Koos Jansen
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Koos Jansen
Posted on 13 Feb 2015 by

SGE Withdrawals 59t in Week 5, YTD 315t. What is China Up To With All This Gold?

The day after the World Gold Council (WGC) released Gold Demand Trends Full Year 2014 in which they audaciously pretend Chinese gold demand last year was 814 tonnes, we can read from the Chinese SGE trade report of week 5 withdrawals from the vaults have been 59 tonnes. Year to date (– February 6) withdrawals from the vaults of the central bourse in China stand at 315 tonnes. In perspective, during the first five weeks of 2015 Chinese wholesale demand has been 39 % of what the WGC disclosed as total consumer demand in all of 2014.

Screen Shot 2015xxx-02-13 at 10.00.25 AM
Red (本周交割量) is weekly gold withdrawn from the vaults in Kg.

More perspective; corrected by the volume traded on the Shanghai International Gold Exchange (SGEI), withdrawals in week 5 were at least 42 tonnes (read this post for a comprehensive explanation of the relationship between SGEI trading volume and withdrawals). Year to date withdrawals corrected by SGEI volume were at least 289 tonnes.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 5, dips

Shanghai Gold Exchange SGE withdrawals delivery only 2014 - 2015 week 5, dips

Because of the importance of clarifying the mysterious gap between what the WGC discloses as Chinese gold demand in 2014 (814 tonnes) and the amount of gold we saw being supplied to China (at least 1,200 tonnes import, 452 tonnes mine output and 182 scrap supply = 1,834 tonnes), I would like expand on this subject in a separate post.

One quote I wish to share here; when I was researching Chinese market and reading through an old Alchemist copy (#75, page 11), my attention was drawn to a transcript from a keynote speech delivered by Jeremy East at the LBMA Bullion Market Forum in Singapore on 25 June, 2014. He made a remarkable comment we shouldn’t neglect when analyzing the Chinese gold market:

Why are the Chinese Buying?

So what is going on in China? Why are the Chinese buying? It only seems to have been happening over the last few years. What is going on?

China’s Gold Friendly Strategy

I was at the Shanghai Derivatives Forum at the end of May and one of the speakers was a representative of the [China] Gold Association. He gave us quite an interesting insight into the flavor of what is going on in China from a strategic perspective. Some of the things he talked about included that China planned to change the landscape of world gold markets. He talked about having a strong currency and about having that currency backed by gold, like the US dollar. He also talked about people holding more gold and encouraging more people to hold gold. That is not just individuals, but also the central bank. From that perspective, it is also getting gold into the country in terms of encouraging domestic gold production, but also investing in international mining companies and sourcing the product from them. China has got a very friendly gold strategy. 

There you have it, China is planning to change the landscape of world gold markets and strengthening the renminbi through supporting it by gold. Therefor it’s in the interest of the People’s Republic Of China not only Chinese individuals hoard gold, but the central bank as well. To achieve this mining and import is stimulated by the State Council.

Remember what Zhou Ming, General Manager of the Precious Metals Department at ICBC, said at the same conference?

…a new global currency setup is being conceived.

Mr East’s statement fits right into what we see the Chinese are doing; accumulating massive amounts of gold, developing their gold market, internationalizing their gold market and the renminbi. This little peak at the China Gold Association’s chessboard is more confirmation of where we’re going! Gold is making its way into the international monetary system.

Koos Jansen
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  • Zac

    Unless you saw an increase in the counter party risk or had a pressing need for cash, why would you withdraw from the vaults. Surely if gold buying in China was up, the vault volume would rise with it?

    • esqualido

      Not everyone trusts banks to hold their gold for them

  • Dress

    You can’t kill gold. Gold is heaven made. Gold never left the international monetary system. It has only been downtalked by the Western central banks who prefer printing money. But they are the big holders of gold. Their hypocrisy is so obvious.

    • http://churchofsmoke.org/ Jose

      But you can steal gold with worthless paper. Why would anything want to link their money with gold unless everyone does it?

      • farang

        Yes, NOW one CAN “steal gold with worthless paper.” It is a wonderful thing for those with the foresight and intestinal fortitude to ride out the tidal wave of Fiat Currency sweeping the globe. Grab a gold or silver surfboard, join in!

        Jose, let me assist you: the nation that backs their currency with gold, like the US Constitution states, is the nation that then has paper that is “good as gold”…i.e., it can be EXCHANGED for PHYSICAL GOLD. THIS will STRENGTHEN that currency against plunges in value, like the Euro losing 30% of it’s value against the Swiss franc in ONE DAY.

        Hence no need to actually USE gold in transactions, yet it restricts the bankster’s ability to print paper currency without gold backing. That is why the US used to have paper notes that were “Gold Certificates” and “Silver Certificates”, denominated in $50 and $20 dollar amounts. Not “Federal Reserve Notes” backed by nothing but “Faith.”

        If you still have trouble grasping this concept? Then hoard Faith Paper, and “Hope” for the best….and duck when the Surfers pass by…..

        • http://churchofsmoke.org/ Jose

          When did I ever say I had faith in paper?

          Paper gold and silver certificates are not worth any more than their paper face value except maybe a premium for collector value. I’m not saying gold and silver are bad investments, I’m saying no country is ever going to go back to that standard for their money.

          And no one is going to go back to carrying gold and silver coins to market to buy food. Even in your apocalyptic scenario, there will be local digital currency.

          I can see trading gold and silver for digital currency like at a pawn shop, but never back to a gold standard.

  • http://www.MylesMoney.com/ Myles Money

    With every other major economy trashing their currency, why would China want a strong RMB? Surely that would be counter-productive for them, wouldn’t it? How would they compete with exports? Whatever the reason, if they were to back the RMB with gold (lots and lots and lots of gold) it would be a massive game-changer, wouldn’t it?

    • KoosJansen

      The policy of having a weak currency because that’s good for a nation’s economy is a Keynesian myth. It’s only a short term fix, in the end it destroys the economy. Compare Germany to Italy.

  • Doolie
  • http://www.roacheforque.blogspot.earth/ Roacheforque

    It is not so much a “gold backed” currency, but rather an equity based monetary system they are envisioning. See the equity stake they take in partnerships (with Russia, Brazil, South America) as opposed to debt positions. This fiat debt-based, dollar-centric global monetary and financial system, as we can clearly see all around us, is inherently unstable …

    “A system that is built upon equity positions is much more stable, as
    equity agreements are entered into with much more gravity. If both
    parties share in the risks and rewards of future performance they will
    take everything more seriously. Also, equity agreements are based on the
    flexible assumption of variable future performance! A much more realistic assumption.

    Finally,
    equity agreements by their very nature are more tied to the size of the
    real physical world than are debt agreements which are created at the
    drop of a hat.”

    In such a system gold does not “back” currencies, it denominates them. In today’s debt centric mania, paper currencies denominate gold. Naturally, China will “acquire all this gold” with all this paper debt. Perhaps, if you have the patience to read it, this will be of some relevance:
    http://fofoa.blogspot.com/2009/12/metamorphosis.html

    • KoosJansen

      Did I say “gold backed”?

      • http://www.roacheforque.blogspot.earth/ Roacheforque

        No Koos – nor did I say you did. I was responding to the bolded quote: “He talked about having a strong currency and about having that currency backed by gold, like the US dollar.” We live in an era where the way forward is so unclear that even policy officials who are “pro gold” do not seem to fully understand why they are. Or if they do, they sometimes are for the wrong reasons. The issuers of the US Dollar surely do not believe it to be “backed by gold” and there are serious questions (raised here and elsewhere) as to whether it is or not, and to what extent. It is encouraging that producer nations are in favor of holding physical gold as wealth reserves (instead of US debt) but if they only understand this in terms of restoring Bretton Woods or any former entanglement of gold with currencies / credit / debt then they have the wrong “fix” (pun intended). Free markets is the solution, not debt “as good as gold” or “debt priced in a fixed-weight of gold”. This entangles the core purpose of the Misean with that of the Keynesian, it confuses the goal of the saver with that of the spender. It conflates the ideals of the producer with that of the consumer.

    • esqualido

      “A system that is built upon equity positions is much more stable, as equity agreements are entered into with much more gravity.” Those are exactly the terms in which paper money, vaguely backed by property confiscated from the Church and the aristocracy was introduced into France ( read Andrew Dickson White’s Fiat Money Inflation in France (now free on line at Gutenberg.org). SDR’s and other arcane indefinables don’t cut it.

  • rowingboat

    The WGC collects “consumer” demand data, i.e. the small money which they can measure. Not the big money, which they can’t and include in their residual ‘stock flow’ line.

    As well as China, look at the UK. Annual consumer demand is <20mt yet the UK by my calculation imported 5400mt (net) from 2001-12. If bullion banks accumulated several thousand tonnes for rich clients and stored it at the BOE, how would the WGC or anyone else know about it? Same applies to China.

    Much of the WGC data is actually very useful within the right context and trying to fit it into a bigger picture.

    • KoosJansen

      UK and China or not comparable. Import is not demand usually.

      If it where just for the WGC nobody had any idea what was going on in China.

      • rowingboat

        Of course import is demand. Compute what USA, Switzerland and the UK net imported during the GFC years in particular. That surge was big money pulling gold to their vaults and not merely a coincidence.
        Now that institutions are similarly pulling gold into China, WGC can’t measure those flows either but like these other countries, we do have the import data providing a more complete picture.
        I think the WGC provides a good representation of what’s going on at the consumer level in China, but not demand within the financial system where the big money operates. The WGC can improve by examining bank balance sheets as Scotia Mocatta (?) suggested and correlating that with what they know about Chinese consumer demand and imports/exports.

        • jj

          Of course import is demand. Compute what USA, Switzerland and the UK net
          imported during the GFC years in particular. That surge was big money
          pulling gold to their vaults and not merely a coincidence.

          *******

          I don’t think you can look at imports alone and come to the conclusion that the gold ended up in their vaults .. you need to also look at their exports and where those exports ended up in order to come to any sort of conclusion ..

          http://www.acting-man.com/blog/media/2014/06/CHART-7-swiss-gold-imports-exports.png

          This is a good read (imo) with lots of data ..

          http://www.acting-man.com/?p=31203

          • rowingboat

            That’s right and I am talking about “net” flow, imports minus exports.

            What Koos is attempting to argue is that net imports into the UK aren’t really demand and cannot be compared to Chinese demand… that the gold flow into UK is “floating” somehow without ownership, which is BS.

            Great to see you referencing acting-man.com. Pater is one smart dude who used to post under the name “Trotsky” 15 years ago on the Kitco gold forum. I still read him daily.

  • http://churchofsmoke.org/ Jose

    These repeated stories are laughable. No way is any country going to go on to a gold standard so America can steal their gold by printing money out of thin air.

    • DameEdnasPossum

      You’re too reliant on Sesame Street to gain your flawed understanding of the world.

      • http://churchofsmoke.org/ Jose

        No doubt Sesame Street is a more reliable source of information than any source that says we’re going back to the gold standard.

        • DameEdnasPossum

          Ha ha…yeah. So says Jose the central banker. Is that you Mr. Yellen? Or kamikaze Kuroda-San perhaps?

          • http://churchofsmoke.org/ Jose

            What do you think is going to happen when technology makes it cheap to convert tungsten or some other material into gold? Fusion technology is already converting nickel into copper and generating power in the process.

            At one time aluminum was considered for a monetary metal when its value by weight was equal to gold.

            Whoever thinks we will go back to a gold standard is nuts.

          • jj

            At one time aluminum was considered for a monetary metal when its value by weight was equal to gold

            ********
            And it still is that way .. you can measure any commodity or service by the weight of gold .. just like you can the dollar or any other currency at the time of the trade

            Closing the gold window allowed for the fiasco we have today .. opening the gold window will be the only way out of this shit show ..

          • http://churchofsmoke.org/ Jose

            Aluminum as a monetary metal has done about as well as fiat currency you fool.

          • jj

            jose ..
            You need to go back to school rube ..

            You can value aluminum or oil or wheat or gold or any other commodity by the trade value with each other in the moment ..
            Figure this one out idiot ..
            btw troll .. i’m done wasting my time with you ..

            Aluminum increase over 15 years = 20%

            http://tinyurl.com/jwxod5p

            Gold increase over 15 years = 316%

            http://www.infomine.com/ChartsAndData/Gr

            aphEngine.ashx?z=f&gf=110575.USD.ozt&dr=

            max

          • http://churchofsmoke.org/ Jose

            20% is close to zero and varies from the points in time you cherry picked.

            Have you ever heard of past performance is no indication of the future? I do suggest you have some gold and silver. Putting most or everything you have in it is foolish.

          • DameEdnasPossum

            Jose…keep taking those hits from the bong maestro.

            You think you’re clever…but you’re not.

          • http://churchofsmoke.org/ Jose

            Your whole future depends on a Mad Max scenario. I am certainly much more clever than you.

          • http://churchofsmoke.org/ Jose

            20% is the buy/sell difference for some of you clowns.

          • http://churchofsmoke.org/ Jose

            The price of aluminum in 1900 was $80/lb.

            Put that in your pipe and smoke it.

          • http://churchofsmoke.org/ Jose

            Three Graphs That Resource Pessimists Don’t Want You to See » aluminum

            http://blogs.cfr.org/levi/2013/03/27/three-graphs-that-resource-pessimists-dont-want-you-to-see/aluminum/

            You will see a very negative move on aluminum over the past 100 years.

            Technology makes your ancient relic very unpredictable.

          • DameEdnasPossum

            And there was me thinking you said that past performance is no indication of future performance (although you couldn’t put this together as a complete sentence). Silly me.

            You’ll have to either troll elsewhere little man…or crawl back under your rock and focus on your drug-induced pontifications.

            We invest based on economic fundamentals – often despite the obvious criminal manipulations. We constantly see clowns like you trying to dissuade us with nonsense innuendo, conjecture and bullshit rationale.

            You’re wasting your time. There is only ridicule waiting here for you.

          • http://churchofsmoke.org/ Jose

            Unfortunately there is insufficient ridicule to do justice to your unending ignorance.

            I never said you shouldn’t have a stash of gold and silver. I will say that it is dumb to base your economy and life on it in the modern age.

          • http://churchofsmoke.org/ Jose

            If you want a recommendation on what to buy, stock up on silver here. If some day silver drops to the price of nickel, at least you will have coins over fifty years old.

            http://www.apmex.com/search?q=90%25%20silver

          • http://churchofsmoke.org/ Jose

            Did you look at that graph of aluminum and take note how cherry picked your 20% is?

          • DameEdnasPossum

            Jose…you’re hilarious matey.

            Gold as money is ‘nuts’…because: Alchemy.

            :) back to Sesame Street bud.

          • http://churchofsmoke.org/ Jose

            Money isn’t something you lose 15% from the instant you get it and turn around to spend it. That is the case with gold and silver unless you own a bullion business in which case you have the overhead, risk, and taxes of a business.

            Marijuana is closer to money than gold. I was with someone once who got $5 of gasoline for a joint.

          • KoosJansen

            You remind me of socalbeachdude http://disq.us/8m6hgp

          • http://churchofsmoke.org/ Jose

            I doubt it will be long before a much cheaper substitute for silver comes along that has lower electrical resistance to be used in things like solar cells.

            The same thing happened to gold in the production of integrated circuits. Something better and cheaper came along just like it did for photography.

    • esqualido

      If you had gold-backed money in your hands, e.g., gold certificates known as “dollars” before 1933, you would not exchange them for any old piece of paper issued by some banana republic, would you?

      • http://churchofsmoke.org/ Jose

        How much are those gold certificates worth now? You people are crazy.

        • esqualido

          1933 was a historical reference. The sucking sound that H. Ross Perot associated with jobs leaving the U.S. could as easily apply to money going to any nation that produces legitimate gold certificates today. And it is certainly within the realm of possibility (to the extent that not everyone has drunk the Keynesian Koolade

          • http://churchofsmoke.org/ Jose

            The point is if you were suckered back on to another gold standard you could end up with another pile of worthless gold and silver certificates.

  • esqualido

    When the country that invented fiat actually produces gold certificates (dollars!) such as existed before 1933, I’ll believe in their talk about gold backing

  • northriverjake

    Somewhere I read that the PBOC does not purchase gold through the SGE. Is this correct? Is all the gold that is withdrawn from SGE being bought by Chinese consumers or their hedge funds?

  • 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

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