Tag Archives: Hong Kong gold trade

Hong Kong Is The Key In Global Gold Trade, For Now

It began to dawn on me  when I was writing a post on May 27th about the Shanghai Gold Exchange international board. For the post I added a video from CNBC with Joshua Rotbart, general manager of  Malca-Amit precious metals, a vaulting company that recently openend a 2000 tonnes vault in the Shanghai Free Trade Zone (FTZ). In the video Joshua explains about his business in the FTZ. His position – bullion banks being his clients – gives him a lot of expertise with regard to global gold trade. Listen what he says on 1:40.

[youtube https://www.youtube.com/watch?v=g6fQOQtczpM]

So currently gold being transported to China, had to be imported only by local banks. So a lot of the time the gold is being parked out of China and only transferred and shipped into China when needed. What happens now, is that you can park the gold in the Free Trade Zone and it’s not considered final importation into China. Financial institutions can trade within the facility and then only upon request ship it to China.

Hong Kong Gold Trade With China Mainland

At this moment there are 12 banks (listed at the bottom of this article) that can import gold into China. These banks have a PBOC license to import gold, though for every shipment they need anew approval. Before approval the gold is “parked out of China”, like Joshua says. “…and only transferred and shipped into China when needed”, should be interpreted as only shipped into China when PBOC approval is granted. In the past years most gold that entered China mainland came in through Hong Kong. Why? Because Hong Kong was the parking spot for gold outside of China before it was allowed to be imported. This will soon change as the Shanghai FTZ will take over this role.

In 2013, the year Chinese demand for physical gold exploded, Hong Kong gross gold import was 2239 metric tonnes. The bulk of this was exported to China mainland (net 1158 tonnes), but a staggering 597 tonnes was left behind. Hong Kong is inhabited by 7 million people who couldn’t have bought 597 tonnes of gold in one year. According to my analysis most of Hong Kong’s net import is floating supply that was shipped to the East by the bullion banks, pending for a bid in Asia, likely from China.

Hong Kong gold trade January 2009 - April 2014
From January 2010 to April 2014 Hong Kong net imported 938 tonnes of gold.

Before we jump conclusions over the amount of gold in Hong Kong, I would like to expand on a few reasons that can put this amount in perspective. As some of …

  1. the gold is smuggled to the mainland. Illegally or tolerated by Chinese customs. In China mainland there is a 22 % tax on jewelry, in Hong Kong it’s zero %. Mainland tourist often go to Hong Kong specifically to buy jewelry. Chinese travel agencies even offer jewelry shopping trips to Hong kong. Whatever they buy is tolerated to be brought into the mainland by Chinese customs without restrictions (note, they’re are very stringent when it comes to gold export, only 50 grams per person). About half the jewelry sold in Hong Kong is bought by mainland tourists.
  2. the mainland tourist buy gold in Hong Kong and store it locally.
  3. the gold is smuggled to India or other countries in Asia. Click here for a newspaper article from 1969 about gold smuggling via Hong Kong. This practice has been going on for many decades.
  4. the gold is vaulted in Hong Kong by custodial companies from around the world, like GoldMoney (though GoldMoney only has 2 tonnes stored in Hong Kong).
  5. the gold is possibly purchased by the PBOC or its subsidiary SAFE, but I think this is unlikely. PBOC wouldn’t show up in any customs report.

These arguments are worth mentioning, but I think there still is a few hundred tonnes floating supply allocated in Hong Kong. We’ve heard stories from refineries in the West (Switzerland) that supply is running dry. Perhaps this is not the case in in the East (Hong Kong) – explaining the occasional discount at the Shanghai Gold Exchange.

Shanghai Gold Exchange gold premiums

In April 2014 Hong Kong net imported 13 tonnes, the lowest figure since February 2013. It will be interesting when Hong Kong becomes a net exporter. Have a look at their monthly gold trade since January 2013:

Hong Kong monthly gold trade January 2013 - April 2014

If we look at net import we can see gold piling up in Hong Kong after April 2013, when the price crashed and Chinese demand exploded. Not only the mainland net imported unprecedented amounts of gold throughout 2013, in anticipation there was also a lot parked outside, pending to be imported.

Because China is the largest buyer on earth and there is still a pile of gold waiting next door, the moment Hong Kong will be net exporting could be the tipping point in the physical gold market.

Hong Kong net exported 67 tonnes to the mainland in April, also the lowest figure since February 2013. This is in line with dropping Chinese gold demand in April, measured at the SGE. The link between Hong Kong net export to China en Chinese demand will soon be gone as banks are already moving gold into The Shanghai FTZ.

Hong Kong - China gold trade monthly January 2009 - April 2014

Year to date China net imported 354 tonnes from Hong Kong.

Hong Kong - China gold trade 4-2014

Gold Trade In The Rest Of The World

China was mainly supplied by the UK in 2013, that net exported 1425 tonnes over this period. Chinese demand has been “flat” since March, which caused the UK to become a net importer in April – for the first time since December 2012.

UK Gold Trade 2009 - April 2014

Based on historic trade data there is still bullion in London, that’s for sure, the question is how much of that can be sold when demand from the East will rebound. Though the UK was a net importer in April, they net exported 22 tonnes to Switzerland.

When we look at Swiss gold trade year to date, it’s clear that their booming refining business is fading; total import and total export is dropping – UK net import is down and also net export to Hong Kong is down. Switzerland did have a gold trade surplus every month in 2014, year to date they have net imported 131 tonnes, this is likely to be Western investment demand.

Switzerland gold trade April 2014


I’m very curious what’s gonna happen if physical demand for gold (mainly from China) will rebound in the coming months. Will the UK, US or Switzerland (net) export any gold? My eyes are on SGE withdrawals (Chinese demand) and Hong Kong net gold trade.

Are The London Gold Vaults Running Empty?

As I have extensively covered in the past months the majority of the unprecedented demand for gold from China, which started in January 2013, was being supplied by the UK, home of the London bullion market and many bullion bank (and private) gold vaults. Via Switzerland, where the gold was remelted into kilobars, it was shipped towards Hong Kong where most of it was re-exported to China mainland. Whilst in 2013 it was clear that the world’s largest gold-backed ETF, GLD, was the predominant supplier from the UK, since January 2014 GLD inventory has more or less stabilized.

GLD gold inventory

But UK gold export at the time remained elevated. In January 2014 the UK net exported 143 metric tonnes of gold (118 tonnes net to Switzerland), in February net export accounted for 107 tonnes (119 net to Switzerland). This gold must have been fully supplied from other vaults than GLD’s, which raises the question; how much floating supply is there left in London. I believe there is still a lot of physical gold in London (I will do a future post on some estimates), but I don’t know how much of this is floating supply.

Let’s head over to the east and see how much physical gold China has imported year to date, based on official trading statistics. If we look at the trade stats from Hong Kong we can see net export to the mainland in January was 89.7 tonnes, in February it was 112.3 tonnes and in March 85.1 tonnes. The amount that crossed the border in March was down 24 % from February, but still strong – 85.1 tonnes annualized is 1021.2 tonnes. The total in Q1 accounted for 287 tonnes, annualized 1148 tonnes (just to give you an idea).

Hong Kong - China gold trade monthly 3-2014

As we all know by now Hong Kong is not the only port through which China is importing gold. Though the Chinese are reluctant to disclose their gold trade numbers – guess why that is – from the trade statistics of other countries we can see a portion of how much gold officially vanishes in the black hole (China’s strong hands) not to return in the foreseeable future. Switzerland, where 70 % of the world’s gold refining capacity is located among four refineries, has been so kind to publish monthly reports on whom they trade gold with, and how much, since January 2014. The Swiss net exported 12 tonnes to China in January, 36.9 tonnes in February and 26 tonnes in March. If we add up Hong Kong and Switzerland net export to China in Q1 the outcome is 362 tonnes, annualized 1448 tonnes (just to give you an idea). Remember, this is only from two countries, it doesn’t include the kilobar shippings from the Perth Mint to China for example. Chinese gold import in Q1 has definitely been more than 362 tonnes – also because the official trade numbers I’ve used for this post do not include monetary gold, PBOC purchases will not show up in these stats.

It’s remarkable that Chinese net import in March, at least 111.1 tonnes (85.1 + 26), hasn’t been sourced from London, as it has been in the past year. UK total net gold export in March collapsed 85 % m/m from 107 tonnes in February to 16 tonnes in March, net export to Switzerland fell by 72 % from 119 in February to 34 tonnes inMarch. 

UK Gold Trade 2009 - march 2014

The main gold vein, as I’ve called it, that ran from the UK, through Switzerland, through Hong Kong finally reaching the mainland, is drying up. Switzerland net gold export to Hong Kong fell 76 % from 97.9 tonnes in February to 23.9 tonnes in March, according to Swiss customs.

Switzerland gold trade March 2014

In the coming months I’ll be watching very closely if any more gold will be squeezed out of London and how Swiss exports to Hong Kong and the mainland will evolve. I believe the largest floating supply is/was in London, it will be decisive for the gold market if these stocks are gone. Additionally I will search more customs databases to get hard numbers on gold export to China mainland.

The following video was broadcasted in December 2013. Kenneth Hoffman states that the London gold vaults were virtually empty at the time. Are the last bars being moved out at this very moment? The managing director of Switzerland’s biggest gold refinery stated this is exactly what is happening.

[youtube https://www.youtube.com/watch?v=yewuiAJyJco]

Because net export from Hong Kong to the mainland in March didn’t collapse, but Swiss export to Hong Kong did, two things could have happened. Or Hong Kong, which has net imported 924.6 tonnes of gold since 2010, shared a little of its yellow metal to supply the mainland, or other countries than Switzerland increased their export to Hong Kong. To find out I made a chart combining Hong Kong net import with Hong Kong’s main trading partners.

Hong Kong gold trade monthly, March 2014

From looking at the chart I think this is what happened; during Q1 Hong Kong net import dropped (Switzerland and UK imports down, Australia and the US quite stable in March), which means a bigger share of what they imported was sent forward to the mainland supplemented by inventory build up in Hong Kong over the past years.

From stats of the Shanghai Gold Exchange I know Chinese wholesale demand came down after Q1 without premiums going up. This suggest there hasn’t been a supply shortage in the mainland in April. However, even China’s non-government demand pace in April combined with demand from the PBOC, India, Russia and the rest of the world can transcend global mining and scrap supply, pressuring the floating supply. Let alone if Chinese demand will spring back, which is quite likely to happen at these prices and given the fact the Chinese government is officially stimulating its people to buy gold.

Additional charts: Hong Kong net import in Q1 accounted for 193 metric tonnes.

Hong Kong gold trade 3-2014

Chinese net import from Hong Kong in Q1 accounted for 287 metric tonnes.

Hong Kong - China gold trade 3-2014


Gold Trade Numbers 2013 Broke All Records

In 2013 we’ve experienced what kind of extreme buying power China is able to unleash on the physical gold market; Chinese wholesale demand in 2013 was 2197 tons, this excluded PBOC purchases. While the mainstream media is still absolutely clueless on what actually happened and how much gold was distributed across the globe, the facts aren’t that hard to summarize. Let’s have a look at the facts, supplemented with commentary by yours truly.

As most countries disclose their gold trade numbers, by analyzing these numbers we could see a clear gold vein running from the London Bullion Market to the vaults of the Shanghai Gold Exchange (SGE) in China mainland, from where the gold enters the Chinese market place. This main vein ran through Switzerland and Hong Kong.

The London Vaults

Most gold in the UK is located at the vaults of the BoE, where gold from the LBMA, the official reserves from the BoE and official reserves from many other central banks are stored. Additionally there are many gold vaults owned by Bullion Banks (GLD) and private parties in London. In response to the drop in the price of gold in April 2013 we have seen significant outflows from the UK; net export broke all records.

UK Gold Trade 2009-2013

UK Gold Trade 2013

The UK net exported 1425 tons of gold in 2013, of which 152 tons net to the United Arab Emirates, 145 tons net to Hong Kong and 1329 tons net to Switzerland. In December total net export was 62 tons, up 68 % from November, while net export to Switzerland dropped to 52 tons. Net export (directly) to Hong Kong was 29 tons.

In 2013 GLD’s inventory dropped by 552 tons.

GLD gold inventory change 2013

Through The Swiss Refineries

From refineries in Switzerland we know that all the gold that came from the UK in 400 ounce London Good Delivery (LGD) bars was being refined into 1 Kg bars 99.99 % purity, and sent to the East. Switzerland has never traded and refined as much gold as in 2013; gross import was 3082 tons and gross export 2786 tons.

Switzerland has a long history in gold refining and vaulting, both businesses had to adapt in 2013. Refining exploded as some plants almost doubled their capacity, working in three shifts 24 hours a day to supply the East. From Looking at the chart below we can see Swiss net import decreased to 295 tons in 2013 from an average of 572 tons in 2002 – 2012, which suggests their vaulting business grew less than in recent years.

Switzerland Gold Trade 2002 - 2013
NOTE, this shows gross weight. Fine weight of import is substantially lower.

The Chinese are not only buying unprecedented amounts of physical gold, additionally they strive to have more power in the pricing of the yellow metal. I have published numerous translations – a memo on gold policy from the Chinese government to various ministries, gold institutions, exchanges and the central bank, an interview with the head of the precious metals department of China’s biggest bank on it’s gold aspirations and an article on Chinese gold policy written by one of the most influential leaders of the Chinese gold market – in which this is all clearly exposed. In my opinion the Chinese will eventually take over the entire (paper) gold market.

Swiss refineries are also refining LGD bars for Gulf nations in the new standard 1 K four-nines bars (LGD bars are shipped from the Gulf to Switzerland, 1 K four-nines bars are shipped back). The president of the Peoples Republic of China Xi Jinping has called for better ties for China and Gulf Nations and for an acceleration in talks towards a free trade agreement.

[youtube https://www.youtube.com/watch?v=WmQENfhy2Fc]

China’s Foreign Minister Wang Yi met with Israeli Prime Minister Benjamin Netanyahu, the Saudi Arabian crown prince, the Iranian Foreign Minister, as well as a multitude of players from the Gulf and North Africa in the last couple of months to develop trade with West Asia. Yi’s goal was to reinforce the oil supply chain from the Middle East, and improve ways to export Chinese goods. Additionally China is investing in large infrastructure projects (railways, harbors, etc) in West Asia to breathe new life into the Silk Road.

Silk route west asia china

At the same time four Gulf nations (Bahrain, Kuwait, Qatar and Saudi Arabia) are planning to setup a new common currency. All developments just mentioned are related as Asian nations seek allies to make a stand in a post US dollar system.

The Special Administrative Region Hong Kong

Hong Kong gold trade also broke all records. Net gold import jumped 1500 % from 37 tons in 2012 to 597 tons in 2013. Gross import in 2013 accounted for 2239 tons up 133 %, gross export 1642 tons up 78 %.

Hong Kong gold trade 2009 - 2013

The biggest supplier by far was Switzerland, as Hong Kong net imported 913 tons from the Swiss in 2013, up 613 % from 128 tons in 2012 (look at the chart below and spot the record). The Swiss gross exported 1236 tons more in 2013 than in 2012, apparently the bulk of this extra refining output went to Hong Kong.

HK Swiss gold trade 2003 - 2013

Hong Kong’s main gold export destination was China mainland. Net export was 1158 tons, up 108 % from 525 tons in 2012. Gross export was 211 tons, gross re-export (gold that passes through Hong Kong without being processed, i.e. 1 K bars) was 1284 tons.

Hong Kong - China gold trade 2009 - 2013

Hong Kong - China gold trade monthly 2009 - 2013

Gross import from the mainland was 337 – this reflects a lot of jewelry fabricated in Shenzhen that is being exported to Hong Kong. Shenzhen is located just across the border from Hong Kong, accommodates the biggest SGE vault and is known for it’s jewelry production industry. The jewelry that is being shipped to Hong Kong is ‘smuggled’ back into the mainland to some extent.

Shenzhen Hong Kong

In the mainland there is a 22 % tax on jewelry (17 % VAT, 5 % consumption tax), In Hong Kong there is 0 % tax on jewelry. It’s quite common for Chinese in the mainland to make trips to Hong Kong, buy cheap jewelry and other physical gold products and take this home without being bothered at the border. Customs are very stringent on gold exports from China mainland, on the import side Chinese can easily walk through wearing their new necklaces.

The Chinese jewelry company Chow Sang Sang estimates more than half their products sold in Hong Kong are purchased by mainland tourist. Additionally there are mainland tourists that purchase physical gold in Hong Kong and store it locally in safety deposit boxes at banks as well as vaults outside the banking system. This hidden mainland demand partially explains the unprecedented net gold imports by Hong Kong in 2013 (597 tons by 7 million inhabitants). The other explanation being Hong Kong vaults gold for investors from all over the world.

Chow Sang Sang jewelry sales broken down per region

Chinese demand per capita

Please be aware that China mainland can import gold through many other ports than Hong Kong (as I have written bout here). According to my analysis the mainland has roughly imported  2000 tons of gold in 2013 including PBOC purchases.

In Gold We Trust