Tag Archives: CPM Group

January Chinese Gold Demand All-Time Record, 247 Tons

Sorry for the delay in my weekly reporting on SGE withdrawals. Due to the Chinese Lunar new year the SGE was closed from 31-01-2014 til 06-02-2014 (dd-mm-yyyy) so I had to wait a bit longer for the publication of the numbers. What they eventually released were the trade numbers from 5 trading days, January 27 – 30, and February 7.

Lets skim through the news first. Bloomberg just reported that Chinese gold usage, according to the China Gold Association, in 2013 was 1176 tons. First of all I don’t understand this new term usage, nor have I ever understood the term consumption regarding gold. If you have some knowledge of gold you know it’s never consumed, gold is immortal and will be recycled till the end of times. Its immortal property is one of the reasons why it’s the most marketable commodity, hence we started using it as money thousands of years ago. The other reasons are it has the right scarcity, its divisible and subsequently small units can be merged/melted into a large unit (a proces which can be repeated to infinity without any loss of material).

Having said that; How can gold demand (I assume that’s what they mean by usage) be 1176 tons, when China mainland net imported 1123 tons just from Hong Kong, domestically mined 428 tons, and additionally net imported gold through other ports? Regular readers of this blog know the number 1176 tons of demand is false, it was in fact 2197 tons as my research has exposed.

Other mainstream news outlets (like the Financial Times and the Telegraph) are slowly starting to scratch their heads about the Chinese gold market. It won’t take years before the Chinese will fail to hide their true insatiable demand for physical gold. Since 2008, after Lehman fell, the China Gold Association (CGA) has changed the way they measure gold demand. In 2007 they reported in the CGA Gold Yearbook:

In 2007 the amount of gold withdrawn from the warehouses of the Shanghai Gold Exchange, total gold demand of that year, was 363.194 tons of gold, an increase of 48 % compared to 2006…

In other words, SGE withdrawals equal total Chinese demand (in 2013 SGE withdrawals accounted for 2197 tons), as I have been writing about for months! Starting in 2008 the CGA switched measuring gold demand from wholesale level (SGE withdrawals) to retail level in order to suppress demand figures. This way they were able to hide investment demand. (for my full analysis read this)

It’s remarkable the CGA publishes these suppressed demand numbers, which are being copied by western media without any second thoughts, while at the same time the CGA has written reports, which are being ignored by western media, that state Chinese demand surpassed 1000 tons (it was 1043 tons to be precise) in 2011. From The China Gold Market Report 2011, page 28:

Deregulation of the gold control to open the gold market to the public in 2002 led to the constant rise in China’s gold demand, which unprecedentedly exceeded 1,000 tons in 2011…

The China Gold Market Reports 2007 – 2011 all state Chinese demand equals SGE withdrawals (due to the structure of the Chinese gold market designed in 2002). Since 2011 the CGA ceased publishing the China Gold Market. Chinese demand was such that it became uncomfortable for the Chinese authorities to lay their cards on the table.

To continue to report on suppressed demand numbers the CGA has recently signed a partnership with CPM group. Together they hope to gain more credibility in spreading incomplete data – for as long as it holds.

CGA CPM group partneship

For the CGA this is all strategics. I wonder if CPM Group knows what CGA president, Sun Zhaoxue, writes about the gold market in the Chinese media. Allow me to quote a few snippets from exclusive translations I published here and here:

…the United States intends to suppress gold to ensure the Dollar’s dominance, the fall in the price of gold was premeditated, and a part of the currency war.

…The hottest topic at the moment is oil and gold. The ground war we are seeing around the world is I think war for oil whereas gold is the currency war.

…The US owes Germany so much gold but instead of repaying immediately, it sets a 2020 deadline to return the gold. From this example and process as well as some typical factors, this is a downright currency war to maintain the US Dollar hegemony by defeating all other currencies.

…Gold now suffers from a ‘smokescreen’ designed by the US, which stores 74% of global official gold reserves, to put down other currencies and maintain the US Dollar hegemony. Going to the source, the rise of the US dollar and British pound, and later the euro currency, from a single country currency to a global or regional currency was supported by their huge gold reserves. 

…In the global financial crisis, countries in the world political and economic game, we once again clearly see that gold reserves have an important function for financial stability and are an ‘anchor’ for national economic security.

…We need to establish a more clear national gold strategy, continue to grow gold reserves and progressively become a ‘gold-reserve’ nation that is commensurate with the country’s economic strength.

 …To fundamentally solve these problems, the state will need to elevate gold to an equal strategic resource as oil and energy.

In addition, because individual investment demand is an important component of China’s gold reserve system, we should encourage individual investment demand for gold. Practice shows that gold possession by citizens is an effective supplement to national reserves and is very important to national financial security.

In short, Sun knows the world is in a currency war and in war time China will keep it cards close to its chest. I hope the SGE doesn’t stop publishing withdrawal numbers, it’s the best benchmark we have at this moment.

Shanghai Gold Exchange Withdrawal Numbers January 2014

Withdrawals from the Shanghai Gold Exchange vaults in January 2014 accounted for 247 tons, which is an increase of 43 % compared to January 2013. It’s also more than monthly global mining production and an all-time record! China mainland mines about 35 tons per month which is required to be sold first through the SGE. The other 212 tons (247 – 35) had to supplied by import or recycled gold. My estimate is that scrap couldn’t have been more than 25 tons, so import in January was a staggering 187 tons. China is still draining the vaults in the west BIG TIME!

SGE vs COMEX ™ Jan 2014

Because the last SGE weekly report covers four days in January and one in February, I multiplied the weekly amount by o.2 and subtracted the outcome from the year to date number to get to the January total. This number may be revised when the SGE publishes the January monthly report, but I don’t expect a significant change.

[Update 14-02-2014, January SGE withdrawals were 246, I was one ton of, still a record.] 

Overview Shanghai Gold Exchange data 2014 week 5 and 6

– 40 metric tons withdrawn in 5 trading days of week 5 and 6   (27-01-2014/07-02-2014)

– w/w  – 29.9 %

– 256 metric tons withdrawn year to date

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

SGE withdrawals 2014 week 5,6

This is a screen dump from the 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.

SGE withdrawals January 2014

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).

SGE premiums

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.

SGE premiums

In Gold We Trust

Open Letter To CPM Group

To CPM Group,

On January 15, 2013 CPM Group released a Market Alert addressing the facts and fantasies being spread throughout the mainstream media and the financial blogosphere regarding Chinese central bank gold purchases. An endeavor much appreciated by me as I’m highly concerned with credible figures. In the article various subjects about the Chinese gold market are discussed, not on all do I wish to comment, but there was one I feel obliged to respond to. At one point CPM stated:

One of the commentators added gold deliveries via the Shanghai Gold Exchange to gross supply figures, apparently unaware that the gold involved in these deliveries gets re-delivered repeatedly via the exchange over time. Adding this gold to supply is confusing new supply with market turnover. 

Because I have been the most active reporter on SGE deliveries (or actually withdrawals) chances are this “one commentator is me. Hence my desire to share my point of view on this matter. I have written extensively on this in the past (which you can read hereherehere and here) but would like to present the rules as disclosed by the SGE and the implications from it on Chinese demand for physical gold once again.

Physical delivery on futures exchanges relates to the amount of gold in the vaults of the exchange that changes ownership after settlement between long and short contracts, a process that in theory can be repeated to infinity and therefore a completely inaccurate indicator for physical supply and demand. The Shanghai Gold Exchange, however, does not only publish data on physical delivery, they also publish data on the amount of physical gold that is being withdrawn from the SGE vaults. There has been confusion about the difference between SGE deliveries and withdrawals because the SGE has been naming withdrawals as deliveries inconsistently. The numbers I’ve published on this website always related to the withdrawals from the SGE vaults (these numbers are only released by the SGE on their Chinese website).

The crucial SGE rule that makes the withdrawal numbers significant is this: once SGE bars are withdrawn from the vaults they are not allowed to be re-depositedThis rule can be found in the SGE rule book (#23), and, for example, is disclosed on several ICBC webpages regarding gold products.

(2) According to the Shanghai Gold Exchange rules, physical gold taken out of the warehouse cannot be taken into the gold warehouse designated by the Shanghai Gold Exchange again.

To be absolutely positive please call the SGE (phone number; 0086 2133189588), they speak fluent English and will confirm this rule.

The rule implies these withdrawals can’t be re-delivered. The purpose of the rule is that SGE bars are granted to be of the highest quality, no one can counterfeit an SGE bar and bring it in the vaults. The same rule applies on the Borsa Istanbul:

Once gold bars have been released from the Istanbul Gold Exchange vaults, they cannot be re-admitted to the Exchange vaults. They must be melted again and assayed and tested by an Istanbul Gold Exchange approved authority. Such re-melted gold is admitted in the Istanbul Gold Exchange again essentially as new gold bars and can then be traded.

We can compare this type of policy with the LBMA Chain of Integrity. Bullion Management Group, which is an LBMA associate, states on its website:

If the documentation and the background checks passed scrutiny, then all bars coming from outside the Chain of Integrity are re-assayed and re-cast to Good Delivery standards.

The SGE rule, combined with the Chinese laws that require all imported and mined gold to be sold through the SGE, implies that the withdrawals are equal to total Chinese gold demand. The following quote is from the Chinese media, translated by Soh Tiong Hum:

China’s explosion in demand for physical gold in 2013 left a deep impression on international investors. The Shanghai Gold Exchange withdrawals for the year up till 27 December 2013 exceeded 2180 tons. Considering the exchange’s position as a hub for domestic gold circulation, in conjunction with a system that forbids withdrawn gold from re-entering inventory, to a large extent the withdrawals number can be treated as the best benchmark for physical gold demand in the Chinese market. Not to mention that the entire 2013 global mined gold production does not exceed 2700 tons. China’s massive demand has to a large extent remade the world’s gold circulation system. Newly mined and stocked gold is moving through trade links in London – Switzerland – Hong Kong – into China in a large scale orientation towards the East. The impact of China’s demand on international gold price will inevitably increase.

I sincerely hope this information will clear up some of the misconceptions of the Chinese gold market.

Kind regards,