Just stumbled upon a video which I almost forgot about. It’s an interview with Jeff Christian by Daniela Cambone from Kitco News. They talk about the physical gold market, specifically the role of Switzerland and China. Mr Christian states investment gold demand is higher in Switzerland than in China. I disagree.
A few quotes from Jeff Christian:
There is a tremendous amount of gold moving out of traditional markets, from Switzerland, the UK and New York to China. But there is even more gold going into Switzerland and staying there.
Let’s have a look at the numbers. If we include bullion and coins declared at Swiss customs, Switzerland net imported 295 metric tonnes in 2013. However, the UK net exported 1312 tonnes to Switzerland over this period, Switzerland net exported 913 tonnes to Hong Kong, Hong Kong net exported 1158 tonnes to China, and according to SGE chairman Xu Luode China’s total net import in 2013 was 1540 tonnes. All in all, it’s hard to agree with Mr Christian’s quote.
From 2008 to 2013 Switzerland net imported 147 million ounces. About 4 million ounces was used in jewelry and watches, so you have about 144 million ounces that came into Switzerland and stayed there. So investment demand in Switzerland is much higher than it is in China… This is not a China story, you don’t need Chinese demand to see higher gold prices.
The Swiss have net imported about 4600 tonnes from 2008 to 2013. I agree. Though, like Mr Christian points out himself, this was obviously not bought by the Swiss, but by global investors who store the gold in Switzerland. China, one country, has net imported 2700 tonnes (conservative estimate) from 2008 to 2013. Important is that the People’s Bank Of China (PBOC) has a policy that prohibits gold from leaving the country. Chinese net import is literally gold being taken of the global market.
Furthermore, in 2013 Switzerland net imported 295 tonnes (for global investors) and China (one country) net imported 1540 tonnes, in addition to their domestic mining production of 428 tonnes. Investment demand in China is “currently” much higher than in Switzerland. Also because when the Chinese buy jewelry it’s mostly 24 carat, which serves an investment purpose. So I think this is a China story. How can the biggest gold buyer in the world be irrelevant? Perhaps in 2008 China wasn’t the biggest player in the gold market, now it certainly is.
It seems as if Mr Christian likes to depict Chinese gold demand to be insignificant. Not so long ago CPM Group signed a cooperation agreement with the China Gold Association (CGA). As we all know by now, China – suffering from a disproportionate large US dollar position – has a strong incentive to buy as much gold for the lowest possible price. That’s why the Chinese try to make to world believe their gold demand isn’t that much, not to affect the market. The CGA states demand was about 1100 tonnes in 2013 (while the SGE chairman clearly stated on a Chinese gold conference that total demand was more than 2000 tonnes) and the PBOC hasn’t updated their official gold reserve figures in five years. True Chinese gold demand isn’t disclosed by any institution (according to me Chinese non-government gold demand in 2013 was 2197 tonnes). It looks like the CGA cooperates with CPM Group in order understate Chinese gold demand.
One more from Mr Christian:
All these people have been talking about all this gold that has been leaving Switzerland, they are completely off-base. I mean, this is incredibly stupid. They look at the exports, they see the exports, they say that’s all I need, they don’t bother to look at the imports.
I hope he’s not talking about me. I analyze both sides of the trades, always looking at import and export to come up with net numbers – like I just did. When we look at the net numbers it’s obvious there is much more gold going into China than into Switzerland.