From looking at rising SGE withdrawals and Indian import in recent months, we knew demand was increasing consistently and huge amounts of physical gold had to be supplied from somewhere. As I’ve written in a previous post, this type of gold demand can’t be met by just mine supply and so the metal has to be sourced from countries that have large stockpiles, the usual suspects: the UK, Hong Kong and Switzerland.
In 2013 the UK was severely drained (net 1424 tonnes), last week we learned Hong Kong became a net exporter since August 2014, the latest trade data from Switzerland shows the Swiss net exported 100 tonnes of fine gold in October. 75 tonnes net to India and 45 tonnes net to China.
Customs data of the usual suspects (Switzerland, the UK and Hong Kong) is getting exciting; they can’t net export gold forever. We know there are often shortages in these trading hubs, it’s only the price of gold that tells us otherwise. The Financial Times reported there are currently shortages in London, from November 14:
As one refiner told me: “Over the past four weeks my cost of hedging has risen by 30 per cent. Not only that, but there is not enough liquidity in the physical market in London to settle my obligations as they come due. I have to fly gold from Zurich to London, because there just is not enough gold on offer in London. You never used to have to do that.”
Personally, I’ve heard statements, second hand, from a Swiss refiner that supply is extremely tight at the moment. Record lows in the GOFO rate suggest the same dynamics. Meanwhile demand in India and China is rising.
Even the World Gold Council is reporting on strong Chinese gold demand.
— World Gold Council (@GOLDCOUNCIL) November 18, 2014