Koos Jansen
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Koos Jansen
Posted on 12 Feb 2014 by

January Chinese Gold Demand All-Time Record, 247 Tons

Sorry for the delay in my weekly reporting on SGE withdrawals. Due to the Chinese Lunar new year the SGE was closed from 31-01-2014 til 06-02-2014 (dd-mm-yyyy) so I had to wait a bit longer for the publication of the numbers. What they eventually released were the trade numbers from 5 trading days, January 27 – 30, and February 7.

Lets skim through the news first. Bloomberg just reported that Chinese gold usage, according to the China Gold Association, in 2013 was 1176 tons. First of all I don’t understand this new term usage, nor have I ever understood the term consumption regarding gold. If you have some knowledge of gold you know it’s never consumed, gold is immortal and will be recycled till the end of times. Its immortal property is one of the reasons why it’s the most marketable commodity, hence we started using it as money thousands of years ago. The other reasons are it has the right scarcity, its divisible and subsequently small units can be merged/melted into a large unit (a proces which can be repeated to infinity without any loss of material).

Having said that; How can gold demand (I assume that’s what they mean by usage) be 1176 tons, when China mainland net imported 1123 tons just from Hong Kong, domestically mined 428 tons, and additionally net imported gold through other ports? Regular readers of this blog know the number 1176 tons of demand is false, it was in fact 2197 tons as my research has exposed.

Other mainstream news outlets (like the Financial Times and the Telegraph) are slowly starting to scratch their heads about the Chinese gold market. It won’t take years before the Chinese will fail to hide their true insatiable demand for physical gold. Since 2008, after Lehman fell, the China Gold Association (CGA) has changed the way they measure gold demand. In 2007 they reported in the CGA Gold Yearbook:

In 2007 the amount of gold withdrawn from the warehouses of the Shanghai Gold Exchange, total gold demand of that year, was 363.194 tons of gold, an increase of 48 % compared to 2006…

In other words, SGE withdrawals equal total Chinese demand (in 2013 SGE withdrawals accounted for 2197 tons), as I have been writing about for months! Starting in 2008 the CGA switched measuring gold demand from wholesale level (SGE withdrawals) to retail level in order to suppress demand figures. This way they were able to hide investment demand. (for my full analysis read this)

It’s remarkable the CGA publishes these suppressed demand numbers, which are being copied by western media without any second thoughts, while at the same time the CGA has written reports, which are being ignored by western media, that state Chinese demand surpassed 1000 tons (it was 1043 tons to be precise) in 2011. From The China Gold Market Report 2011, page 28:

Deregulation of the gold control to open the gold market to the public in 2002 led to the constant rise in China’s gold demand, which unprecedentedly exceeded 1,000 tons in 2011…

The China Gold Market Reports 2007 – 2011 all state Chinese demand equals SGE withdrawals (due to the structure of the Chinese gold market designed in 2002). Since 2011 the CGA ceased publishing the China Gold Market. Chinese demand was such that it became uncomfortable for the Chinese authorities to lay their cards on the table.

To continue to report on suppressed demand numbers the CGA has recently signed a partnership with CPM group. Together they hope to gain more credibility in spreading incomplete data – for as long as it holds.

CGA CPM group partneship

For the CGA this is all strategics. I wonder if CPM Group knows what CGA president, Sun Zhaoxue, writes about the gold market in the Chinese media. Allow me to quote a few snippets from exclusive translations I published here and here:

…the United States intends to suppress gold to ensure the Dollar’s dominance, the fall in the price of gold was premeditated, and a part of the currency war.

…The hottest topic at the moment is oil and gold. The ground war we are seeing around the world is I think war for oil whereas gold is the currency war.

…The US owes Germany so much gold but instead of repaying immediately, it sets a 2020 deadline to return the gold. From this example and process as well as some typical factors, this is a downright currency war to maintain the US Dollar hegemony by defeating all other currencies.

…Gold now suffers from a ‘smokescreen’ designed by the US, which stores 74% of global official gold reserves, to put down other currencies and maintain the US Dollar hegemony. Going to the source, the rise of the US dollar and British pound, and later the euro currency, from a single country currency to a global or regional currency was supported by their huge gold reserves. 

…In the global financial crisis, countries in the world political and economic game, we once again clearly see that gold reserves have an important function for financial stability and are an ‘anchor’ for national economic security.

…We need to establish a more clear national gold strategy, continue to grow gold reserves and progressively become a ‘gold-reserve’ nation that is commensurate with the country’s economic strength.

 …To fundamentally solve these problems, the state will need to elevate gold to an equal strategic resource as oil and energy.

In addition, because individual investment demand is an important component of China’s gold reserve system, we should encourage individual investment demand for gold. Practice shows that gold possession by citizens is an effective supplement to national reserves and is very important to national financial security.

In short, Sun knows the world is in a currency war and in war time China will keep it cards close to its chest. I hope the SGE doesn’t stop publishing withdrawal numbers, it’s the best benchmark we have at this moment.

Shanghai Gold Exchange Withdrawal Numbers January 2014

Withdrawals from the Shanghai Gold Exchange vaults in January 2014 accounted for 247 tons, which is an increase of 43 % compared to January 2013. It’s also more than monthly global mining production and an all-time record! China mainland mines about 35 tons per month which is required to be sold first through the SGE. The other 212 tons (247 – 35) had to supplied by import or recycled gold. My estimate is that scrap couldn’t have been more than 25 tons, so import in January was a staggering 187 tons. China is still draining the vaults in the west BIG TIME!

SGE vs COMEX ™ Jan 2014

Because the last SGE weekly report covers four days in January and one in February, I multiplied the weekly amount by o.2 and subtracted the outcome from the year to date number to get to the January total. This number may be revised when the SGE publishes the January monthly report, but I don’t expect a significant change.

[Update 14-02-2014, January SGE withdrawals were 246, I was one ton of, still a record.] 

Overview Shanghai Gold Exchange data 2014 week 5 and 6

– 40 metric tons withdrawn in 5 trading days of week 5 and 6   (27-01-2014/07-02-2014)

– w/w  – 29.9 %

– 256 metric tons withdrawn year to date

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

SGE withdrawals 2014 week 5,6

This is a screen dump from the 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 January 2014

This chart shows SGE gold premiums based on data from the Chinese 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 dump 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

In Gold We Trust

[youtube https://www.youtube.com/watch?v=ohrrE1rjzLo]

Koos Jansen
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  • http://www.bullionbaron.com/ Bullion Baron

    Thanks for your work in this area Koos, it is an invaluable addition to the gold commentary space. I have not had a chance to blog this at http://www.bullionbaron.com/, however wrote up the following few paragraphs in a comment for another site…

    So IMO it’s going to be a huge year for Gold with China, India & the West all scrambling for the metal.

    Koos Jansen reports that Chinese demand for Gold in January 2014 hit a new record:

    “Withdrawals from the Shanghai Gold Exchange vaults in January 2014 accounted for 247 tons, which is an increase of 43 % compared to January 2013. It’s also more than monthly global mining production and an all-time record!”

    Also this year we have India’s national elections with Narendra Modi as front runner. He seems pro Gold more so than the current Prime Minister who has said that India needs to reduce it’s appetite for gold and introduced tariffs. Here are some comments that I found from Narendra Modi:

    “While making policies about gold, the considerations cannot only be economic but also Government must ensure that the common people must not feel disconnected with it”

    “Gold is deeply associated with our lives. The 50th anniversary is called a golden jubilee and we call our good period a golden period. It is in the mind of every person that with gold comes a sense of security and a sense of respect. On important occasions we exchange gold.”

    In my opinion there is a good chance we see Gold tariffs in India decrease in 2014 and official demand increase (though both may not occur substantially until last half of the year).

    On a final point, western ETFs saw a massive destock of physical Gold in 2013 and it continues in early 2014, but this trend is likely to reverse once the technical indicators for the price start to turn (which has started already), I expect that GLD will likely see a net increase in metal over 2014, along with other ETFs. They will be bidding against ravenous demand from China and potentially a massive reversal and boom in demand from India.

    It’s impossible to predict prices with any certainty, I thought we were probably putting in lows for Gold when it was US$1500 in mid-2012 and yet here we are almost 2 years on and $200 lower. But I think the tide is turning, I think the cyclical bear market in Gold is giving way to the next leg up in the cyclical bull market. I have been buying more physical Gold steadily over the last few months & for only the second time in the last 2 years put some money into a junior Gold mining company.

    I think it will be a good year for Gold investors / speculators.

  • 24 carat

    If the physical gold accumulators want to protect their assets with gold,…they have to win the goldpricing war from the $-regime !
    This can only be achieved when capital cannot flow through the price-manipulative paper goldmarket anymore. In other words : make the gold contract market as small as possible by continued accumulation of all available (floating) physical gold, that only change hands when the goldprice declines.
    By winning the goldpricing war, you also win the currency war up until the $-warrior wants peace.

    • Frank Knopers

      @24 carat: An article about this subject will be available later today at Marketupdate. I am working on translation of a good piece right now.

    • In Gold We Trust

      The Chinese are fighting gold on two fronts, the physical and the paper front. Its bets to win both..

  • 24 carat

    China’s debt-o-mania : http://www.telegraph.co.uk/finance/comment/10634339/World-asleep-as-China-tightens-deflationary-vice.html
    There is no orderly exit out of this global debt hell. The big reset (devaluation) will happen by default.
    Our main concern is the question how the new Gold-Value-Standard will look like, as to protect assets and *stabilize* the unstable war-system.
    The – WE CAN ALWAYS PRINT MONEY – evolved from prudent intervention to outright manipulation.
    Gold might protect you,…but how will it *stabilize* the system !? How protected are you in an unstable system ?

    • In Gold We Trust

      Wasn’t it you who said this (TBR) would all happen top down?

  • hambone

    in ’13 ETF’s / Comex provided 1000 of the 4700 tons of supply (or 21%) to
    meet the record demand…so far in ’14 Chinese demand @ new record highs in Jan,
    India looking to officially get back in the gold biz, and now the ETF’s are net
    buyers…GLD as the largest sold 560 tons last year (drawdown from1350
    —>790 tons) but so far this year adding 10 tons…that means somewhere
    there is maybe a 25% shortage of supply vs. demand…

    funny the price of gold wouldn’t go parabolic in this circumstance…very
    strange this massive, obvious shortage isn’t causing a huge short squeeze,
    seriously curious…Almost like the price we are watching has no
    correlation to the fundamentals of underlying asset. Wait a second, I’ve seen
    this somewhere before…

  • Michiel

    In your article you say that the US stores 74% of total gold reserves. I presume this 74% is including the gold of other nations they store.
    Worldwide gold reserves accumulate somewhere around 170.000 tonnes. So that would mean some 120.000 tonnes stored within the US……… It sounds too strange to me. Anyway, if we consider the gold pool manipulative sellings, the rehypothecation and the non-ablity to return Germans gold, what is actually left of this reserve? Won’t the outcome help to determine how bad or good things are really for the US.
    Because if they still own the gold a simple revaluation of the goldprice woud solve all of their debtproblems, wouldn’t it? Is that their rabbit in the hat?

    • In Gold We Trust

      Sun Zhaoxue said in 2012: 74 % of all official gold reserves (=central bank gold) are stored in the US. There is more above ground gold in private hands than in CB hands. For more info go to the WGC website gold.org.

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