In the second weekly report, that covers the five trading days from 6-1-2014 to 10-1-2014, today released by the Shanghai Gold Exchange we can read a spectacular amount of physical gold has been withdrawn from the vaults; 79 tons. Last week I wrote withdrawals were down, but could well pick up this month as China will celebrate Chinese new year on January 31, 2014 according to the Chinese Lunar calendar. And withdrawals did pick up..
This type of demand puts the physical gold market under severe stress, hence the scramble for gold in London a few days ago. “There is a shortage of big bars, especially good-delivery 400-ounce bars”, said Bernard Dahdah from Natixis “One part of the problem is that large quantities of these bars that have come from ETFs, have now been moved to be re-refined into three-nines bars of smaller sizes and are therefore no longer available to the London market.” The 1 month Gold Forward Offered Rate has been negative throughout the entire week Chinese demand was this strong. Until January 31 demand for physical could remain elevated, after which it will likely return to its average strong levels.
Next to insatiable physical gold demand from China, these are interesting times in the gold market as the German Federal Financial Supervisory Authority, Bafin, made allegations at banks saying “possible manipulation of currency rates and prices for precious metals is worse than the Libor-rigging scandal“, on January 17. The Financial Times reported in December, citing sources, that Bafin demanded documents from Deutsche Bank as part of a probe into suspected manipulation by banks of benchmark gold and silver prices. Maybe it’s not a coincidence that Deutsche Bank, one of five banks involved in setting these benchmark gold and silver prices, stated today that they will stop participating.
Overview Shanghai Gold Exchange data 2014 week 2
– 79 metric tonnes withdrawn in week 2, 6-01-2014/10-01-2014
– w/w + 120.9 %, y/y + 49 %
– 99 metric tonnes withdrawn year to date
This is a screen dump from Chinese SGE trade report; the second number from the left (本周交割量) is weekly gold withdrawn from the vault, the second number from the right (累计交割量) is the total YTD.
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).
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.