Koos Jansen
BullionStar Blogs
Koos Jansen
Posted on 17 Nov 2014 by

SGE Withdrawals Strong, China Increases Solar Power

Another very strong week for Chinese wholesale gold demand, measured by withdrawals from the Shanghai Gold Exchange. In week 45 (November 2 – 7) physical withdrawals from the vaults accounted for 54 tonnes. My basic equation tells me more than 40 tonnes had to be imported to meet this demand. Year to date 1708 tonnes have been withdrawn from the vaults and this number will likely surpass 2,000 tonnes by year end as December and January are seasonally the strongest months.

Shanghai Gold Exchange withdrawals 2014 week 45, dips

As we can see in the chart above, the Chinese are quite eager to buy gold on the dips. SGE premiums were again pushed upwards last week by the new lows in the price of gold. The inverse relation is demonstrated in the next chart.

Shanghai Gold Exchange gold premium
When the price of gold goes down SGE premiums go up and vice versa.

I would like to share a thought: The SGE premium chart illustrates the largest physical gold buyer on the planet has an increasing interest in buying gold, rising premiums, over the interest of the seller when prices decline. What we’re seeing is increasing demand from the largest physical buyer and falling prices concurrently. I wonder if this would be possible without a paper market.

The Shanghai International Gold Exchange

The Volumes on the Shanghai International Gold Exchange (SGEI) are weakening in recent weeks. On November 6 only 2 Kg were traded, the total for the week ended at 801.5 Kg. Low SGEI volumes are improving  our estimates of Chinese wholesale gold demand. On October 30, I wrote:

Chinese law dictates all gold bullion imported into the mainland (in general trade) by commercial banks is required to be sold first through the SGE. If gold is imported into the Shanghai FTZ it’s officially not imported into the mainland. The thing I’m not sure about at this stage is, if Chinese banks buy gold on the SGEI, withdrawal this from the vaults in the FTZ and import it into the mainland, is this required to be sold through the SGE again (?). My common sense would say no, but I need to have it confirmed by the SGE.

This week the SGE confirmed to me gold bought by domestic banks on the SGEI and withdrawn from the “International Board” Certified Vault in the Shanghai Free Trade Zone (FTZ) to be imported into the mainland is not required to go through the “Main Board”/SGE (click here  for an introduction on the SGE, SGEI, IB, MB, FTZ, etc). Meaning: the volume traded on the SGEI can distort Chinese wholesale gold demand measured by SGE withdrawals numbers. This is because we simply don’t know who the SGEI traders are; domestic banks from the mainland that buy and withdrawal gold to import – in this case withdrawals would count as Chinese demand – or for example buyers from Singapore – in this case withdrawals would be exported to Singapore?

If the SGE and SGEI would separate withdrawal numbers  in the future (as I have requested) it would still be a guess how much Chinese wholesale gold demand is measured by SGE withdrawals, as domestic banks can withdrawal from the SGE and SGEI vaults for the domestic gold market. It would be better than the current situation as SGEI withdrawal numbers could be either foreign or domestic demand, making SGE withdrawals the bottom limit representing Chinese wholesale gold demand.

However, SGEI volume is very low at this point, so we can safely measure Chinese gold demand by SGE withdrawals.

The Chinese Silver Market

Silver on the Shanghai Futures Exchange (SHFE) has been trading in backwardation for over two months. Physical silver supply remains tight in my opinion.

SHFE silver backwardation November 14, 2014

SHFE silver inventory has stabilized at 125 tonnes.

SHFE silver inventory, November 14, 2014

 SGE silver premiums (discount) bounced up on -8 %. 

Shanghai Gold Exchange SGE silver premium 2013 2014

There was interesting article from Bloomberg last week about China’s ambition to increase it’s solar power supply in local rooftop projects to fight its pollution problem. As you may know solar panel fabrication requires silver. From Bloomberg:

China Hunger for Clean Energy to Leave No Rooftop Behind

China expects to install as much as 8 gigawatts of small solar systems this year, more than 10 times what was built last year.

The push to promote wider use of rooftop solar comes amid growing health concerns tied to smog within its own population and from foreign companies. It also adds to the nation’s push to be a leader within the global climate community.

China’s National Energy Administration introduced policies in September aimed at boosting the use of distributed solar power.

The agency asked local authorities to identify potential sites for rooftop plants and smaller, ground-mounted projects. These would include industrial and commercial companies with large rooftops, and public buildings such as railway stations and airport terminals. China has set a goal of installing 8 gigawatts of small systems this year and 6 gigawatts for larger projects.


Silver volume on the SHFE was strong in week 46 (November 10 – 14) at 88,370 tonnes, up 7.9 % from the previous week. The Open Interest (OI) fell 6 % to 6,183 tonnes.

Silver volume on the COMEX was 51,473 tonnes, up 1.4 % from the week before. The OI closed at 27,000 tonnes.

COMEX vs SHFE silver volume & open interest

Gold volume on the SHFE was also up in week 46 at 832 tonnes, up 9.2 % from the previous week. The OI marginally increased to 141 tonnes.

Gold volume on the COMEX was 3,909 tonnes, up 14 % from the week before. The OI closed at 1,418 tonnes – which is ten times the gold OI on the SHFE.

COMEX vs SHFE gold volume & open interest

Koos Jansen
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  • Bill E.

    Would it be wise to build 8 gigawatts of Solar Panels on factory roof tops in China before their air is clean enough to allow the sun to shine through? Any one here know how many tons of silver it takes to build eight gigawatts of solar power? Or how many Chinese does it take to wipe the soot off said panels? Just wondering

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