Koos Jansen
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Koos Jansen
Posted on 28 Apr 2014 by

SGE Withdrawals 29 MT In Week 16, YTD 635 MT

From April 14 to 18, week 16, 29 metric tonnes of gold were withdrawn from the vaults of the Shanghai Gold Exchange. In week 15 it was  21 tonnes, so demand, which equals SGE withdrawals, is slightly picking up. Although it’s nowhere near the figures we saw in the beginning of this year, when there were four weeks when SGE withdrawals transcended global mining production. Lets’ put some weekly numbers in perspective.

2197 tonnes were withdrawn in total in 2013, which was an average of 42.25 tonnes (2197/52) per week. The year to date weekly average is 39.68 tonnes, heading for 2036 tonnes in total in 2014 – though I think it’s impossible to make a fair estimate for this year’s total. The price of gold could be heading lower sparking another buying spree as happened in April 2013, or the price could go higher, possibly slowing down global gold distribution and SGE withdrawals.

However, in my opinion it’s unlikely withdrawals will stay below 35 tonnes a week at current prices. If we look at the six months period before April 2013, the weekly SGE withdrawal average was 34 tonnes, while the price of gold hovered around $1700 back then. I can’t think of any reason why the Chinese would buy less gold, the precious metal they recognize for its true value, when gold is dirt cheap at $1300. One reason that certainly would dampen SGE withdrawals would be western supply running dry – most of Chinese gold demand is supplied by imports – but from looking at SGE premiums this is not the case yet, as premiums have been negative/zero since weeks.

Overview Shanghai Gold Exchange data 2014 week 16

– 29 metric tonnes withdrawn in week 16 (14-04-2014/18-04-2014)

– w/w + 35.22  %

– 635 metric tonnes withdrawn year to date, + 10 % year to date.

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

Shanghai Gold Exchange withdrawals 2014 week 16

This is a screen shot from the weekly Chinese SGE trade report; the second number from the left (blue – 本周交割量) is weekly gold withdrawn from the vaults in Kg, the second number from the right (green – 累计交割量) is the total YTD.

Shanghai Gold Exchange withdrawals week 16 2014

This chart shows SGE gold premiums based on data from the SGE weekly reports (it’s the difference between the SGE gold price in yuan and the international gold price in yuan).

Shanghai Gold Exchange premiums week 16 2014

Below is a screen shot 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 week 15 and 16 2014

In Gold We trust

Koos Jansen
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  • Jeffrey

    They may be bringing in more secretly and keeping these levels down! If they want to be more secretive they can easily do this! Demand is very robust!!!! Amazing as an American, China and Russia will ensure American citizens future more than the US gov´t will by simply buying the money of the people, gold!

  • Guy

    Hi Koos,
    Could it be that the SGE is putting out lower numbers than what is really flowing out? This would be to keep the extent of their buying secret, like their move to import more via Beijing instead of Hong Kong, so we cannot see what they are doing.
    What do you think? Is that a possibility?
    Guy

    • In Gold We Trust

      All imports must be sold through the SGE. I’m convinced its the best benchmark there is.

  • Jeffrey

    Anything is a possibility, governments lie and deceive all the time! Anything is possible Guy!

  • Lulzasaur

    Hi Koos,

    I was just wondering if anyone has stopped to think exactly why China is buying so much gold. I know this may seem like a redundant question, but a lot of the reasons seem to contradict each other.

    For example, it doesn’t make sense that they are looking to dethrone the dollar when they hold so much of it in reserve (or dollar-backed securities). According to Rickards, they hold something in the nature of $4trillion? If this is so, any further devaluation of the dollar would net them huge losses. This would not be in their best interest.

    However, Rickards points out that they could be buying gold as a hedge against the dollar. Again, the math for this doesn’t exactly pan out. At $1,300/oz (average price) and estimated 4-5k tonnes of gold in reserve (and let us assume they are trying to hedge a 10% drop in the value of their USD holdings which would equate to around $400B)…gold would have to be in the ballpark of $2,500/oz to serve this purpose. Unless the central planners are hoping for a huge upswing in the price of gold (this is the realm of speculation), this doesn’t seem too likely from a central planner’s perspective.

    So, this leaves the question. Why is China accumulating so much gold? I will defer to you Koos and the other members on this board. These musings are from someone who does not know a whole lot so please correct me where my assumptions are wrong.

    • In Gold We Trust

      This is why the PBOC is accumulating gold (some of these reasons also fly for Chinese citizens).

      – Supporting the renminbi for its internationalization (adding trust and credibility)
      – Owning hard currency as the cornerstone of capitalism.
      – Owning reserves that protect the Chinese economy from external/internal shocks and inflation.
      – Owning reserves that have no counter party risk (not someone else’s its obligation)
      – Owning reserves that are scarce.
      – Owning reserves that are not controlled by a foreign nation (the US).
      – Diversifying its excessively large USD reserves prior to an irrevocable USD devaluation.
      – Hedge their exorbitant USD reserves.

      • Roacheforque

        Well stated Koos!

      • Lulzasaur

        Thanks Koos. Very well stated.

        While I do not disagree with you on those points, I am not convinced the gold market is liquid enough to handle an exchange of dollars for gold. Hence the predominance of US debt all over the world (the only instrument that has enough liquidity to serve the needs of nations). If the PBOC’s main reason is to diversify away from the USD, wouldn’t we see them purchasing other hard assets and/or currencies at a similar pace to gold?

        It makes sense that they would want to keep their gold purchases a secret, but it would take a LOT of gold to diversify them away from $4trillion in USD….unless there is a large revaluation of dollars and gold. However, I don’t think they would want to damage US relations by revealing gold reserves.

        Please note, all this is just speculation without hard numbers. I am just trying to figure out if the PBOC would ever have any incentive to reveal their gold reserves. So far, I see no reason to do so.

        • Michael Yates

          China is purchasing other assets, lots of them! They own around 50% or more of world cotton supply, huge %’s of world copper, iron ore, lumber, and all kinds of fords like wheat, corn, soybeans, etc.
          Oh, they’re the ultimate prepper alright. Right behind the US govt with its 100 year underground survival capabilities for tens of thousands.

  • Holy Moly

    Just listened to the interview of Felix Zulauf on Kingworldnews. Whereas I don’t listen to KWN

    that much anymore due to Eric always interviewing the same people and talking about the finanical armagedon without interruption, this interview with Felix positively surprised me. Felix makes a good case why the Chinese are buying all this gold and encourages their people to do the same. Essentially Felix is saying that China has rightfully realized that the Chinese economy is starting to saturate and Chinese economic growth is slowly (but steadily) declining. Hence China decided to internationalize the RMB (read: devalue the currency) in order keep exports levels competitive. To keep the Chinese people from revolting due to the devaluation of their money, China strongly suggests that everyone should buy gold. Naturally in the long run, China would want to attack the dollar and install the RMB as the world reserve currency, but that does not appear to be on the agenda right now. It would not make any sense either given the still huge amount of $ reserves that China holds.

  • Navigator
  • Dark Horse

    Is there any way of determining how much of the withdrawals from SGE go to public (wholesale/retail) vs PBOC central bank?

    A close Chinese friend of mine mention that the greater majority of Chinese live day to day.

    She feels the bulk of the Chinese buying gold are the “smart money” who know things are falling apart and see gold as a fear trade/flight capital, although they are not rich enough to get out of China.

    The really wealthy are not as worried about gold as they are getting their wealth out of China.

  • Navigator

    In 1934 dollars gold today is at $14.78 per ounce.

    http://www.financeandeconomics.org/fmq-update-and-valuing-gold/

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