bring the whole system down immediately, albeit with chaos and pain for them and the rest of the world. Nobody wants that so “they” are working to help China accumulate gold to back its currency.

    • rowingboat

      Did anyone write an article saying gold was kept low to placate Italian demand during the last bear market?

      Italy imported 5500mt from Switzerland but that flow slowed during the 2000s and has reversed since 2009, with Italy now a net supplier.

      Perhaps (just maybe) gold moves freely around the world to those who most want it. No big deal and no reset.

      For at least several years Rickards has been suggesting this by the way, usually with a time frame of several years (correct me if I’m mistaken).

      • KoosJansen

        Italy has a vast jewelry fabrication industry.

        • rowingboat

          Italy used to import a large proportion of the world’s gold production from Switzerland in the 80s and 90s and, for many years, Italy was the main destination of Swiss imports. That flow has slowed to a trickle in recent years.

          It’s tempting to extrapolate current trends into the future and make grandiose predictions, when really these things just ebb and flow.

          • KoosJansen

            Can it be Italy imported bullion and exported jewelry?

          • rowingboat

            I’m sure that happened but what was global gold production in the early 80s, 1000mt perhaps a bit more? Italy was importing 200-300mt annually for two decades. Also, the reverse flows to Switzerland since 2009 are in fine form so bullion not jewelry/scrap. Noticeably the reverse flow started to increase from 2007, peaked in 2012, and has been falling since.

            When you get time look at the historic UK-Swiss flow. It would appear the UK tightened the tap during the bull market (presumably as Western institutional demand increased holdings in London) then released it again in a big way in 2011 and since 2013.

    • Edwin Jater

      We are a company located in Nairobi Kenya,we deal in gold(AU) from Tanzania and Congo. Right now we have over 100 kgs available for sale, purity is above 97% and 23+ karats. Price is $29,000 a kg,we do CIF. If interested we may discuss more via edwinjater@gmail.com

  • rowingboat

    Given the evidence over the last year I’m convinced the WGC is unable to measure demand for gold held within the financial system. They report & compare what they’re able to measure… retail consumer demand which they do well but poorly for institutional investment demand.

    In India the WGC demand numbers are accurate and consistent with imports, precisely because little gold is held within the banking system. On the other hand, in 2013 Chinese banks increased their balance sheet holdings by 600mt and this explained the difference between SGE withdrawals/imports and what the WGC measured that year.

    Does the WGC or anyone else have a good grip on institutional demand/divestment in the West, particularly the bullion bank flows? For that we need to look at the import/export data. E.g. there’s an intriguing pattern in the UK-Swiss dynamic, bull and bear markets 1982-2015.

    • Matthew

      The WGC doesn’t measure anything. The demand statistics are provided by GFMS.

      • KoosJansen

        Yet, the WGC is the global authority on gold…

        • B.

          Why is it that no one is discussing the conflict of interest the WGC has with reporting the numbers AND being the ‘owner’ of the world’s largest gold ETF, (the infamous ‘GLD’)?

      • rowingboat

        I use WGC / GFMS interchangeably but you are right (although it doesn’t change the point I am making). The GFMS/WGC data is useful for providing a base of retail consumer demand around the world (e.g. India). Then we need to decipher the institutional investment flows on top of that using national import/export data because I’m not sure how else to glean demand within the financial system. At least this is what I’m attempting.

  • Matthew

    The WGC/GFMS first estimate of 2Q 2013 China demand was too low – but at the time they admitted that quarter was hard to get a handle on and had a very large error term in (the balancing item at the end). Over subsequent quarters it was revised, and this was hardly unknown – I myself wrote a piece on 22 April 2014 about the ‘hefty increases’ in their estimates for China.

    “The main driver of the demand increase is a much punchier estimate of Chinese fabrication – now seen as 978t in 2013, up 40% on 2012, compared with January’s estimate of 827t. Of this Chinese jewellery fabrication is put at 872t, up 46% YoY, compared with an estimate in January of just 724t. These increases (which to a smaller extent are backdated to 2011) are explained as the result of field research, which identified far greater domestic consumption of jewellery and far more small-scale domestic fabricators.

    These revisions to the GFMS data help align their estimates of Chinese demand better with the large-scale flows of bullion into China seen through 2013, but still leave a rather large gap to be explained. On the demand side in 2013 GFMS have 978t of fabrication (mainly jewellery and industrial uses) and 360t of bar demand, which equals 1,338t. . GFMS’s supply figures show Chinese net imports of gold from Hong Kong of 1,135t net (which is the gross figure of 1,495t less 360t estimated of “round tripping,” a similar figure to China’s exports of gold to Hong Kong), mine production at 438t and scrap 145t = a total of 1,718t. Therefore there is about 380t more gold going into China than for which they identify demand – the “mystery buyer” remains
    The gap is in fact probably larger than this because gold enters China via other ports than Hong Kong, notably Shanghai. GFMS said this picked up in 2013 and interestingly that the Peoples Bank of China, the central bank, has been encouraging banks to import directly to Shanghai. Our own data using Chinese trade stats suggests up to 300t might have come in over and above the net imports from Hong Kong. This would bring gross supply over 2,000t, and more in line with the near 2,200t ‘delivered’ by the Shanghai Gold Exchange over 2013.”

    • KoosJansen

      isn’t it quite simple to just use the net bullion import data from the CGA report?

      • Matthew

        That wasn’t available in April 2014?

        Also the CGA, if I remember correctly, has a lower estimate of demand for the categories (jewellery, retail investment, industrial) that both it and GFMS cover?

        • KoosJansen

          https://www.bullionstar.com/blogs/koos-jansen/confirmation-pboc-doesnt-purchase-gold-sge/ read on CGA. It’s all just a difference between retail level and “direct withdrawals”. Net investment is direct withdrawals not being sold in retail. In English the CGA doesn’t publish Net investment.

          • Matthew

            But that’s just a balancing item.

          • KoosJansen

            Yep, you can subtract what you think is stock inventory at jewelers or industrial producers. Can’t be 1,100 tonnes right?

          • Matthew

            That’s obviously the big question. But the issue here is the CGA’s estimates of consumption are lower than GFMS.

          • KoosJansen

            “Who cares?” We know exactly how much is imported en mined, which doesn’t leave the country. The rest is interesting but of secondary importance.

          • Matthew

            Well if we are going to invoke the CGA as an authority it seems pertinent.

  • Andy Sloan

    Dear Koos,

    In response to your statement “I’m open minded towards the possibility there is an agenda that is allowing China to buy as much gold for as little fiat as possible to
    make them accumulate whatever necessary before a monetary reset. I see
    no other explanation for the events unfolding in front of our eyes”

    Please note the following;

    “Tragedy and Hope – A History of the World in Our Time” by Proffessor Carroll Quigley, 1966

    Pg. 62: In addition to their power over
    government based on government financing and personal influence,
    bankers could steer governments in ways they wished them to go
    by other pressures. Since most government officials felt ignorant
    of finance, they sought advice from bankers whom they considered
    to be experts in the field. The history of the last century shows,
    as we shall see later, that the advice given to governments by
    bankers, like the advice they gave to industrialists, was consistently
    good for bankers, but was often disastrous for governments, businessmen,
    and the people generally. Such advice could be enforced if necessary
    by manipulation of exchanges, GOLD FLOWS, discount rates, and
    even levels of business activity. Thus Morgan dominated Cleveland’s
    second administration by gold withdrawals, and in 1936-1938 French
    foreign exchange manipulators paralyzed the Popular Front governments.
    As we shall see, the powers of these international bankers reached
    their peak in the last decade of their supremacy, 1919-1931, when
    Montagu Norman and J. P. Morgan dominated not only the financial
    world but international relations and other matters as well. On
    November I l, 1927, the Wall Street Journal called Mr. Norman
    “the currency dictator of Europe.” This was admitted
    by Mr. Norman himself before the Court of the Bank on March Zl,
    1930, and before the Macmillan Committee of the House of Commons
    five days later. On one occasion, just before international financial
    capitalism ran, at full speed, on the rocks which sank it, Mr.
    Norman is reported to have said, “I hold the hegemony of
    the world.”

    Source: http://www.thirdworldtraveler.com/Banks/Tragedy_Hope_excerpt.html

    Thanks for your great work, God bless! Andy

    • Edwin Jater

      We are a company located in Nairobi Kenya,we deal in gold(AU) from Tanzania and Congo. Right now we have over 100 kgs available for sale, purity is above 97% and 23+ karats. Price is $29,000 a kg,we do CIF. If interested we may discuss more via edwinjater@gmail.com

  • Swagato Barman Roy

    I am sure that the Chinese demand contributes to their import. However, all said and done, China still maintains the biggest trade surplus in the world (http://j.mp/1NCVVL1) which means they are still accepting net dollar from the outside world. I do not doubt the facts cited here for a moment, but the sheer trade balance (calculated in dollar) shows that China is contributing more to the demand for dollar, rather than betting against the dollar.

    I am puzzled by the conflicting reports some of which say that the Chinese want to replace the USD to promote their own currency. Jim Rickards said correctly that the dollar has no bigger ally than China. What’s common among the central bankers everywhere (be it China, US or the Europe) is their desperation to maintain the status quo rather than letting radical changes happen.

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