Tag Archives: silver

Precious Metals Import India 2015 Strong, Government Hopelessly Continues To Obstruct Demand

While India’s gross gold bullion import in 2015 reached the third highest amount ever at 947 tonnes and gross silver bullion import reached the highest amount ever at 8,504 tonnes, the Indian government is perpetually trying to obstruct the populace from protecting their wealth. 

Last week I was going through gold and silver trade data released by the Indian Directorate General of Commercial Intelligence and Statistics (DGCIS) and observed strong import of precious metals in 2015. At the same time I was reading the documents, news came out that stated the Indian government was to implement extra rules to hinder its people from buying gold. In my view, the situation in India is another perfect example of a government’s nonsensical fight against the economic tide. Central banks do it all time don’t they?

In an ongoing failure to understand what capitalism is about, the Indian government continues to “disagree” with its citizenry where savings should be placed. Whenever the Indian people increase gold purchases to secure their financial wellbeing, the government is keen to find new tactics to suppress this free market expression. The government aims the country’s wealth to be where it suits them – in the fiat currency they issue and control, but the populace believes fiat currency is inherently vulnerable and chooses physical gold for its long-term wealth preservation. It seems the more the Indian rulers resist private gold demand, the stronger the forces they’re fighting become. As we’ll see below, most undertakings by the government to keep its people from buying gold have been in vain.

First, let’s have a look at an overview of all the measures undertaken in the past years. At the end of the post I will present the details of the latest gold and silver import data (India mostly relies on import for its precious metals hunger).

When the price of gold made its famous nosedive in April 2013 Indian physical gold demand skyrocketed off the charts; in May 2013 India imported 165 tonnes of gold, the highest monthly tonnage ever. In reaction, the government decided in June 2013 to raise the import duty on gold from 4 % to 8 % and in August 2013 from 8 % to 10 %. In addition, in July 2013 the “80/20 rule” was implemented, forcing traders to export 20 % of all imported gold. The import duty on silver was raised to 10 % as well, although silver was not subjected to the 80/20 rule. The result was that by September 2013 India’s gold import through official channels had fallen to a mere 16 tonnes, but smuggling in gold had exploded. Gold trade was diverted to the black market with all due consequences – thriving criminality threatens social and economic stability – and India’s established gold industry organizations fiercely objected the government’s policy. Another consequence was that silver import has seen spectacular increases ever since (see further below).

Although heavily restricted, Indian gold import through official channels bounced of the lows in mid 2014. Eventually, the 80/20 rule was withdrawn in November 2014 while the Indian government was preparing a new trick: the gold monetization scheme, which was to “to mobilize the gold held by households and institutions in the country” and ”be able to reduce reliance on import of gold over time to meet domestic demand”. In my words, the scheme was intended to oversubscribe the people’s gold by exciting them to deposit their metal at commercial banks. The catch is that the gold depositor is technically lending his gold to the bank, whereby he risks losing his metal if the counterparty goes belly up – although these risks were not disclosed in the brochure. Ironically, the essence why people buy gold in the first place is protect their wealth, not to take risks (ie by lending). Not surprisingly, the gold monetization scheme has failed miserably. In the first two weeks after its launch in November 2015 only 400 grams trickled in – bear in mind, there is an estimated 20,000 tonnes of physical gold owned by the Indian private sector. It does not look like the gold monetization scheme will ever succeed in India.

Data from the World Gold Council shows Indian consumer gold demand accounted for 848.9 tonnes in 2015. Reasons enough for the Indian rulers to continue their hopeless quest to limit demand. In January 2016 the government introduced a rule that forces jewelry buyers to show a Permanent Account Number (PAN), which the vast majority of rural customers do not have, for any purchase above Rs 200,000. And it proposed the re-imposition of a 1 % excise duty. Remarkably, the excise duty was first introduced in 2012 but rolled back the same year as jewelers went on strike. This time around jewelers are seeking the same relief. Since 2 March they’re on strike indefinitely (speculating; the excise duty will not succeed).

Let’s head over to the most recent (final) trade data released by India’s customs department, the DGCIS. India’s gross gold bullion import in December 2015 was robust at 111 tonnes, up 9 % from November and up 218 % from December 2014. Total gross gold import for India in 2015 came in at 947 tonnes, up 22 % from 2014, the third highest amount ever.

India gross exported 11 tonnes of gold bullion in December 2015, down 22 % from November and up 35 % from December 2014. Gross gold export for the year 2015 aggregated to 150 tonnes, the highest ever, up 136 % compared to 2014. Gold bullion export might be elevated due to India’s increased refining capacity.

Net gold bullion import in December 2015 came in at 100 tonnes. Total net gold import for 2015 accounted for 797 tonnes, up 11 % year on year.

India Gold trade december 2015

India gold import 2015

India yearly gold demand

India’s gross silver bullion import was very strong in December 2015 at 1,042 tonnes, up 71 % from November and up 198 % from December 2014. Total gross silver import in 2015 accounted for a staggering 8,504 tonnes (!), up 20 % from 2014.

As, silver bullion export from India is neglectable, net import in December 2015 accounted for 1,041 tonnes and total net import for 2015 came in at 8,494 tonnes. The latter being 31 % of world silver mining output!

India Silver import trade 12 2015

India silver import 2015

From looking at official precious metals import and demand numbers we can wonder if the many restrictions from the Indian government have accomplished anything to their likes. One thing is for sure; the Indian people did not substantially bought less gold – and did buy substantially more silver.

Instead of hopelessly resisting and intervening in the Indian economy, the government could also choose to allow free market forces and/or even support the people’s love for gold to bolster India’s gold industry for it to become a global powerhouse. Wouldn’t that be much more effective?

Kindly note, the cross-border trade tonnages for this post, calculated by myself and Nick Laird from Sharelynx.com, are based on the Rupee values disclosed by the DGCIS and the monthly average metal prices. The gold and silver bullion import and export figures mentioned in this post exclude smuggling and cross-border trade in precious metals jewelry.

Silver Maple Leaf Sales Surge 76 % Y/Y

In the third quarter 9.5 million ounces (295 tonnes) of silver were sold in Maple Leaf Coins by the Royal Canadian Mint, according data released on Friday. Third quarter silver coin sales at the Canadian Mint were up 76 per cent from the third quarter in 2014 and up 40 % from the second quarter in 2015.

The data available on the website of the Royal Canadian Mint shows Q3 silver Maple Leaf sales were the highest since Q2 2011 (346 tonnes) when the silver price peaked above 45 US dollars an ounce. Currently, spot silver is trading at 14.25 US dollars an ounce. Many retail precious metals investors have taken the opportunity this year to buy silver coins at bargain prices while there still is great economic uncertainty around the world.

Silver Maple Leaf Coins Q3 2015

Year to date Maple Leaf sales have reached 784 tonnes of silver, which is 1,046 tonnes annualized. The annualized pojection would be the highest yearly sales by the Canadian mint on record.

Silver Maple Leaf Coins Q1-Q3 2015

Silver Maple Leaf sales have significantly increased since the financial crisis. In 2006 annual sales barely transcended 75 tonnes, in 2014 total sales reached 908 tonnes. The same trend is visible at the US Mint, where in 2006 a modest 332 tonnes in silver coins were produced (mainly American Eagles), in 2014 a staggering 1,390 tonnes in silver coin was minted.

Silver Maple Leaf Coins Q1-Q3 2015 ag

The production of silver American Eagles at the US Mint accounted for 444 tonnes in Q3 2015, up 74 % year on year. Year to date (Q1-Q3) the US Mint has produced 1,153 tonnes in silver coins, which is 1,538 tonnes annualized (a virtual all time record).

Data from The Silver Institute indicates yearly coin demand (3,347 tonnes, 2014) is roughly 10 % of total physical demand (33,178 tonnes, 2014). Though, in 2015 coin demand will likely have a far greater share of total demand, as the output of just two mints (Canada & US) is set to reach 2,584 tonnes.

Maple Leaf BullionStar 2015 silver

It’s virtually impossible to get physical gold in London

Just after my colleague Ronan Manly wrote a very extensive article on how much gold is left in London (not much), Petropavlovsk Chairman and Co-Founder Peter Hambro discusses gold at Bloomberg Television. He, like Manly, concludes there is very little physical gold left in London. From Mr Hambro:

My baseline is they [the Chinese] have been buying and the Indian have been buying in enormous quantities. It’s virtually impossible to get physical gold in London to ship to those countries. We get permanent requests from Russia, would we please sell our physical gold to India and China. Because there is no physical, only endless promises. And I really worry that the market, that paper market, could be stamped on and people will say “sorry we’ll have a financial close out”, and it’s all over.

Perhaps this quote explains why UK gold export directly to China in June was not a net outflow from the UK – because there is little gold left in London (Manly, Hambro) and thus the UK had to ramp up import from the US in June to send forward to China.

Screen Shot 2015-09-10 at 9.46.56 am

Click here to watch the full interview with Mr Hambro.

The Financial Times reported on similar gold shortages in London. From the FT (2 September):

The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants.

“[The rise] does indicate there is physical tightness in the market for gold for immediate delivery,” said Jon Butler, analyst at Mitsubishi.

I’ve also asked BullionStar CEO Torgny Persson in Singapore what he’s currently seeing in the precious metals markets. He replied there are shortages in both the gold and silver market. From Mr Persson:

Several refineries, mints and wholesalers are reporting that they have no gold and silver at all live available, that they have stopped taking orders for many different products. 

We still have most products in stock because we stocked up as massively as we could in the last weeks but for many products, we are unable to replenish as of now when we run out.

Big squeeze with shortages starting now both on the wholesale/retail level and at the bulk level… Unless the paper price is reverting up, it may not subside this time around and then the paper fiat mess (including paper prices of gold and silver) is in trouble. If it goes to the point of shortages at the bulk level like 1kg gold bars and 1000 oz silver bars, the emperor will stand without clothes.

To be continued…

India Precious Metals Import Explosive – August Gold 126t, Silver 1,400t

In the month of August 2015, India imported 126 tonnes of gold and 1,400 tonnes of silver, according to data from Infodrive India. Gold import into India is rising after a steep fall due to government import restrictions implemented in 2013.

Year-to-date India has imported 654 tonnes of gold, which is 66 % up year on year. 6,782 tonnes in silver bars have crossed the Indian border so far this year, up 96 % y/y.

Gold import is set to reach an annualized 980 tonnes, which would be up 26 % relative to 2014 and would be the second highest figure on (my) record – my record goes back to 2008.

India Yearly Gross Gold Import
On average, the Indian imports equal about 30 % of yearly world gold mining.

Silver import is on track to reach an annualized 10,172 tonnes, up 44 % y/y! This would be a staggering 37 % of world mining.

India Yearly Gross Silver Import

August trade data is preliminary and will be revised. However, these revisions are usually not significant. On 24 March 2015, I wrote an article based on preliminary data that suggested March silver import would transcend 130 tonnes, a few months later official data from the DGCIS disclosed that the Indian silver import figure for March was 132 tonnes.

India Gold Import Is Rising

When the gold price made its famous nosedive in April 2013, demand from the East – India and China – exploded. The Chinese government counted its blessings and encouraged its populace to import an unprecedented 1,500 tonnes. In contrast, the Indian government was not willing to allow its people to satisfy themselves in buying gold. The reason being, a current account deficit.

The Indian government decided in June 2013 to raise the import duty on gold from 4 % to 8 % and in August 2013 from 8 % to 10 %. Additionally, in August the 80/20 rule was implemented – forcing traders to export 20 % of all imported gold. As a result (official) gold import dropped from an all-time high in May 2013 at 165 tonnes, to a mere 16 tonnes in September 2013. We can only speculate how much was smuggled into India at the time.

India Gold trade 8-2015
Note, this chart excludes jewellery trade.

The restrictions shocked the Indian precious metals market and premiums on local gold skyrocketed to 25 % (including the 10 % import duty) in December 2013. When the market eventually found a way within the existing framework to supply those in demand, premiums came down and official imports rose; illustrating the Indian people are not likely to stop buying gold, as they’re aware “their rulers are thieves”.

Finally, the 80/20 rule was withdrawn in November 2014 allowing gold to be imported more easily. The premium at Indian bullion shops over the international gold price (XAU/USD) has been slightly above the 10 % gold import duty this year.

Indian gold Premiums august 2015

The next strategy from the Indian government and the World Gold Council is to monetize gold “to reduce reliance on import” (click to read the proposal). The most recent draft describes how people can deposit their gold at a bank for interest and the banks can use this gold to lend out, though the exact workings of the renewed scheme are still unclear. In my humble opinion monetizing gold in India will not succeed and imports will not be dampened. The Indian people don’t want to lend their gold and they don’t want to melt their inherited emotionally-critical wealth.

Indian gold monetazition scheme

India Silver Import Is Rising

When the Indian government raised the import duty on gold in 2013, it simultaneously raised the import duty on silver to 10 %. However, the premium on silver didn’t reach 25 % like gold. Many people switched to purchase silver instead of gold. Import since 2013 has increased dramatically.

India Silver import trade 8-2015
Note, this chart excludes jewelry trade.

Last May India imported a record 1,542 tonnes of silver, in August an estimated 1,400 tonnes was shipped in, which would be the second highest number on record – my record goes back to 2008.

This year India is set to import 37 % of global silver mining output. Perhaps more interesting, annualized import equates to 18 % of total above ground silver inventory, based on numbers from GFMS.

Gold is hardly used in industries, more so hoarded by investors and central banks and has a high stock to flow ratio. GFMS estimates there is 180,000 tonnes of above ground gold of which India is set to import 980 tonnes (1 % of above ground stock). Silver has many industrial applications, is used up and is not anymore hoarded by central banks. Resulting in relative low above ground stocks which are partially being imported by India – not likely to be exported any time soon. Potentially creating scarcity at current prices. In a forthcoming post we will zoom in on the supply and demand metrics of the Indian silver market.

Total SGE Withdrawals 255t In January, Up 4 % y/y

In the last trading week of January another huge quantity of gold left the vaults of the Shanghai Gold Exchange (SGE). According to the latest SGE data nearly 54 tonnes were withdrawn in week 4 (January 26 – 30), down 24 % w/w. Year to date a staggering 255 tonnes has been withdrawn, up 4 % from the strongest January ever in 2014.

Screen Shot 2015-02-06 at 11.44.19 AM
Blue (本周交割量) is weekly gold withdrawn from the vaults in Kg, green (累计交割量) is the total YTD.

Corrected by the volume traded on the Shanghai International Gold Exchange (SGEI), withdrawals in week 4 were at least 42 tonnes (read this post for a comprehensive explanation of the relationship between SGEI trading volume and withdrawals). Year to date withdrawals corrected by SGEI volume were at least 230 tonnes.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 4, dips

Shanghai Gold Exchange SGE withdrawals delivery only 2014 - 2015 week 4, dips

A quick calculation suggests China has imported somewhere in between 175 and 200 tonnes of gold in January. Happy New Year!

In a recent blog post Thomson Reuters noted banks that enjoy a PBOC gold trade license are obliged to import a minimum amount of gold each year. Supposedly this is why Chinese gold import (and SGE withdrawals?) ramped up in the fourth quarter of 2014.

Licensed importers need to import a minimum amount of gold bullion per year to demonstrate to government authorities that they have put their import license to good use. Therefore, after a series of relatively weak import numbers in the second and third quarters, importers had some catching-up to do by the fourth quarter.

So China imports gold, which is being sold through the SGE and withdrawn from the vaults, though this is not related to any demand? If there would be no demand for the imported gold in China, (i) there would be significant discounts on the SGE relative to London, (ii) Importing/consignment banks would suffer enormous losses. Doesn’t make sense to me.

On January 26 the SGE announced to allow its international members and customers to trade the deferred silver contract Ag(T+D), a domestic precious metals contract, starting February 2. Though, foreign traders will only be able to open long or short positions, receive/pay the deferred compensation fee and close long or short positions. Delivery let alone withdrawals will not be allowed. Herein we can clearly see the closed characteristics of the Chinese precious metals market; not only gold is prohibited from being exported, through VAT rules the State Council effectively blocks silver from being exported as well (in general trade). The possibility for foreigners to open Ag(T+D) positions are pure paper trades. From the SGE:

All members,

For the purpose of diversifying trading products for international members and customers, the Shanghai Gold Exchange (“The Exchange”) is going to open the trading access of Ag(T+D) contracts to international members and customers. From February 2nd, 2015, all international members and customers are allowed to participate in the Ag(T+D) trading, including opening long or short positions and closing out long or short positions; and yet delivery tendering, delivery equalizer tendering, or load-in and load-out of physical silver bullions are not allowed.

The trading margins and transaction fees for international members are consistent with domestic members and customers. The position limits of Ag (T+D) for international members and customers are also in line with domestic members and customers. International members and customers may apply to SGEI for adjustment of position limits as per their business needs.

Likely not many foreign traders have jumped in as of yet, total weekly silver volume in week 5 (January 2 – 6) was 9,704 tonnes, down 11 % w/w.

Shanghai Gold Exchange SGE weekly silver volume

Hard to say what will happen down the line, the internationalization of the SGE since September 2014 hasn’t been successful up until now. This would presumably change if China liberalizes its precious metals export policy, but does it want to? Not in the near future if you’re asking me.

Let’s see what happens next in the global realm of precious metals when Chinese banks will participate in the new London gold fix scheduled in March.

GFMS Reports Chinese Gold Trade Volume Incorrect By 100%

Thomson Reuters GFMS, one of the leading consultancy firms regarding precious metals supply and demand data has recently released the GFMS Gold Survey 2014 – Update 2. From the report:

Thomson Reuters’ supply and demand data are collected and collated by our team of research analysts based in Australia, China, Europe, India and the USA within an extensive field research programme which involves interviewing stakeholders across the supply chain in every market and utilizing the unique data sets available to us after researching the market continuously since 1967.

… [etc]

All this information, including mine cost profiles, analysts “view of the field”, disaggregated supply and demand data back to 2000, as well as base case and two alternative scenarios underpin price forecast for one, three, and ten year periods and are now available on Thomson Reuters Eikon.

For the ones that don’t know, Thomson Reuters Eikon is a data terminal that costs you something in between $800 and $1,800 a month, depending on how many bells and whistles you prefer.

In a previous post I noted I didn’t agree with GFMS on Chinese gold demand 2014, disclosed by them at 866 tonnes while supply in China was 1,833 tonnes (import 1,200 + mine 451 + scrap 182), resulting in a gap of 967 tonnes. But I would like to save the demand discussion for another post to expand upon.

The section in the GFMS report that shows gold trading volume on the largest exchanges of the planet looks like this:

Screen Shot 2015-01-31 at 9.51.43 PM

The table is obviously meant so readers can compare the gold volumes traded on the major exchanges; all data is computed into metric tonnes. The COMEX data is correct, the CME publishes gold futures volume as number of contracts, when I multiply all contracts traded in 2014 by 100 ounce, which is the size of one contract, and divide the total amount of ounces by 32151, the total tonnage is 126,007. (Just about the same as GFMS reports.)

Then, the Shanghai Futures Exchange (SHFE), the primary gold futures exchange in China. One gold contract/lot on the SHFE equals 1 Kg. The SHFE publishes gold futures volume as number of contracts, when I add all contracts traded in 2014 and divide the total amount by 1,000, the total tonnage is 47,500 tonnes. Seemingly the same as GFMS reported. However, volume on the SHFE is counted double-sided, or bilaterally. From the SHFE:

  1. The unit for trading volume, open interest and the change of open interest is lot, herein are double-side counted; trading value herein is double-side counted.

There for the total tonnage has to be divided by 2 if compared to COMEX volumes. The actual total tonnage traded on the SHFE in 2014 was 23,750 – counted unilaterally. GFMS has effectively double counted SHFE gold trading volume. This way GFMS has also disclosed all data from the SGE incorrect – Au(T+D) and the spot contract. From the SGE

The Volume [Kg] and Amount are calculated bilaterally.

The open interest and turnover on the SHFE and SGE are counted bilaterally as well. Additionally, take note I’ve written on August 27, 2014, GFMS was making exactly the same mistake on their silver numbers, in the World Silver Survey 2014:


Imagine you pay $1,800 a month for an Eikon terminal that feeds you inaccurate Chinese volume and open interest data. Previously I noticed an error in the Bloomberg terminal that discloses the Chinese price of silver including 17 % VAT, and thus feeding false data.

Of course it’s anyone’s choice to decide what data to use or how to interpreted data, this post is merely meant to share my view on Chinese precious metals trade data in a effort to help investors to get a better perspective on global markets.

India Silver Import 2014 At 7,063 Tonnes, Up 15 %

India’s customs department, the Directorate General of Commercial Intelligence & Statistics (DGCIS), just released the QUICK ESTIMATES FOR SELECTED MAJOR COMMODITIES for December 2014. According to DGCIS the figures for December are provisional and subject to change, however, I’ve been tracking these quick estimates for months and they are reasonably accurate – compared to the official numbers that lag a few months.

In December India imported $182.31 million in silver; divided by an average price of $16.3 an ounce this accounts for 11,188,095 ounces, or 348 tonnes, down 72 % from 1,254 tonnes in November. The total gross amount of silver imported in 2014 accounted for a whopping 7,063 tonnes, up 15 % from the shocking 6,125 tonnes in 2013. As far as my data goes back (2009) net silver import 2014, 7,055 tonnes, is a record.

Bullion Bulletin released a report in 2014, called An Empirical Study Of Silver Markets In India. In the intro it states:

Why has the silver import into India increased in 2013? We started talking to the industry. We could identify two causes – investment demand and jewelry demand. Investment demand was largely due to demand switch from gold and relative attractiveness of silver to gold.

Screen Shot 2015-01-26 at 10.30.32 AM
Courtesy of Bullion Bulletin

The quick estimates do not disclose any silver export; the official numbers do, but these are negligible as we can see in the next chart.

India Silver Import December 2014

India Yearly Net Silver Import 2009 - 2014

Note, the previous charts are build from numbers on silver as disclosed by the DGCIS, I do not know how much silver is exported in the form of jewelry or silverware. There are numbers available about the value of silver jewelry exports from India, published by the Gem & Jewelry Export Promotion Council (GJEPC), however these values can capture fabrication costs, gems and other precious metals. There for I don’t feel comfortable deriving exported silver tonnage from GJEPC data.

According to Bullion Bulletin total silver demand in India has been strong in recent years, 3,381 tonnes in 2010, 5,519 tonnes in 2011, 3,890 tonnes in 2012 and 5,822 in 2013. This demonstrates little silver import, as disclosed by DGCIS, is exported in the form of jewelry, silverware or industrial products.

Large inflows of silver into India are often supplied by the UK; we can see a clear pattern if we compare India gross import with UK net export to India.

India vs UK Monthly Silver Trade 2009 - 2014
Eurostat has not yet released any data from December 2014

Meaning the UK, the London Bullion Market, is drained from silver by the East just like it’s drained from gold by the East. I don’t see any silver shortages in the near term in the UK, but I’ll keep an eye on it.

The Turkish Gold Standard, Part 1

One the most interesting gold markets around, but least talked about, is the Turkish gold market. The Turkish people have a strong tradition that goes back thousands of years to save in physical gold and it’s estimated 5,000 tonnes of gold are owned privately. Additionally, the Turkish central bank (CBRT) has implemented a model in 2011 that allows commercial banks to use physical gold for reserve requirements.

Official gold reserves biggest buyers 2000 - 2014

In contrast to what the above chart may suggest the CBRT bought zero grams of gold in the past years on the open market. All gold added to their balance sheet since 2011 is gold from commercial banks that are allowed to use gold for reserve requirements (RR) by the CBRT. The footnote on the World Gold Council’s sheet on global official gold holdings states:

Gold has been added to Turkey’s balance sheet as a result of a policy accepting gold in its reserve requirements from commercial banks.

I started researching the Turkish gold market about a year ago. Though I haven’t figured this market out in detail, I decided to go ahead and publish what I learned thus far, as this is an important story; the Turks have monetized gold through a model that soon might be implemented in other countries.

On the 11th India International Gold Convention, September 12 – 14, 2014, many keynote speakers expanded on the possibilities of monetizing India’s 20,000 tonnes private gold hoard. Soon after the World Gold Council and the Federation of Indian Chambers of Commerce and Industry (FICCI) released a report titled Why India Needs A Gold Policy, proposing India to develop its gold industry; launch a new gold exchange and monetize gold.

In this post we’ll skim the surface on the Turkish gold model, in a future post we can add more texture.

Next to articles available on the internet about this subject, I used the following sources for my analysis:

  • The CBRT, that wrote me three official letters in response to my inquiries.
  • Two employees from two different Turkish commercial banks. Both insisted not to disclose the name of their banks.
  • An employee from the Dutch central bank (DNB), who explained me the structure between commercial banks and their central bank in general and how the Turkish model fits in. (I’m not a schooled banker.)

Brief History Of The Turkish Gold Market

Worth noting is that the first coins of precious metals are believed to have been minted in Lydia, in what is now part of modern day Turkey, around 650 BC. The Kingdom of Lydia was a province of the Achaemenid Persian Empire.

Lydian coin 650 BC
Early 6th-century BC gold and silver alloy coin

When the Romans entered the Lydian capital Sardis in 133 BC, the region became part of the Eastern Roman Empire, which was also referred to as the Byzantine Empire. Through the 5th century the Western Roman Empire fragmented and collapsed, the Byzantine Empire survived and became one of the most flourishing and resilient economies in the world. The empire’s capital Constantinople, modern day Istanbul, was a trading hub in a network that at various times extended across nearly all of Eurasia and North Africa. Located at the western end of the Silk Road it connected the Orient with Europe.


Coins were the basic form of money though credit did exist, according to archival documents that describe the Byzantine banking system. The Empire’s monetary system functioned for more than a thousand years, from 312 to 1453, because of its relative flexibility. The Byzantine economy was among the most advanced in the region (Europe, North Africa, Middle East).

Since the creation of the Byzantine monetary system by Constantine in 312, its pivot had been the golden Solidus (the Latin word for solid). This coin was a highly priced and stable means of storing and transferring value.

Solidus Justinian I gold coin
Solidus with the image of Justinian the Great (527–565)

Constantinople fell in 1453 when it was invaded by the Ottoman Empire; in which the financial and political interests of the state dominated the economy. The Byzantine era came to an end, though gold and silver remained a common store of value among the population in the region.

Mustafa Kemal Atatürk was the first President who came in power (1923) of what now officially is called The Republic Of Turkey, founded in the aftermath of World War I. After World War II a period followed of state guided industrialization based on import substituting protectionism. In 1980 Turkey started to liberalize its economy. With regard to gold the most significant developments were:

  • 1983, the ban on gold jewelry exports was lifted.
  • 1993, the Turkish central bank’s monopoly on the import of gold was lifted.
  • 1995, the Istanbul Gold Exchange was established – currently named Borsa Istanbul.
  • 2002, the Istanbul Gold Refinery was launched.

Turkish Gold trade monthly 2001 2014

Turkish Gold trade yearly 2001 2014

  • 2011, the Turkish central bank allowed commercial banks to hold gold for reserve requirements.

Additionally, the Turkish State Mint, the world’s largest producers of gold coins in the past years, still plays an important role in producing 22-karat Republic coins.

Turkish Gold Coin Production
The Turkish State Mint is one of the the world’s largest producers of gold coins
Turkish Republic Coin
Republic Coin, “Cumhuriyet Altını”
Lydian Commemorative Coin by Turkkish State Mint 2014 - 2016
Lydian Commemorative Coin, minted from 2014 -2016, “Lidyalılar Hatıra ParasıAnadolu Medeniyetleri Serisi No.4” 

Monetizing Gold 

In September 2011 the CBRT announced 10 % of Turkish Lira RR of commercial banks could be fulfilled in US dollars or euros and an additional 10 % in physical gold. The percentages were timely increased; gold was increased to 20% in March 2012, then to 25% in June and finally 30% in August. This press release from the CBRT is the earliest I could find on the subject:

No: 2011 – 35

12 September 2011


The Monetary Policy Committee (the Committee) at the interim meeting on August 4, has laid out the ground for a timely, controlled and effective provision of liquidity to the market in case of a possible financial turmoil that may be triggered by global developments and decided the implementation of a comprehensive package of measures gradually according to conditions.


Since the last two meetings, the data announced for the advanced economies and the recent developments have led to increased concerns regarding sovereign debt problems in some European countries and the global growth outlook. In this context, not only in order to meet the Turkish lira liquidity needs of the banking system in a more permanent way and lower cost, but also support and use Central Bank’s foreign exchange reserves timely, controlled and effectively, the implementation of the following additional measures has been decided.

2) With the same Communiqué, gold deposit accounts, showing a rapid increase in recent periods, have also been included in the coverage of the reserve requirements.

On the other hand, as a new flexibility provided to the banking system, the facility of maintaining reserves requirement as “standard gold” at the accounts of Central Bank against the total amount of reserve requirement maintained for the precious metal deposit accounts and up to 10 percent of reserves requirement for foreign currency liabilities excluding precious metal deposit accounts, has been provided.

From the CBRT bulletin June 23, 2012:

To strengthen the build-up of the CBRT’s gold reserves and to provide the banking system with more flexibility in liquidity management, the CBRT enabled the facility that allows banks to hold a part of their reserve requirements for Turkish lira deposits in gold as well as FX, and for FX deposits in gold. 

To understand who benefits from this scheme, we must first examine how a (Turkish) commercial bank balance sheet looks like. Below is a simplified example:

Bank balance sheet

Most CB’s around the world, not all, require a fixed percentage of bank deposits to be held in reserve at the CB. In some countries this is 1 % of total deposits (ECB), in others it’s 20.5 % (China), in Turkey it’s 8.5 %. The reserve ratio, is calculated as:

CB / S + D

The capital ratio is calculated as:

E / total

A bank holding reserves in excess of the required amount is said to hold excess reserves. The interest rate banks receive from their CB on excess reserves can be different from the rate on RR.

When in October 2011 Turkish banks could fulfill RR in gold, this freed Turkish Lira (TL) liquidity. The amount of TL needed to meet RR prior to October could now be replaced by gold and subsequently be used to be create new TL loans.

Turkish banks attract gold deposits by offering an interest on gold time deposits. On average a one-year deposit yields 0.8 % (the interest is denominated in gold).

Screen Shot 2015-01-06 at 1.59.18 PM
Gold Time Deposit interest rates. Source: CBRT

During the loan Garanti can use the gold to meet RR at the CBRT. The TL that are freed by this can be used to make investment that yield higher than 0.8 %. The difference in yield is profit for the bank. I think it’s likely Garanti will hedge itself against gold price fluctuations to pay the interest.

In addition Turkish banks are allowed to use their own gold assets to fulfill RR, and FX gold deposits. Some snippets from an email the CBRT wrote me:

…As it can be seen, banks with even “zero” amount of gold deposits opened by customers, can fulfill some part of their Turkish lira required reserve obligation by depositing gold to the Central Bank, of course if they possess gold in their assets. And of course this amount of gold will show up in Central Bank balance sheet under two items: as “liability” to the bank which brought this gold, and as “assets” of the Central Bank because the Central Bank now “owns” this amount of gold for a specific period (until the end of the RR maintenance period). This is how Central Bank official gold holdings increase.

Options do not exist only for Turkish lira required reserves. There is also an option for the maintenance of the “foreign currency [FX] required reserves”. 

Turkish Official Gold Reserves

In the chart we can clearly see how much gold is added to the CBRT balance sheet over the years without the CB having bought a single gram – this is what the CBRT wrote me.

Once gold is deposited at a commercial bank there is a risk of losing it. The rule of thumb is “no risk, no return”. If Turks deposit gold at a bank they receive an attractive interest instead of having to pay a storage fee. But what happens to their gold if the bank becomes insolvent? It can vanish. Technically they lend it to the bank, partially the interest on a loan is to compensate for the risk of default. The pitfall is that most gold depositors are unaware of the risks. Banks have little incentive to disclose risks when a customer walks in to make a deposit. Have you ever been told by a bank there is a risk of losing your deposit?

People own physical gold to hedge against inflation or financial meltdowns; as happened on a global scale in 2008 and more recently in Cyprus early 2013 – in Cyprus the bail-in template was first introduced. The last thing you want is your gold in a bank when they decide not to open on any given Monday.

I’m not against the Turkish model because in a free market every participant in the economy should be allowed to lend any currency to his or her discretion. My concern is, however, that the majority of depositors are not aware of the risks of banking.

Yearly Shanghai Silver Volume Transcends COMEX Again, SGE Withdrawals Nearly 2,100t

Happy New Year from the BullionStar team!

In 2014 silver futures traded on the Shanghai Futures Exchange (SHFE) accounted for 2,908,168 tonnes. On the COMEX 2,123,387 tonnes were traded, 37 % less than in Shanghai. 

First let’s have a look at the latest SGE trade report of week 52 (December 22 -26). Total SGE gold withdrawals was a staggering 58 tonnes in week 52, year to date (until December 26) SGE withdrawals have reached 2,073 tonnes. With three trading days left (December 29 – 31) total withdrawals are 124 tonnes shy of the 2013 record (2197 tonnes). The possibility 2014 withdrawals will transcend 2013 is small, though 2014 has once again been an incredible strong year for Chinese gold demand.

Regular readers of this blog are used to the tonnage being withdrawn from the SGE vaults every week, often more than 40 tonnes (in one week). The fact the mainstream media, or the World Gold Council, CPM Group or Thomson Reuters GFMS, still don’t report these numbers is getting weirder by the day.

Because gold bullion export is prohibited in china, we know by tracking SGE withdrawals, fairly accurate, how much gold is being added to Chinese non-government gold reserves. This year that amount will be about 1,700 tonnes.

Screen Shot 2014-12-31 at 4.43.44 PM
Blue (本周交割量) is weekly gold withdrawn from the vaults in Kg, green (累计交割量) is the total YTD.

Some SGE data lags one week, some not; in this post all gold data is up to week 52 (December 26).

Corrected by trading volume on the Shanghai International Gold Exchange (SGEI) – read this post for a comprehensive explanation of the relationship between SGEI trading volume and withdrawals – SGE withdrawals in the mainland, that equal Chinese wholesale demand, were at least 44 tonnes, at most 58 tonnes. Year to date SGE withdrawals in the mainland were at least 2,006 tonnes, at most 2,073 tonnes.

Shanghai Gold Exchange SGE withdrawals delivery 2014 week 52, dips

Shanghai Gold Exchange SGE withdrawals delivery only 2014 week 52, dips

My best estimates for the supply side of SGE withdrawals (2,006 tonnes):

  • Domestic mining 450 tonnes.
  • Import 1,206 tonnes.
  • Recycled gold through the SGE 350 tonnes.

East – West Precious Metals Markets Comparison

Let us have a look at size of the precious metals (paper) markets in China relative to the COMEX.

SGE gold trading volume saw a remarkable lift-off this year, most likely because 8 SGE contracts were allowed to be traded by foreign investors.

Trading Privileges of the Shanghai Gold Exchange

Total volume traded in 2013 on the SGE was 5,807 tonnes (counted unilaterally). In 2014 volume has already surpassed 8,982 tonnes; an amplification of at least 55 % y/y.

Total volume traded in week 52 was 371 tonnes, down 10 % w/w.

Shanghai Gold Exchange SGE weekly gold volume

Volume on the two largest gold futures exchanges on earth (COMEX and the SHFE) have been low in week 52. On the Shanghai Futures Exchange (SHFE) volume in week 52 dropped 56 % w/w, to 344 tonnes. On the COMEX weekly volume dropped 54 % w/w, to 1,152 tonnes (the COMEX trading week counted only four days).

COMEX vs SGE + SHFE gold volume

The Open Interest (OI) on the SHFE closed December 26 at 101 tonnes, on the COMEX at 1,158 tonnes. The total OI on the SGE of all gold deferred contracts combined – Au(T+D), mAu(T+D), Au(T+N1) and Au(T+N2) – stood at 109 tonnes on December 26.

COMEX vs SHFE gold volume and open interest

Let’s have a look in the silver pit. For silver we have all the data of all exchanges (SGE, SHFE, COMEX) for 2014 complete.

SGE silver volume in 2014 shows less growth relative to gold, probably because silver contracts aren’t allowed to be traded by foreigner investors. Total silver volume traded on the SGE in 2013 accounted for 215,250 tonnes, in 2014 it was 252,306, so it’s up 17 % y/y.

In week 52 SGE silver volume was down 49 % w/w, at 8,602 tonnes.

Shanghai Gold Exchange SGE weekly silver volume

Total silver volume on the COMEX has dropped 2.5 % in 2014 relative to 2013. Total volume on the SHFE has increased 14 % compared to 2013.

Total volume traded on the COMEX in 2013 was 2,176,519 tonnes; the SHFE traded 2,557,430 tonnes in silver futures, 18 % more.

In 2014 the COMEX has traded 2,123,387 tonnes of silver futures, the SHFE 2,908,168 tonnes, 37 % more. 

COMEX vs SHFE silver volume yearly

COMEX vs SGE + SHFE silver volume

The OI on the COMEX closed at December 31, 2014, at 23,264 tonnes, up 27 % y/y. The OI on the SHFE closed at 3,052 tonnes, down 39 % from a year earlier.

COMEX vs SHFE silver volume and open interest

The OI of the deferred SGE contract Ag(T+D) closed on December 31 at 2,471 tonnes, up 25 % y/y.

Silver inventory at the SGE dropped 8 % y/y, to 103 tonnes. Silver inventory on the SHFE dropped 71 % y/y, to 123 tonnes. Note, there are many other (spot) silver exchanges in China, these inventories don’t mean that much. SHFE inventory has been emptied because the cash and carry trade closed (read this post for a simplified explanation) when the silver futures curve on the SHFE went from contango to backwardation.

SHFE & SGE silver inventory, December 26, 2014

Currently the futures curve on the SHFE is in contango,

SHFE silver futures curve contango December 31, 2014

…which caused the discount of silver in the mainland to increase relative to London spot.

Shanghai Gold Exchange SGE silver premium

Silver export from China enjoys 17 % VAT, hence the discount is not arbitraged. (for more information on the structure of the Chinese silver market read this post).

India Silver Import 6789t YTD

Gold and silver import into India in November was spectacular. According to the DGCIS provisional estimates India imported 148 tonnes of gold, year to date India has imported 745 tonnes, down 3 % y/y.

India Gold Import November 2014

In 2013 the import duty on gold was raised from 4 % to 10 % and the 80/20 rule was implemented – the latter required all importers to re-export 20 % of all gold imported. On November 28, 2014, the 80/20 rule was suspended, nevertheless India imported the largest amount of gold in November since May 2013.

Why was import elevated? First of all because demand was strong.

India Gold Premium

Second, I think there has been little obstruction to import gold. Let me explain what I mean with obstruction; the premiums on gold in November averaged a little over 3 % (after subtracting the 10 % import duty). Strong official import and low premiums tell me there is very little gold smuggled into India. When premiums skyrocketed it meant that gold imports were obstructed by the 10 % import duty, the 80/20 rule and the confusion in paper work that initially was caused by the 80/20 rule; tightening supply and raising the premiums. This is confirmed by an inverse correlation between official imports and premiums  (falling premiums coincide with rising official imports and vice versa). Now the premiums are low I think there is little obstructing for gold to be imported through the official channels. In November gold importers were still required to pay the 10 % import duty and re-export 20 % of their cargo, however, it seems these procedures were done more efficiently compared to previous months.


In November India imported 1,254 tonnes of silver – a record as far as my data goes back – year to date total import stands at 6,789 tonnes, up 28 % y/y. India is heading to  import approximately 7,406 tonnes in total this year. What’s yearly global silver supply again?

India Silver Import November 2014

Silver premiums are relatively constant in India.

India Silver Premium

India Precious Metals Import Explodes In October

Despite all efforts from the Indian government to curtail India’s demand for precious metals – for example a 10 % import duty on both gold and silver, the Indian people continue to put their savings in a store of value they consider being prudent; precious metals.

By hiking the import duty on gold in 2013 from 4 % to 10 % and the implementation of the 80/20 rule importers were thwarted shipping in metal. In part because the importers  needed to find out how to work through the new rules, which were deliberately setup to complicate the process.  

At first official gold import dropped like a brick, the premium on gold over London spot sky rocketed to 25 % and smuggling flourished.

Since 2014  India’s customs department, the DGCIS, discloses preliminary estimates on commodity trade data (only imports for precious metals). The latest data shows gross gold import in October jumped to 106 tonnes, up 13 % m/m, up 260 % y/y. 106 tonnes gross import is 1,271 tonnes annualized.

India Gold Import October 2014

Year to date India has officially gross imported (ex smuggling) 597 tonnes of gold, down 21 % y/y, annualized 716 tonnes.

Recent history has demonstrated that the more gold is imported through official channels the less pressure there is on the premium of gold in India. Throughout October the premium hovered around 2.5 %, excluding the 10 % import duty.

India Gold Premium November 2014

India gross imported a whopping 1,243 tonnes of silver in October, up 54 % m/m, up 217 y/y. This is one tonne short of the 1,244 tonnes record of May 2011.

India Silver Import October 2014

Year to date India has gross imported 5535 tonnes, up 13 % y/y, annualized 6,641 tonnes.

Premiums on silver in India floated around 2 % throughout October, excluding the 10 % import duty.

India Silver Premium November 2014

Chinese Gold Demand Strong, Mainstream Media Twisting

The numbers have been published by the Shanghai Gold Exchange (SGE) on the amount of gold withdrawn from the vaults in week 44 (October 27 – 31); just of over 47 tonnes were withdrawn, another strong week. Year to date 1654 tonnes have been withdrawn – SGE withdrawals equal Chinese wholesale gold demand, as has been confirmed by the SGE and the China Gold Association (CGA).

SGE gold withdrawals week 44 2014
Blue (本周交割量) is weekly gold withdrawn from the vaults in Kg, green (累计交割量) is the total YTD.

These numbers are hard to reconcile with a Wall Street Journal (WSJ) article from November 3, which quoted a leading Hong Kong-based executive with an international bank, who didn’t want to be identified, stating: “The physical buying in gold has dried up.

Shanghai Gold Exchange withdrawals 2014 week 44, dips
Chinese gold demand increases on falling prices. (gold can be bought on the SGE, but withdrawn from the vaults a next week, this can somewhat distort the illustration of my thesis in this chart)

Reuters also reported on November 3 about weak Chinese gold demand:

Chinese unmoved by gold price drop, see it cheaper still

Even with gold prices dropping to near 4-year lows, buyers in China – the world’s leading market – aren’t tempted, suggesting prices have further to fall.

When gold prices are in a slump, Chinese buyers, eyeing a bargain, traditionally move in and stop the rot. But that doesn’t seem to be happening this time around.

World gold prices are at their lowest since 2010 and slid $25 an ounce on Friday as the U.S. dollar strengthened, but Chinese buyers still aren’t biting, predicting prices have further to drop.

On November 5 I wrote an article in which I strongly disagreed with the WSJ and Reuters and thoroughly expanded  why Chinese gold demand has been very strong in recent weeks.

On November 9 Reuters came out with a new article covering Chinese gold demand. This time they reported Chinese gold demand was strong in week 45 (November 3 – 9)! From Reuters November 9:

A rush of physical buying in the past week – from jewelry in Shanghai to coins in Germany – may prove to be a dead-cat bounce that is too feeble to offset a broader trend of selling by investors betting on further gains in the dollar, U.S. equities and an improving U.S. economy, according to the survey of more than two dozen analysts and traders.

In contrast to what they’ve reported on November 3, Reuters now states Chinese demand was strong – but, of course, will weaken in the future.

I’ll leave the quality of Reuters’ reporting on Chinese gold demand up to you.

Next to quoting sources the WSJ and Reuters (November 3) stated SGE gold traded at a discount to London that day, hence Chinese gold demand was weak. According to my data, which tracks the end of day (EOD) premium/discount, SGE gold was not trading at a discount on November 3. A journalist from Reuters told me the discount often occurs intra-day, subsequently ending the day at a premium (I don’t have the tools to chart the intra-day premium/discount, yet).

However, as I stated in a previous post, the SGE price of gold, the EOD SGE premium and SGE withdrawals are all correlated. In the chart above we can see SGE withdrawals increasing when the price of gold (in yuan per gram) declines. In the chart below we can see the EOD SGE premiums rising when the price of gold drops. This clearly illustrates the Chinese buy on falling prices. 

Shanghai Gold Exchange premium 2009 2014
In general, the price of gold on the SGE and SGE premiums move as an inverse of each other.

According to my thesis Chinese gold demand is not only up because SGE withdrawals are strong, also because the price is falling and EOD premiums have not been negative for over a month. (conversely, in March and July 2014 SGE gold was trading at a discount when withdrawals were down.) And so, I see absolutely no signs of weak Chinese gold demand.


Silver on the Shanghai Futures Exchange (SHFE) is still trading in backwardation, since August 6.

SHFE silver backwardation November 7, 2014

The discount on silver on the SHFE (ex VAT), though,  tumbled from 4 % to 8 %. This can have been caused by the revelation about Chinese traders that found a loophole to export silver bullion, circumventing VAT laws, to arbitrage the pure price spread between China and London. When this story came out I presume Chinese authorities stepped in and closed to loophole.

Shanghai Gold Exchange SGE silver premium 2014

SHFE silver inventory stands at 124.9 tonnes.

SHFE silver inventory, November 7, 2014

Worth noting is that gold and silver trading volumes on the SHFE and SGE are in an uptrend. In week 45 (November 3 -7) 12,098 tonnes of silver were traded on the SGE, an all-time record.

SGE weekly silver volumes

Silver volumes on the SHFE are once again transcending the COMEX volumes. In week 45 total volume traded on the SHFE was 81,886 tonnes, up from 45,064 tonnes in the previous week. The open interest (OI) closed on November 7 at 6,619 tonnes, which was also an all-time record. Silver volume on the COMEX was 50,785 tonnes, up from 43,077 tonnes a week earlier. The COMEX open interest closed at 26,230 tonnes.

(all counted unilaterally / single-sided)

COMEX vs SHFE silver volume and open interest

Gold volumes on the SGE have also been increasing in recent weeks, this is most likely due to the fact many SGE gold products can be traded by foreigners since September 18, 2014. In week 45, the total trading volume of all gold products on the SGE accounted for 229 tonnes.

SGE weekly gold volumes

Gold volumes on the SHFE are still dwarfed by the COMEX. However, the gold OI on the SHFE also hit a record in week 45 (November 3 -7) at 138 tonnes. The traded volume was 762 tonnes, up from 504 tonnes a week earlier. COMEX volume was also up at 3,431 tonnes, from 2,859 tonnes a week before.

COMEX vs SHFE gold volume and open interest

The Great Chinese Silver Market Debate

Bloomberg came out on October 28 with an article about Chinese silver hitting a premium of 17 % this month.

Have a look at Bloomberg’s chart on Chinese silver premiums.

Regular readers know I’m one of the few that reports on the pure price of silver in China being cheaper than in London, because all Chinese commodity exchanges quote silver including 17 % VAT. If we subtract 17 % from the quoted prices, the pure price of silver in China is currently trading at a 4 % discount to London, not at a premium like Bloomberg states. As we can see in my chart below the premium is negative.

Shanghai Gold Exchange silver premium

By the way, silver is still trading in backwardation on the Shanghai Futures Exchange (SHFE), since August 6. This has caused the discount to decline to 4 %.

SHFE silver backwardation October 29, 2014

Obviously Bloomberg and I have a disagreement on the Chinese silver market – comparable to my disagreement with the World Gold Council on the Chinese gold market. Though, the Silver Institute agrees with me on the Chinese silver market. In their report The Chinese Silver Market, published in 2012, they stated: 

As mentioned earlier in this report, since the liberalization of the Chinese silver market, all
silver transactions are subject to 17% VAT in China. In other words, local smelters need to pay 17% tax on silver contained in imported concentrates (typically based on international prices). However, as domestic prices (excluding tax) have been trading consistently lower than the international price, it is not surprising that local smelters tend to prefer low silver content in imported concentrates. It is worth stressing here that silver prices quoted on commodity exchanges in China have already included a 17% VAT.

What is remarkable is that Bloomberg reports on a very high silver premium in China mainland, yet, they link this to a scheme in which traders export ingots labelled as acoustic wire to profit from a tax rebate. Quote:

Silver in China has been the most expensive relative to London in about three years as exporters stepped up overseas shipments to qualify for a tax rebate, draining inventories of the metal.

…exporters boosting shipments by classifying ingot as acoustic wire, said Liu Xu, a precious-metals analyst at Capital Futures Co. in Beijing.

…“It’s an open secret in the local silver industry that a lot of exports have been thinly-veiled attempts to profit from tax rebates,” Liu said. “There isn’t that much demand overseas for acoustic wire for stereos. Yet a lot of shipments this year have been labeled as wire.”

What’s wrong with this story? Why would any foreigner import silver ingots from China when it’s 14 % more expensive than in London? Doesn’t make sense right?

This is my view: it could very well be silver ingots are exported as acoustic wire from China because the pure price of silver in China is cheaper than in London (not more expensive as Bloomberg states). However, to arbitrage the price difference, foreign importers would need to be able to pay the pure price of Chinese silver, excluding VAT.

It can go like this. The exporter buys silver ingots, for example, on the SHFE and is required to pay the pure price plus 17 % VAT. When he would export this as ingots there is no VAT rebate for him from the government, this law was passed in 2008, so he would have to charge his trading partner the price of silver plus 17 % VAT to balance the VAT he paid at the SHFE. If the foreign importer is charged with VAT from another country he can’t get restitution, he would pay for the pure price of silver imported plus 17 %.

The Chinese government implemented the aforementioned law to withhold silver ingots/bullion from leaving the country. Of course silver is exported in many other forms, like in solar panels or acoustic wire. The next quote is from the law passed in 2008 that ended VAT rebates on silver ingot export.

Translated by my friend LK, gold investor from Hong Kong:

Department of Treasury, State Dept of Taxation Notice on Adjustment on Export Rebates of Textiles and other Commodities.

Document Number: Taxation[2008]111.

Issuing Unit: Department of Treasury, State Dept of Taxation

Issuing date: 2008-07-30

To each province, Self-Administrative Region, Municipal, Planning cities (bureaus), State Administration of Taxation, Finance Bureau of Xinjiang Production and Construction Corps:

At the approval of the State Department, export rebates for certain commodity products are adjusted as follows:

1. Some textile, garment export rebate is raised from 11% to 13%; Export rebate for certain bamboo products is raised to 11%. For exact details please see Appendix 1. 

Export rebates for these products are cancelled: Pine kernels, certain agricultural chemicals, certain organic arsine chemicals, taxol and its products, rosin, silver, No. 0 zinc, certain paint products, certain battery products, carbon anode. For exact information please see Appendix 2.

Implementation Timing

The aforementioned export rebate changes take place on Aug 1, 2008. Applicability is determined by the date specified on the form “Export of Goods Customs Declaration (for Export Rebates)”.

Appendix 2. List of goods no longer qualified for export rebates:

Screen Shot 2014-10-29 at 7.47.31 PM

If the exporter ships the ingots as acoustic wire he apparently receives a 17 % VAT rebate (the VAT of acoustic wire is paid back by the Chinese State Administration of Taxation to the exporter). In an article Bloomberg published October 30 they stated:

Outbound shipments of silver this year have at times been classified as acoustic wire as traders sought a 17 percent export rebate used to encourage domestic high-end manufacturing, Liu Xu, an analyst at Capital Futures Co., said Oct. 29.

There you have it, silver ingots don’t get a rebate when exported, acoustic wire does get a rebate. This is how the exporter can sell silver abroad for China’s cheaper pure price. So, the exporter found a way to arbitrage the price difference between Shanghai and London. If the difference is 4 %, both the exporter and the importer can have a piece of the pie. This scheme could perfectly cause high demand for silver in Shanghai and the concurrent backwardation on the SHFE. Bloomberg’s analysis, stating silver is trading at a premium in China, I think is incorrect – wouldn’t be the first time.

Exporting silver ingots as acoustic wire is another example of fraud and circumventing protectionism. Let’s hope governments will realize some day that capitalism can only thrive in free markets.

From the SHFE Rulebook:

Article 44

The contract price of a futures contract means the price including the value added tax, or the VAT, for the contract’s underlying standard grade of commodity delivered at the benchmark delivery warehouse.


Gold Is Money

Would you like to receive a percentage of your salary in gold? Yes I do!

I’m working for the first company in Singapore, BullionStar.com, that offers its employees to be paid in gold or silver. Any BullionStar employee – an economic agent that is free to choose to whatever he or she wishes to allot value –  can choose what percentage of its renumeration will be settled in bullion.

Of course, everyone working for any company can choose, once it has received its fiat salary, to exchange a percentage of the salary for gold. However, my employer facilitates the automation of this process; effortless and effectively. By this arrangement both me and my employer are acknowledging gold as money. Just as the Chinese government.

As I’m convinced gold will be part of a future monetary system, because a debt based monetary system is by definition not sustainable, along this scenario it can be no different than from where we are now developments as receiving a percentage of salary in gold are natural steps prior to a monetary transition.

Hat tip to Torgny Persson for this great initiative. I hope it will inspire more companies to follow suit. This wouldn’t be unlogic for companies in Asia where many people recognize gold for its monetary value, in contrast to the West. Asians tend to hold gold for the long term, to preserve family wealth, not for short term speculation.



16th October 2014
For immediate release

Employees paid in Gold & Silver

SINGAPORE: Starting this month, employees of BullionStar Pte Ltd can choose to have their salary paid in Gold or Silver bullion. Mr Torgny Persson, CEO of BullionStar Pte Ltd says: “Gold and Silver has been used as money throughout centuries and keep its purchasing power over time better than any other asset class. By paying our staff in Gold & Silver, we allow them to save in real money that keeps its value over time. As all our staff already prior to this arrangement save & invest in precious metals, it’s natural for them to embrace the new arrangement.”

The reason why employee Hong Kang welcomes the idea: “I believe in saving in precious metals as I genuinely believe Gold and Silver preserves wealth. For the past two years, I have been putting part of my income into Gold and Silver for long term savings. As an Asian, I wanted to leave behind an inheritance for my children and what else makes a better inheritance than Gold and Silver. In fact, I am all excited about the new arrangement.”

BullionStar Pte Ltd is the FIRST company in SINGAPORE offering its employees to be paid in gold and silver. In doing so, employees can build a bullion portfolio effortless and effectively. More employers are expected to follow suit in the future as Gold and Silver is once again gaining traction in being
recognized as true money as fiat currencies are depreciating in value worldwide.

BullionStar Pte Ltd is a Singapore registered bullion dealer offering GST exempted precious metals for savings and investment. The Singaporean government exempted precious metals in 2012 with the objective of making Singapore a trading, transit and storage hub of precious metals.

Media Contact:
Ms Dawn Kor
E-mail: dawn.kor@bullionstar.com
Telephone: 6284 4653

Willem Middelkoop On The Big Reset

As you can read in my bio, Willem Middelkoop was the reason I started to read about economics in 2009. He’s the most well known gold investor in the Netherlands and one of the few who openly debates mainstream economists and speaks out his critical thoughts about the current status of the international monetary system. In this post I would like to share his thoughts on what he calls The Big Reset, which is also the titel of his latest book: The Big Reset – The War On Gold And The Financial Endgame. In short, Middelkoop states the current international monetary system has entered its last term and is up for a reset.

Middelkoop, like me, didn’t study economics in university, which I think gave us both an advantage in analyzing economics. Middelkoop saw the collapse of the real estate market coming in 2006, Ben Bernanke didn’t.

Makes sure English captions are on.



Can the global credit expansion ‘experiment’ from 2002 – 2008, which Bernanke completely underestimated, be compared to the global QE ‘experiment’ from 2008 – present?

The above video is one of the reasons I like to listen to Middelkoop every now and then. In the next presentation he shares his thoughts on the future of our monetary system and how gold, the US and China are paramount for its outcome. The presentation was held on a Dutch congress called Geld Voor De Toekomst (money for the future) on September 30, 2014, in Rotterdam, the Netherlands. Note, Willem doesn’t pretend to be an economist, he’s an investor and an Author.

Makes sure English captions are on.