Koos Jansen
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Koos Jansen
Posted on 29 Dec 2013 by

More On The West To East Gold Exodus

The most significant parameter to measure the gold distribution from west to east is the trade vein that runs from the UK through Switzerland through Hong Kong, eventually reaching Shanghai.

The UK Source

In October the UK has net exported 90 tons of gold to Switzerland, – 16 % m/m, year to date the Swiss have net received 1199 tons. The UK net exported 1326 tons in total in the first ten months of this year, of which 477,9 tons were sourced by GLD. The unusual outflows remain elevated throughout the entire year. Also note, the UK is hardly importing any gold this year, as if physical gold is difficult to source.

UK Gold Trade 10-13

UK Gold Trade 2008-2013 10-13

GLD inventory 10 2013

From 1 January until 31 October GLD lost 15.3 million shares. Can it be the Chinese redeem physical gold from GLD through “agents” like Blackrock that have sold huge amounts of shares this year and possibly redeemed these shares for physical gold through GLD’s authorized participants? Just a theory..

This is a picture taken on 25 November 2013.

Xie Blackrock

On the right we can see Mr. Xie, president of China’s third largest Sovereign Wealth Fund NSSF, on the left Mr. Lawrence Fink, chairman and CEO of BlackRock.

Pass The Swiss

The Swiss only publish their total gold trade numbers every 3 months; last data was from September. As we can see from the chart, all the gold that is being imported into Switzerland this year is being remelted and exported; this was also confirmed by a Swiss refinery. Exports stand at an all time record this year at 2184 tons, and there are 3 months left on the calendar. Annualized exports would be 2912 tons, which is 1362 tons more than what the Swiss exported in 2012. We may assume this difference in exports is additional supply for the east.

Switzerland Gold Trade 2013-Q3

The bulk of Swiss gold export is heading east, some directly to Shanghai, some first to Hong Kong. From the Hong Kong Census And Statistics Department we know 779 tons were net imported from Switzerland into Hong Kong year to date. 651 tons more than what was net imported in total in 2012.

HK Swiss gold trade 10-2013

The Hong Kong Trading Hub

West East gold ditribution 2013

We can see a correlation between the net amount of gold that comes into Honk Kong from Switzerland and the net amount that goes out to the mainland. Concluding, most mainland net gold imports through Hong Kong are being supplied by Switzerland.

We can also see strong UK net export of gold to Switzerland prior to April (in April the price of gold crashed and Chinese physical buying exploded), but this not unusual as we can see from the “UK Gold Trade” chart ranging from 2009-2013. Often huge volumes are shipped between the UK (LBMA) and Switzerland (refineries).

If SGE delivery is mainly supplied by import from Hong Kong, demand is certainly not waning. In November 168 tons were withdrawn from the SGE vaults, up + 21 % from October.  (compared to 0.121 tons of physical delivery at the COMEX in November. More information on the differences between physical delivery at the SGE and COMEX can be found here and here)

SGE vs COMEX ™ Nov 2013

A remarkable phenomenon that has happened in Honk Kong trade earlier this year was this:

Hong Kong - China gold trade monthly 10-2013

There was a huge spike in gold export from Hong Kong to the mainland in March. As if someone knew there was going to be immense demand for physical in April in the mainland. But why would anybody import expensive gold  in March to sell it for bottom prices in April? The answer: Chinese import doesn’t have to work like that. Like I  described in this article gold can be consigned by, in example, HSBC and ICBC.

This is how it works; the consigner HSBC (Hong Kong and Shanghai Banking Corporation) can ship the gold to the Mainland, without selling it at this stage. On arrival it has to be registered within 7 days at the SGE and move into the vaults. The gold is now merely transported, not sold.

The consignee ICBC will then ask HSBC for a quote in USD/oz (International Spot) and then decides the offer RMB price at the SGE. The SGE Premium is based upon freight costs, insurance costs, customs declaration fee, storage fee, ICBC’s profit, etc.

After the gold is sold on the SGE, ICBC must pay HSBC in USD within 2 days and also needs to let the State Administration of Foreign Exchange verify the payment.

I am aware that there was an arbitrage opportunity  in early 2013 that could have explained some of the high volumes of gold trade between Hong Kong and the mainland. Though this couldn’t have explained the record net gold export, just before the price dropped in April and the SGE was stormed for physical gold.

Shanghai Gold Exchange gold withdrawn from vault week 50, 2013

week 16 sge

In between 22 and 26 April 117 tons of physical gold was withdrawn from the SGE vaults. That is an exceptional amount of gold to hold in stock, unless one knew demand would rise significant and had made pre orders accordingly. Just a theory..

In any case, the main vain has brought the mainland 957 tons of gold in the first ten months of this year, annualized 1148 tons. But Hong Kong is certainly not the only port through which the mainland is importing gold,  my analysis shows the mainland’s total net gold import can reach up to 2000 tons this year.

Hong Kong - China gold trade 10-2013

Hong Kong net imported 510 tons of gold in this period. Further research should point out how much of this was smuggled into the mainland.

Hong Kong gold trade 10-2013

In Gold We Trust

Koos Jansen
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  • 24 carat

    What are China’s motives for accumulating physical gold !? The same motives as C.De Gaulle, which led to the London Gold Pool action ending in 1971 with Nixon closing the $ gold window ($-reserve/gold redeemability). Does China know that the Western economic system is toast and the $/€-IMFS is failing. What else is (could be) the purpose of accumulating physical gold in possession ?
    China’s growing world economic superiority means the demise of the $ world reserve and trade settlement currency. China wants to trade in yuan/RMB and not in €/$. Gold’s rising value must compensate for all €/$ loses still to come (devaluation).What else is there to compensate for the international buying power devaluation of €/$. There are no other hard currencies anymore. The entire West is stuck with hot momentum debt digits, circulating in the financial industry and central bank containers (bad banks).China is producing tangible economic wealth and therefore meriting a hard yuan/RMB ! The $-system/regime is still losing its original gold reserve wealth (28.000 ton) to the East. History rhymes.

    • In Gold We Trust

      Dank voor uw waardevolle commentaar. (U mag ook wel voor mijn blog schrijven hoor ;) Veeel meer publiek)

  • In Gold We Trust

    Just got a letter from a raeder, his theory is: China was buying so much gold in March that the US got scared and crashed the price in April. .. Who knows?…

    • 24 carat

      The US$’s greatest nightmare is the loss of the petro-$. Oil & gas trade in other currencies (yuan/rubble) is the horror scenario in progress. Rosneft (Exxon Mobil x 2) bought MS’s energy trading platform. Saudi Arabia comes increasingly under geopolitical pressure.
      These evolving facts are much more worrysome for the $-regime’s power than the flow of gold from West to East. All these events increase the risk of a sudden dumping of UST,…back to sender when no more geo-strategic plays can be bought wit UST.
      Smashing the goldprice never scared determined physical gold accumulators. On the contrary, the gold accumulation increases. Volcker knew this already up to 1980, when he pushed the goldprice to the moon after the London Gold Pool failed to stop the US/UK gold outflows. To stop the W>E goldflow, the $-regime has to shoot the goldprice into the stars. But this would crash the gratis $ (zero interest), now instantly. With the help of the Volcker xx % $ interest rates in 1980, capital flows stopped flowing through gold and dived into high renting $ debtpaper. Then the $-interest rate started its very long decline with rising bondprices and declining goldprice.
      Today, so many catch-22’s exist, that it is no longer possible to have a repeat of those times. The $-system & regime is now toast.

      • In Gold We Trust

        The US can’t raise interest rates because their government debt would collapse instantly. Maybe a revaluation of gold could solve this mess? ;)

        • 24 carat

          The Western drama is worse than only currency failure ! The debt driven consumption economy is a systemic failure. One cannot solve this with only a massive currency devaluation (collapse) against gold. The West needs to restructure back into an industrial production economy in competition with the East. An impossible task, so far.
          Therefore the West will continue the crescendo debt driven consumption (service) economy, while gold will evolve into a new status as a pure wealth reserve, totally disconnected from currency and financials (demonetized gold). This new gold-wealth-reserve will be the real new universal store of wealth in the debt infested economic system. A wrong and failing system cannot be saved and/or replaced.
          4 billion Asians know the correct purpose (function) of gold wealth reserve. Westerners don’t…
          A gold revaluation solves nothing imvho. The failing debt driven system will increase the general affinity for goldmetal as the only wealth reserve and make it worth the effort to keep on working and taking economic risks.

          • missiondweller

            “while gold will evolve into a new status as a pure wealth reserve”

            Agree but let me modify that: Gold becomes the “universal currency” used the same way UST are used today in Money Market accounts. You make a purchase and just enough gold (in milligrams) is sold to cover the transactions. Instead of a broker holding UST, a bullion dealer holds the gold.

            My modest proposal: http://goldbulliondebitcard.com/

          • 24 carat

            Gold-Wealth-Reserve (the metal), shall NOT have any link with -currency- !
            As W.Duisenberg stated in his Aachen speech.
            A currency cannot be a wealth reserve. Reserve ! Just like the Mona Lisa in the Louvre or the castle of a wealthy owner.
            Goldmetal with a currency purpose is automatically monetary / monetized gold. Duisenberg (ECB) declared demonetized gold a wealth reserve with no currency link.
            A wealthy person is automatically a solvent/credible person. And that is gold’s original purpose.
            .

        • TimeToPanic

          The market controls rates, not the Fed. Rates will rise. But after the ‘reset’. It will give the current system another 20 years or so. Which is fine by me, as I’ll be enjoying my gold profits!

    • Claes

      This lady say there is 170.000 tons of gold in Hawaii banks?
      Why got US scared and crashed the goldprice?

      http://www.thechinamoneyreport.com/2013/12/28/dollar-values-about-to-crash-world-bank-whistle-blower/

      • In Gold We Trust

        I would like to see one shred of evidence that there is 170,000 tons of gold in Hawaii.

    • David Duval

      That’s a pretty dumb theory and a good way to get them to buy even more gold?

      • In Gold We Trust

        Explain!

  • unwired

    I think its also possible China was tipped off. The counter-intuitive management of the PM’s lower was already under way. And who knows what cozy relationships exist between China and JPM. Apparently JPM covered a decade long persistent short position on the Comex… not by buying it back… but by delivering. I wonder whether China cares all that much about the price of gold when they have 3 trillion+ in currency and reserves…. and the US QE’s enough every 1.1 months to buy 2400 tons of world gold production. What they want is ozs… and the arbitrage opportunity seems to keep whatever gold is available flowing East. This could be a similar situation to the final days of the London Gold Pool… where the west was desperately trying to hold gold at $35. They could dump huge tonnage…. and then gradually and stealthily buy it back…. until the competition became too great. China today seems to be like many of the European nations who were exchanging depreciating USD’s for gold. And if the west wants to supply it in an effort to keep the USD system going… China and the East are glad to buy whatever is available…. and now…I’ll bet… at any price.

  • 24 carat

    Hawaii Gold !? Just another stupid (infantile) gold bashing non-argument by the angloamerican financial Reich.
    These money masters are now organizing again a $ pull back out of the emerging economies.

  • Rowingboat

    “Also note, the UK is hardly importing any gold this year, as if physical gold is difficult to source”

    Or perhaps just the opposite, that from a UK perspective physical gold is abundant due to investor selling and there’s less need to import as much.
    My expectation after this dis-hoarding by UK investors has run its course (within a year or so) is that imports will need to rise again to meet base consumer demand.
    Note also that America is importing less gold in 2013 and has turned net exporter in the last two years (approximately a 500 tonne swing in 2013 compared with 2011)

  • 24 carat
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