Most gold analysts surmise COMEX 100-ounce gold futures contracts (GC) can only be physically settled through taking and making delivery. This is technically true when excluding the possibility of EFP trading in GC through the over-the-counter (OTC) market. While on Exchange trading in GC is “executed openly and competitively”, trading GC in the OTC realm (and thus the price of the gold, its form and location) is a “privately negotiated transaction” between buyer and seller. The COMEX is a subsidiary of CME Group, which offers its clients OTC trading on a platform called ClearPort.
Because the COMEX in New York is the most liquid gold futures exchange globally – offering precious metals futures denominated in the world most used currency the US dollar, gold industry participants use GC for a variety of reasons, including hedging metal held outside the contract’s deliverable geography. Subsequently, the contracts can be physically “settled” anywhere at any price through EFP.
In EFP two parties sign a futures contract (short and long) and simultaneously execute a reverse spot transaction (buy and sell). One side sells short the futures contract and buys spot gold (the spot leg is referred to as the related position by CME), while the other buys long the futures contract and sells the related position. EFP trading can increase the open interest, decrease the open interest, or not change it, depending on the existing positions held by both parties before they enter into an EFP transaction. When EFP decreases the open interest the phrase “settle positions” is applicable. Another way of saying it would be “offsetting positions” or “netting out positions”.
This example matches my previous one regarding EFP (hedging metal held outside the contract’s deliverable geography). Any bullion bank, miner or refinery can sell short on COMEX and when the gold needs to be physically “settled”, for example in Switzerland, the short position can be unwound through EFP. The only requirement is that “the quantity of the related position component … must be approximately equivalent to the quantity of the Exchange component” – meaning the spot leg must be more or less 100-ounces of gold, which is the underlying asset of GC. In this example the GC short holder connects through CME ClearPort to Exchange For Physical. In the EFP transaction he will buy long a futures contract and simultaneously sell spot. His long and short will then be netted out while he sells spot the physical in Switzerland. Effectively, a COMEX short has been physically settled outside the contract’s deliverable geography. Naturally, a long position can also be unwound in Switzerland, which is then the other side of the trade.
EFP Moves Kilobars Through CME’s Hong Kong Vaults
In March 2015 CME launched a Gold Kilo Futures contract (GCK) physically deliverable in Hong Kong, but ever since implementation there has been poor participation in this instrument. From the start GCK trading volume has been close to nothing and deliveries rarely occur. Notwithstanding, there are massive volumes of kilobar gold flowing through the CME approved warehouse in Hong Kong owned by Brink’s, Inc.. On average 3.9 tonnes per day are withdrawn from this vault, but sometimes daily withdrawals are as high as 20 tonnes.
Because volume and delivery for GCK on Exchange is so low, the withdraws must be explained by OTC trades. A CME representative actaully confirmed this to me; the physical movement through the Hong Kong vaults is caused by EFP transactions.
But if we look at the GCK volume page we can never observe any EFP trades being disclosed. In contrast, EFP volume of GC is substantial. Can it be gold kilobars in CME’s approved warehouses in Hong Kong are used to settle the 100-ounce futures contracts? Yes.
My theory is that kilobars bought by bullion banks in the West, for example at Swiss refineries, to be consigned to China are hedged on the COMEX and once the gold arrives is Hong Kong the shorts are unwound through EFP. From there the gold is transported by armored truck to Shanghai Gold Exchange designated warehouses in Shenzhen by Brink’s that has a cross-border logistics license from the Chinese government. Supportive to my theory, see exhibit 3 below. Notice the strong correlation between “gold import into Hong Kong versus kilobars received in CME’s vaults” and “re-export from Hong Kong versus kilobars withdrawn from CME’s vaults”.
The correlation points out most gold moving through Hong Kong, which is headed for China, is in kilobar form and moves through CME’s vaults. And because most of this throughput is EFP related, I assume the kilobars are used to settle COMEX futures.
It’s hard to test if my theory is accurate because EFP transactions are executed in the OTC realm and little information is available. If anyone has a different theory please comment below.
London Gold Offsets COMEX Futures
We’ve established gold in Switzerland and Hong Kong is used to settle gold futures. But there is also proof gold in London is used to phase out positions on the COMEX. When researching this topic I reached out to William Purpura who is, inter alia, Chairman at Northport Commodities, member of the COMEX Governors Committee, and previously traded on the COMEX floor from 1982 to 2007. I asked Purpura for an example of how EFPs are used. He replied [brackets added by me]:
Most of it [EFP] is done by bullion banks. … It’s mainly for netting out. Lot’s of times London versus New York. You see lots of EFPs posted around 8am in New York on COMEX.
There it is, “London versus New York”, and, “netting out”. From this quote we learn loco London gold is used to execute EFPs to wash out New York futures positions. One can argue the related position in London is “unallocated” – I’m not sure. In the latest formulation by CME on EFP (Market Regulation Advisory Notice RA1311-5R) it’s stated:
Where the related position component … is a physical transaction … the transaction should be submitted for clearing as an EFP transaction type.
Often in wholesale gold market parlance physical is also used for “unallocated gold”, which is not exactly physical in my opinion.
I’m sure there are many more methods than I’ve mentioned to use EFP, or any other privately negotiated transaction (PNT) available on ClearPort, that influences the open interest at the COMEX. One thing is for sure, conventional delivery is not the only way to terminate futures positions. In the gold futures rulebook this is explicitly noted by CME Group. The excerpt below is about terminating a gold futures contracts [brackets added by me].
113102.E. Termination of Trading
No trades in Gold futures deliverable in the current month shall be made after the third last business day of that month. Any contracts remaining open after the last trade date must be either:
(A) Settled by delivery which shall take place on any business day beginning on the first business day of the delivery month or any subsequent business day of the delivery month, but no later than the last business day of the delivery month.
(B) Liquidated by means of a bona fide Exchange for Related Position [/EFP] … .
This is important for our comprhension of the global paper and physical gold market. COMEX gold futures delivery statistics are not all there is to it.
Core Supply & Demand Data Chinese Gold Market Q1-Q3 2016
Chinese gold demand is still going strong this year, albeit less than in 2015. The most likely reason for somewhat lower demand has been the strength in the price of gold in the first three quarters of this year, to which the Chinese reacted by subduing purchases. From 1 January until 30 September 2016, the gold price went up 24 % in US dollars per troy ounce, from $1,061.5 to $1,318.1; measured in renminbi the price went up 28 % over the same period.
Now I have proven the gold on Chinese commercial bank balance sheets has little to do with physical gold ownership of these banks, but mainly reflects back-to back leases and swaps, we can be positive that data on withdrawals from the vaults of the Shanghai Gold Exchange (SGE) roughly equals Chinese wholesale demand. For now that is, as future developments can always alter our metrics.
Below is a chart showing withdrawals from the vaults of the SGE and the price of gold in yuan per gram. The most significant trends of recent years are still in effect; in the short term, when the gold price is falling Chinese demand increases (2013 and 2015), when the gold price is rising Chinese demand declines (2016). This trend is supported by SGE premiums that have an inverse correlation with the price of gold, when the price of gold declines, SGE premiums escalate and vice versa – I will show charts below. Furthermore, in the long term we can observe consistent growth in Chinese gold demand due to the opening up and development of the domestic market.
SGE withdrawals in the first three quarters of 2016 accounted for 1,406 tonnes – still impressive – down 29 % from 1,986 tonnes in 2015, which was a record year. Annualized SGE withdrawals are set to hit 1,877 tonnes in 2016.
Notable, “known net import” by China is relatively strong compared to SGE withdrawals in 2016. Total net import in the first three quarters of this year has aggregated to 905 tonnes – annualized 1,206 tonnes – or 64 % of SGE withdrawals, versus an import/withdrawals ratio of 53 % in 2015. As mine supply to the SGE is fairly constant, recycled gold through the SGE must be lower this year than last year. As a rule of thumb, we use the equation:
The largest net exporter to China is still Hong Kong, having transhipped 608 tonnes to the mainland from January until September 2016, up 5 % compared to 2015. The volume Hong Kong exports to the mainland has been quite constant since 2014, while in 2013 China’s special administrative region was a substantial larger supplier.
(There have been rumors that Hong Kong ’s export to China is overstated in the official data by the Hong Kong Census & Statistics Department, caused by fake exports. In the chart below you can see that the share of exports relative to re-exports from Hong Kong to China this year has increased from previous years. Potentially this signals fake exports, as it’s easier to over invoice an export than re-export, though I haven’t found hard evidence for this scheme. When I do I will report accordingly.)
The second largest exporter to China is Switzerland, having supplied a net 229 tonnes so far this year, which is 22 % more than last year. Clearly, direct shipments from Switzerland to China have replaced shipments via Hong Kong.
Direct net exports by the UK to China mainland have collapsed by 92 % this year compared to 2015, from 210 tonnes to a mere 18 tonnes. The reason being, the UK has been the largest net importer globally this year, which is related to the strength in the gold price early this year. UK net gold trade is a proxy for Western institutional supply and demand.
Australia’s direct export to China is down this year as well (in the first eight months, data for September has not yet been released). I’ve computed the data as described in my post Australia Customs Department Confirms BullionStar’s Analysis On Gold Export To China. Following this method, the land of down under has sent 50 tonnes of gold directly to China during the first eight months of this year, down 23 % from 65 tonnes in 2015.
Despite press releases suggesting Russian gold enterprises are strengthening ties with the SGE, I have identified only one shipment of 30 Kg by the Russian Federation directly to China in 2016. In 2013 the Russians directly net exported 50 Kg to China.
Data on gold export from South Africa to China is not publicly available.
Since 2014, when the Shanghai International Gold Exchange (SGEI) was erected, there is a possibility “SGE withdrawals” are inflated by withdrawals from vaults in the Shanghai Free Trade Zone; gold that is allowed to be exported abroad – the free trade zone is not part of the domestic market. But as far as I know any activity on the SGEI lacks foreign enterprises that buy gold to withdraw and export. A couple of months ago a source at a large Chinese bank told me the SGEI is mainly used by Chinese banks to import gold into Chinese domestic market. In addition, I haven’t bumped into any large importers from China. Occasionally India imports a few hundred Kg, but that’s it.
The emblematic difference between “Chinese gold demand as disclosed by GFMS” and SGE withdrawals – displayed in exhibit 7 – is due to GFMS’ incomplete metrics. For decades this consultancy firm has been denying the existence of institutional supply and demand in above ground gold, which is far more important to price formation than retail sales and mine supply, the predominant flows published by GFMS. The essence of this swindle can be read in my blog post The Great Physical Gold Supply & Demand Illusion. I also have a few more blog posts in the pipeline that discuss GFMS’ most recent gold supply and demand data.
I expect November to be a very strong month for SGE withdrawals. Mentioned in the introduction segment of this post, there is a trend in Chinese wholesale gold demand in relation to the gold price. Whenever, the gold price is climbing, Chinese demand is subdued, accompanied by low SGE premiums; when the gold price is decreasing, SGE withdrawals and premiums in China shoot up. The relationship between the gold price and SGE withdrawals can be viewed in exhibit 1. Below in exhibit 8 & 9, readers can see the relationship between “SGE end of day prices and premiums”.
Note, the gold price on the SGE and the premium have an inverse correlation.
I already mentioned that SGE withdrawals in the first nine months of 2016 have been subdued due to a rally in the gold price. However, high premiums at the SGE in November forecast elevated withdrawals for the month. Since Trump got elected on November 9, and price of gold started tumbling, SGE premiums have broken a three-year record. This signals strong demand.
In the next chart from Goldchartsrus.com we can see the premium on the SGE’s most traded physical contract Au99.99 has risen since November 9 and reached 3 % by 24 November. Levels not seen since 2013 (exhibit 8).
Although the relationship between the gold price and SGE premiums has been in place for years, Reuters reports the high premiums in November are caused by worries on import restrictions. From Reuters:
Gold premiums in top consumer China jumped to the highest in nearly three years this week on worries over a supply shortage that traders said were due to Beijing’s efforts to restrict import licenses.
“While we don’t have the exact numbers, we hear that they (Chinese government) have limited the number of importers,” said Dick Poon, general manager at Heraeus Precious Metals in Hong Kong.
To me this statement doesn’t make sense. At this moment that are 15 banks approved by the PBOC to import gold. Limiting the number of importers would cause less importers to import more gold in order to balance the domestic market (supply gold from abroad when necessary). In the Measures for the Import and Export of Gold and Gold Productsdrafted by the PBOC in March 2015 it states:
… An applicant for the import … of gold … shall have corporate status, … it is a financial institution member or a market maker on a gold exchange [SGE] approved by the State Council.
… The main market players with the qualifications for the import … of gold shall assume the liability of balancing the supply and demand of material objects on the domestic gold market. Gold to be imported … shall be registered at a spot gold exchange [SGE] approved by the State Council where the first trade shall be completed.
The Chinese government could lower imports by distributing less “import licences” to approved banks. As, every approved bank still needs to submit for a license for every gold import batch. Logically, lowering imports would be done by the PBOC through handing out less licences.
Gold supply and demand data published by all primary consultancy firms is incomplete and misleading. The data falsely presents gold to be more of a commodity than a currency, having caused deep misconceptions with respect to the metal’s trading characteristics and price formation.
Numerous consultancy firms around the world, for example Thomson Reuters GFMS, Metals Focus, the World Gold Council and CPM Group, provide physical gold supply and demand statistics, accompanied by an analysis of these statistics in relation to the price of gold. As part of their analysis the firms present supply and demand balances that show how much gold is sold and bought globally, subdivided in several categories. It’s widely assumed these balances cover total physical supply and demand, which is incorrect as the most important category is excluded. The firms though, prefer not to share the subtle truth or their business models would be severely damaged.
The supply and demand balances by the firms portray gold to be more of a commodity than a currency, as the gist of the balances reflect how much metal is produced versus consumed – put differently, the firms mainly focus on how much gold is mined versus how much is sold in newly fabricated products. However, in reality gold is everlasting and cannot be consumed (used up), all that has ever been mined is still above ground carefully preserved in the form of bars, coins, jewelry, artifacts and industrial products. Partly because of this property the free market has chosen gold to be money thousands of years ago, and as money the majority of gold trade is conducted in above ground reserves. Indisputably, total gold supply and demand is far in excess of mine production and retail demand.
As most individual investors, fund managers, journalists, academics and precious metals analysts consider the balances by the firms to be complete, the global misconception regarding gold supply and demand is one of epic proportions. Physical gold is a profound anchor in our global financial system and thus it’s of utmost importance we understand the fine details of its trading characteristics.
Supply & Demand Metrics By The Firms
The firms can argue that the difference between what they present as supply and demand (S&D), as opposed to what I deem to be a more unadulterated approach of S&D is due to contrasting metrics. Accordingly, we’ll discuss their metrics to reveal their infirmity. In a nutshell, the firms only count the physical gold S&D flows that are easy to measure, while leaving out the most important part: institutional supply and demand.
Although the firms all have slightly different methodologies to measure S&D, from comparisons the numbers appear to be quite similar. For our further investigation we’ll spotlight the metrics and models by GFMS. The reason being, GFMS has been the only firm that was willing to share a full description of their methodology for publication – to be viewed here. Metals Focus (MF) provided a partial methodology, the World Gold Council and CPM Group declined to comment.
Let’s have a look at GFMS its S&D categories. On the supply side is included:
Mine supply (newly mined gold)
Scrap supply (gold sourced from old fabricated products)
On the demand side is include:
Jewelry demand (gold content used in newly manufactured jewelry products bought locally at retail level, adjusted by jewelry exported and imported).
Industrial demand (the volume of gold used in industrial applications, for example bonding wire, products used in semiconductors/electronics and dental alloys).
Retail bar investment (the net volume of bars that are purchased by individual investors through retail channels).
Coin investment (a combination of published data from mints and also a proprietary survey conducted by GFMS detailing where coins are sold).
The above four demand categories summed up are often referred to as “consumer demand” by the firms.
Furthermore GFMS includes:
Net hedging (change in physical market impact of mining companies’ gold loans, forwards, and options positions)
Net official sector (total central bank selling or buying)
ETF inventory build (change in ETF inventory)
Exchange inventory build (change in exchange inventory)
The last four categories can be either supply or demand. In example, when central banks (the official sector) in total are net sellers this will be listed as a negative demand figure, as is shown in the S&D balance by GFMS below from 2006 until 2009, when central banks in total are net buyers this will be listed as a positive demand figure, as is shown in the balance from 2010 until 2015. For a clear overview of the GFMS S&D balance please have a look at all line items below.
According to GFMS Supply consists of Mine production, Scrap and Net Hedging. In turn, Demand consists of Jewelry, Industrial Fabrication, Retail Investment, and Net Official Sector. After balancing Supply and Demand this results in a Physical Surplus/Deficit. Then, ETF Inventory Build and Exchange Inventory Build are added/subtracted from the Physical Surplus/Deficit to come to a Net Balance.
GFMS likes to pretend their balance is complete and occasionally articulates any surplus or deficit arising from it is positively correlated to the price of gold, which is anything but true, as I will demonstrate step by step.
The Firms Exclude Majority Gold Supply & Demand
Most important what’s excluded from the balance is what we’ll refer to as institutional supply and demand, which can be defined as trade in bullion among high net worth individuals and institutions. Usually the bullion in question comes in 400-ounce (12.5 Kg) London Good Delivery (GD) bars having a fineness of no less than 995, or smaller 1 Kg bars having a fineness of no less than 9999. In addition, bullion bars can weigh 100-ounce or 3 Kg, among other less popular sizes, generally having a fineness of no less than 995. Bullion can be traded without changing in weight or fineness, but it can be refined and/or recast for transactions as well, in example from GD bars into 1 Kg bars. In some cases institutional supply and demand involves cross-border trade, when bullion is sold in country A to a buyer in country B, in other cases the bullion changes ownership without moving across borders.
Provided are two exemplifications of institutional S&D:
An (institutional) investor orders 400 Kg of gold in its allocated account at a bullion bank in Switzerland – which would be purchased in the Swiss wholesale market most likely in GD bars. This type of S&D will not be recorded by GFMS.
A Chinese (institutional) investor buys 100 Kg of gold directly at the Shanghai Gold Exchange (SGE), the Chinese wholesale market, in 1 Kg 9999 bars and withdraws the metal from the vaults. Neither this transaction will be registered by GFMS – or any other firm.
These examples show the S&D balances by GFMS are incomplete.
For illustrational purposes, below is a chart based on all S&D numbers by GFMS from 2013, supplemented by my conservative estimate of institutional S&D. Including institutional transactions total S&D in 2013 must have reached well over 6,600 tonnes.
GFMS Covers The Tracks With Help From The LBMA
Although GFMS intermittently admits their number are incomplete (they have to), at the same time they’ve been battling for years to eclipse apparent institutional S&D for its audience.Dauntless tactics were needed when in 2013 institutional demand in China reached roughly 1,000 tonnes and over 500 tonnes in Hong Kong. Institutional demand in the East was predominantly sourced through GD bars from the London Bullion Market, which were refined into 1 Kg 9999 bars that are more popular in Asia. For the cover up GFMS went to great lengths to refute the volumes of gold withdrawn from SGE vaults, and accordingly have the London Bullion Market Association (LBMA) adjust statistics on total refined gold by its member refineries. Remarkably, the LBMA cooperated. Allow me to share my analysis in detail.
In 2013 something unusual happened in the global gold market as Chinese institutional demand exploded for the first time in history. Hundreds of tonnes of institutional supply from London in the form of GD bars were mainly shipped to Switzerland to be refined in 1 Kg 9999 bars, subsequently to be exported via Hong Kong to meet institutional demand in China. From customs data by the UK, Switzerland and Hong Kong the institutional S&D trail was clearly visible. From 2013 until 2015 there was even a strong correlation between the UK’s net gold export and SGE withdrawals. Demonstrated in the chart below.
Stunningly, since 2013 GFMS has tried to convince its readers through numerous arguments why SGE withdrawals crossed 2,000 tonnes for three years in a row, while Chinese consumer demand reached roughly half of this. Yet the arguments have failed miserably to explain the difference – they rationalize only a fraction, read this post for more information.
And GFMS did more to eclipse apparent institutional S&D. They colluded with the LBMA.
To be clear, I cannot exactly measure global institutional S&D. However, let me make an estimate of apparent institutional demand for 2013. Notable, in 2013 a flood of gold crossed the globe from West to East. Chinese institutional demand accounted for 914 tonnes and Hong Kong net imported 579 tonnes – the latter we’ll use as a proxy for additional Asian institutional demand, as Hong Kong is the predominant gold trading hub in the region.
In total apparent institutional demand in 2013 accounted for (914 + 579) 1,493 tonnes. If we add all other demand categories by GFMS shown in exhibit 1, total demand in 2013 was at least 6,619 tonnes. Be aware, this excludes non-apparent institutional demand.
Because nearly all wholesale gold demand in Hong Kong and China is for 1 Kg 9999 bars, the global refining industry was working overtime in 2013, mainly to refine institutional and ETF supply in GD bars coming from London. In December 2013 I interviewed Alex Stanczyk of the Physical Gold Fund who just before had spoken to the head of a Swiss refinery. At the time Stanczyk told me [brackets added by me]:
They put on three shifts, they’re working 24 hours a day and originally he [the head of the refinery] thought that would wind down at some point. Well, they’ve been doing it all year . Every time he thinks it’s going to slow down, he gets more orders, more orders, more orders. They have expanded the plant to where it almost doubles their capacity. 70 % of their kilobar fabrication is going to China, at apace of 10 tonnes a week. That’s from one refinery, now remember there are 4 of these big ones [refineries] in Switzerland.
As a consequence, statistics on “total refined gold production” in 2013 by “LBMA accredited gold refiners who are on the Good Delivery List”, which the four large refineries in Switzerland are part off, capture the immense flows of institutional S&D – next to annual mine output and scrap refining. On May 1, 2015, the LBMA disclosed total refined gold production by its members at 6,601 tonnes for 2013 in a document titled A guide to The London Bullion Market Association. It’s no coincidence this number is very close to my estimate on total demand (6,619 tonnes), as apparent institutional demand in Asia was all refined from GD into 1 Kg bars.
Here’s exhibit 2 from another angle.
In the table below we can see the LBMA refining statistics for 2013 at 6,601 tonnes.
After this publication GFMS was trapped; these refining statistics revealed a significant share of the institutional S&D flows they had been trying to conceal. What happened next – I assume – was that GFMS kindly asked the LBMA to adjust downward their refining statistics. First and painstakingly exposed by my colleague Ronan Manly in multiple in-depth posts, the LBMA kneeled and altered its refining statistics to keep the charade in the gold market going.
On August 5, 2015, the LBMA had edited the aforementioned document, now showing 4,600 tonnes in total refined gold production. (Click here to view the original LBMA document from the BullionStar server, and here to view the altered version from the BullionStar server.) Have a look.
In the altered version it says:
Total refined gold production by the refiners on the List was estimated to be 4,600 tonnes in 2013, owing to recycling of scrap material, above world mine production of 3,061 tonnes (source Thomson Reuters GFMS).
A few important notes:
In the altered version the LBMA mentions “an estimate” for “total refined gold production”, while it doesn’t need to make an estimate as all LBMA accredited gold refiners who are on the Good Delivery List are required to provide exact data to its parent body. The exact data was disclosed in the first version of A guide to The London Bullion Market Association, and it stated, “total refined gold production by the refiners on the List was 6,601 tonnes”.
In the altered version the LBMA states the refining statistics were sourced from Thomson Reuters GFMS, but the LBMA doesn’t need GFMS for these statistics. The fact they mention GFMS, though, suggests a coordinated cover up of institutional S&D. Not only the firms, also the LBMA publishes incomplete and misleading data.
The altered version stated refining production totaled 4,600 tonnes, which is a round number and obviously quickly made up. A few weeks after the numbers were adjusted, the LBMA adjusted the numbers again, this time into 4,579 tonnes (click here to view from the BullionStar server).Clearly, on several occasions there has been consultation with the LBMA to get the statistics in line with GFMS.
In the original document the LBMA states, “Total refined gold production by the refiners on the List was 6,601 tonnes in 2013, more than double world mine production of 3,061 tonnes”, while in the altered version they state, “Total refined gold production by the refiners on the List was estimated to be 4,600 tonnes in 2013, owing to recycling of scrap material, above world mine production of 3,061 tonnes”. Notable, GFMS prefers to have total supply focused around mine and scrap production, instead of including institutional supply.
The original refining statistics (6,601 tonnes) are still disclosed in the LBMA magazine The Alchemist (#78 on page 24), to be viewed from the LBMA server here.
And so nothing is spared in trying to uphold the illusion of the GFMS S&D balance to be complete. In another example GFMS excluded gold purchases by the central bank of China from its S&D balance. In June 2015 the People’s Bank Of China (PBOC) increased its official gold reserves by 604 tonnes, from 1,054 tonnes to 1,658 tonnes. During that quarter (Q2 2015) all other central banks worldwide were net buyers at 45 tonnes. Thus, in total the Official Sector was a net buyer at 649 tonnes. Now, let’s have a look at GFMS’ S&D balance for Q2 2015:
Net Official Sector purchases are disclosed ay 45 tonnes. GFMS decided not to include the 604 tonnes increment by the PBOC simply because it didn’t fit their balance model. A 604 tonnes increment in would have set the “net balance” at -480 tonnes. Readers would have questioned the balance from this outlier, and so GFMS decided not to include the tonnage.
According to my sources PBOC purchases were sourced from institutional supply (from abroad and not through the SGE), which is a supply category not disclosed by GFMS and therefore the tonnage was a problem. (Note, GFMS disclosed the PBOC increment in text, but not in their balance.) For more information read my post PBOC Gold Purchases: Separating Facts from Speculation.
Gold Is More A Currency Than A Commodity
The biggest flaw of the balance model by GFMS is that it depicts gold to be more of a commodity than a currency. It’s focused on mine output and gold recovered from old fabricated products on the supply side, versus retail sales of newly fabricated products on the demand side. In parlance of the firms, how much is produced (supply) versus consumed (demand). Official sector, ETF and exchange inventory changes are then added to the balance. This commodity S&D balance approach by GFMS has caused deeply rooted misconceptions about the essence of gold and its price formation.
The price of a perishable commodity is mainly determined by how much is annually produced versus how much is consumed (used up). However, gold is everlasting, it cannot be used up and its exchange value is mainly based on its monetary applications, from being a currency, or money if you will. Logically the best part of its trading is conducted in above ground reserves. From my perspective the impact of global mine supply, which increases above ground stocks by roughly 1.5 % annually, and retail sales have less to do with gold’s price formation than is widely assumed.
Back to GFMS. Have a look at the picture below that shows their S&D flows for 2015.
GFMS pretends total supply is mine production plus some scrap, which is then met by jewelry demand in addition to retail investment, industrial fabrication and official sector purchases. The way they present it is misleading. These S&D flows are incomplete; they suggest gold is traded like any other commodity. But what about institutional S&D in above ground bullion? Trades that define gold as an international currency.
Let’s do another comparison; this time between what GFMS calls Identifiable Investment demand, consisting of…
Retail bar & coin
…versus my what I deem to be a more unadulterated approach of investment demand, consisting of…
Total [global] Identifiable Investment, … posted a modest 5 % increase in 2015, to reach 990 tonnes.
That’s quite a tonnage between global Identifiable Investment by GFMS at 990 tonnes and apparent Chinese institutional demand at 1,400 tonnes. We should also take into account non-apparent institutional demand, gold that changes hands in trading hubs like Switzerland. Unfortunately we can’t always measure institutional S&D, but that doesn’t justify denying its subsistence.
Have a look at the chart below that shows the large discrepancy. In the next chapter we’ll specifically discuss the significance of investment demand in relation to the price of gold.
My point being: what many gold market participants and observers think is total supply and demand is just the tip of the iceberg.This truly is a staggering misconception created by the firms.
When observing the GFMS balance in exhibit 1 its incompleteness is self-evident. At the bottom we can see the line item “net balance”, which reflects the difference between total supply and total demand. According to GFMS, if the “net balance” is a positive figure there was a surplus in the global gold market, and if “net balance” is a negative figure the market has been in deficit. In the real world this figure is irrelevant. Gold supply and demand are by definition always equal. One cannot sell gold without a buyer, and one cannot buy gold without a seller. Furthermore the gold market is deep and liquid. So how come there is a difference between total supply and total demand in the GFMS balance? As I’ve demonstrated before, because GFMS doesn’t include institutional S&D that in reality makes up for the difference and far beyond. In all its simplicity the “net balance” item reveals their data is incomplete.
Let’s have another stab at this. How can “net balance” exist in the real world, for example in 2009? According to GFMS the gold market had a 394 tonnes surplus in 2009. But how? Were miners left with 394 tonnes they couldn’t sell? Or some supranational entity decided to soak up the surplus to balance the market? Naturally, this is not what happens. Total supply and total demand are always equal, but GFMS doesn’t record all trades.
Moreover, in my opinion the words “surplus” and “deficit” do not apply to gold. There can be no deficit in gold; there will always be supply. At the right price that is. Sometimes Keynesian economists claim there is not enough gold in the world for it to serve as the global reserve currency. Austrian economists then respond by saying that there will always be enough gold at the right price. I agree with the Austrians and their argument also validates why there can be no deficit in gold.
There is more proof the “net balance” item presented by GFMS is meaningless. Although according to GFMS the market had a 394 tonnes “surplus” in 2009 the price went up by 25 % during that year. This makes no economic sense. A surplus suggests a declining price, not the other way around. Tellingly, S&D forces presented in GFMS balances are often negatively correlated to the gold price, as was the case in 2005, 2006, 2009, 2010 and 2014 (exhibit 1). In conclusion, GFMS S&D balances are not only incomplete, the resulting “net balance” items are misleading with respect to the price. Below are a few charts that demonstrate this conclusion.
If we plot “net balance” versus the end of year price of gold we can see the correlation is often negative. Have a look below. Green “net balance” chart bars show a positive correlation to the gold price, red chart bars show a negative correlation (note, the left axis is inverted for a more clear overview between any “deficit/surplus” and the price of gold). As you can see nearly half of the “net balance” chart bars are negatively correlated to the price of gold.
Mind you, although the “net balance” item is often negatively correlated to the gold price, in the Gold Survey 2016 GFMS states on page 9:
In terms of the Net Balance, 2015 marked the third year in which the gold market remained in surplus, and therefore it is not surprising that the bear market continued.
And on page 14:
The forecast reduction in global mine output and a gradual recovery in demand will see the physical surplus narrow in 2016, providing support to the gold price and laying the foundation for better prospects.
GFMS likes to pretend any “surplus” or “deficit” arising from their balance is correlated to the price, but the facts reveal this is not true.
Let us plot the “physical surplus/deficit” line item by GFMS (exhibit 1) versus the gold price. This results in even more negative correlations.
This exercise reveals that a positive correlation between either a “surplus” or “deficit” arising from a GFMS balance and the price of gold is just a coincidence. No surprise when one is aware their S&D data is incomplete.
Remarkably, the last chart was also published in the Gold Survey 2016, but GFMS chose not to invert the left axis and doesn’t disclose what we see is a surplus or deficit. As a result the largest surpluses (2006, 2007, 2009, 2010) seem to correlate with a rising price, though in reality they did the opposite. Compare the chart below with the one above.
GFMS also publishes S&D balances for silver (a monetary metal that is comparable to gold). For silver the presented correlations by GFMS between a “surplus” or “deficit” in relation to the price are even weaker.
According to GFMS the silver market is always in deficit, but the price goes up and down. Obviously GFMS neglects to measure institutional S&D for silver.
In my opinion, when Gold Fields Mineral Services (GFMS) was erected many decades ago they made a mistake to adopt a commodity S&D balance approach.Surely with the best intentions they gather intelligence and retrieve data from the market. But we must be aware this is not the full picture. The most significant data is not disclosed by GFMS.
When it comes to what drives the price of gold GFMS and I agree it’s determined by gold’s role as a currency in the global economy. When reading the chapter PRICE AND MARKET OUTLOOK in the Gold Survey 2016, GFMS shares its insights with respect to the gold price. Factors mentioned are:
Turmoil in global stock markets
A Chinese hard landing
Geopolitical tensions in the Middle-East
Central bank stimulus (QE)
Global economic weakness
Interest rates policy by central banks
Low risk asset / safe haven demand
So if these factors drive the gold price, in what S&D category would this materialize? Would (large) investors buy and sell jewelry? Or bullion bars? I think the latter. According to my analysis the price of gold is largely determined by institutional demand, and to a lesser extent ETF and retail bar & coin demand.
Let’s do an exercise to see what physical gold S&D trends correlate to the price. The majority of supply on the GFMS balance consists of mine output and the majority of demand on the GFMS balance consists of jewelry consumption. But if we plot these volumes versus the price of gold in a chart, there is no push and pull correlation. For example, when the gold price surged from 2002 until 2011 jewelry consumption was not rising. Neither was it outpacing mine supply. The opposite happened, to be seen in the graph below. This is because jewelry demand is price sensitive – when the price goes up jewelry demand goes down, and vice versa. Jewelry demand is not driving the price of gold.
I also added retail bar & coin demand. Interesting to see is that retail bar & coin demand is on one hand a price driver, moving up and down in sync with the gold price, on the other hand it can be price sensitive having brief spikes when the price of gold declines.
The best correlation between physical S&D in relation to the gold price can be seen in institutional and ETF S&D. One of the largest gold trading hubs in the West is the UK, home of the London Bullion Market that also vaults the largest ETF named GLD. The UK has no domestic mine production, no refineries and national gold demand is neglectable in the greater scheme of things. Therefore, by measuring the net flow of the UK (import minus export) we can get a sense of Western institutional and ETF demand and supply. For example, if the UK is a net importer – import demand being greater than export supply – that signals a net pull on above ground stocks. Approximately one third of the UK’s net flow corresponds to ETF inventory changes, the other two thirds reflect pure institutional S&D.
In the charts above we can observe a remarkable solid correlation between the UK’s net flow and the gold price. The UK is a net importer on a rising price and net exporters on declining price. The shown correlation can’t be a coincidence, though there’s no guarantee it will prevail in the future.
The two charts above show the gold price is mostly determined by institutional supply and demand in above ground reserves. Effectively, GFMS is hiding the most important part of global physical gold flows.
When I asked an analyst at one of the leading firms why his company doesn’t measure institutional S&D he told me candidly, “becauseit’s extremely difficult to accurately estimate it”. And it is. As I wrote previously, I can’t exactly measure global institutional S&D either. However, very often publicly available information gives us a valuable peek at it, and it shows to be more relevant to the gold price than what the firms keep staring at. Not knowing exactly what institutional S&D accounts for doesn’t mean GFMS shouldn’t pay attention to it.
But the firms keep trying to uphold the illusion the data they’ve been selling for decades is complete. For if they would plainly confess it was incomplete, future business could be severely damaged.
What I blame these firms is that they’ve created a meme that the gold market is as large as annual mine supply. This has caused all sorts of misconceptions. Often I read analyses based on a comparison between quantitative demand and mine output. Such analyses are likely to jump erroneous conclusions.
According to data released by the Swiss customs department on Tuesday, Venezuela has net exported 12 tonnes of gold to Switzerland in February 2016. In January Venezuela net exported 36 tonnes of gold to Switzerland, in total 48 tonnes was moved in the first two months of this year.
Venezuela’s economy is in a tight spot. The country suffers from triple-digit inflation and Credit Default Swap (CDS) data shows that traders see a 78 % chance on default. The foreign exchange reserves of Venezuela declined by 12 % to $13.6 billion US dollars in February, from $15.5 billion US dollars in January of 2016. In an effort to avoid catastrophes Venezuela’s central bank has a strong motive to employ its official gold reserves.
The gold imported by Switzerland must have been supplied from the official gold reserves of Venezuela’s central bank – Banco Central de Venezuela (BCV) – either as sales or swaps. Documents by the US Geological Survey show Venezuela’s annual gold production stands at approximately 12 tonnes, which is insufficient to be responsible for the large shipments in recent months.
The Swiss customs department publishes trade statistics by weight and value. When using the average monthly gold price to compute the estimated fine gold content from the weight and value disclosed, it shows the gold exported by Venezuela since December 2013 was roughly “99.5 % pure” (see the grey dots in the chart below). In the wholesale gold market bars have a minimum fineness of 995 per 1,000 parts. Data from Switzerland’s trade statistics implies the metal imported from Venezuela is wholesale bullion from the BCV, not mine output that has a lower fineness.
According to Eurostat no EU member has imported any gold from Venezuela in the past years – Eurostat’s data is updated until December 2015. International Merchandise Trade Statistics provider COMTRADE reports Venezuela hasn’t exported any significant tonnages of gold to countries outside of Europe in recent years either – COMTRADE data is updated until November 2015. However, trade statisticsdo not grant how much gold is, or is not, crossing borders around the globe. Gold can cross international borders without appearing in trade statistics. As an example, we know the BCV shipped an unspecified quantity of gold out of Caracas to an international destination on 2, 3 and 7 July 2015, while these shipments cannot be traced in any trade statistics at my disposal.
How much unencumbered gold the BCV has left is unknown. For sure Venezuela’s official gold reserves are not as much as the World Gold Council portraits. According to the Council the BCV still holds 361 tonnes as of Q4 2015, though the balance sheet at the BCV website from November 2015 states “Oro [gold] monetario 69,147,656,000”, which is worth $11 billion US dollars at an official exchange rate of 0.16. This equates to roughly 296 tonnes of gold, at a nine months rolling average gold price of $1,152.68 an ounce (which is how BCV gold is valued, pointed out by Ronan Manly). According to the BCV website, Venezuela’s official gold reserves declined by roughly 60 tonnes from February until June 2015 (from 361 tonnes to 301 tonnes).
The 296 tonnes of monetary gold, as per November 2015, are not fully unencumbered, as the central bank has entered into swaps (of at least 50 tonnes) with bullion banks that provided the metal to remain on the BCV’s balance sheets.
According to my estimates the upper bound of the BCV’s unencumbered gold reserves, as of 9 March 2016, is 152 tonnes, the lower bound is 0 (zero). The upper bound estimate is based on the official gold holdings of Venezuela in February 2012 at 366 tonnes, assuming all was unencumbered at the time, after which I have subtracted:
Venezuelan (995 fine) gold exports to Switzerland in 2013 at 8 tonnes. This gold could have been involved in a swap, leaving the metal on the BCV balance sheet, while it should be subtracted from Venezuela’s unencumbered reserves.
Venezuelan gold exports to Switzerland in 2014 at 12 tonnes. Again, this could have been gold involved in a swap, leaving the metal on the BCV balance sheet, while it should be subtracted from unencumbered reserves.
The 50 tonne gold swap between the BCV and Citibank executed in April 2015 for a tenor of 4 years. Presumably this swap included the 50 tonnes the BCV had already stored at the Bank Of England. The gold in question remained on the BCV balance sheet according to the website the Venezuela Analysis.
A 60 tonne decline shown on the balance sheet of the BCV from February 2015 until June 2015.
Venezuelan gold exports to Switzerland in September, October, November and December 2015 at 24 tonnes in total. This could have been gold involved in a swap, leaving the metal on the BCV balance sheet, same as in 2013 and 2014.
Venezuelan gold exports to Switzerland in January, February and March 2016 of 60 tonnes in total.
The gold swaps between BCV and the Bank for International Settlements carried out “in recent years”, as reported byReuters in February 2016 (these deals can be related, for example, to the exports to Switzerland performed in 2013 and 2014)
The gold swap with Deutsche Bank in early 2016, as reported by Reuters in February 2016 (this deal can match the exported metal in January or February 2016).
In theory the lower bound of the BCV unencumbered gold reserves is zero, as the three points above can have caused an additional decline in unencumbered reserves of 152 tonnes, or the central bank has sold or swapped significant tonnages we don’t know about.
Switzerland has net imported 35.8 tonnes of gold from Venezuela in January 2016. This unusual high tonnage must be gold from the central bank of Venezuela – Banco Central de Venezuela (BCV) – that has been swapping metal with banks or simply sold it in the open market. Remarkably, after Venezuela repatriated 160 tonnes in official gold reserves from 25 November 2011 until 30 January 2012, it started to slowly export this gold to the world’s largest gold trading and refining hub, Switzerland, in 2015. How much unencumbered official gold reserves Venezuela has left is unknown.
Venezuela’s economy is in dire straits. Adding to failing economic policy by the government the country gets nearly all of its export revenue from oil, of which the price has declined roughly 70 % since 2014. Venezuela’s foreign exchange reserves are dwindling fast, from $24.2 billion dollars in February 2015 to $14.8 billion dollars in November 2015, while Inflation is said to be triple-digit and Credit Default Swap (CDS) data shows that traders see a 78 % chance on default, according Reuters. In an effort to avoid catastrophes the BCV has a very strong motive to employ its official gold reserves.
The 35.8 tonnes of gold in question that arrived in Switzerland in January 2016 must be sourced from the vaults of BCV in Caracas, because Venezuela has no significant gold mine output, according to the US Geological Survey its annual production stands at approximately 12 tonnes, and its citizenry is unable to sell such tonnages. If we look at historic cross-border trade we find that gold export from Venezuela to Switzerland commenced in 2012 with 4 tonnes, followed by 10 tonnes in 2013, 12 tonnes in 2014 and 24 tonnes in 2015. It’s possible the shipments in 2012, 2013 and 2014 were largely sourced from Venezuela’s mine output, but it’s impossible the shipments in 2015 and 2016 were not sourced from the BCV.
From the data provided by Switzerland’s customs department we can estimate the purity of the gold traded by using the average monthly gold price and subsequently compare the weight to the value disclosed in the reports. In the chart below we can see that until May 2013 the gold Venezuela was exporting to Switzerland was roughly 80 % pure, this could have been for example doré bars from mines or coin bars from the BCV, while starting from December 2013 the shipments were roughly 99.5 % pure, suggesting the gold came predominantly from BCV in London Good Delivery bars or US Assay office bars.
There is a vast pool of information on everything related to BCV’s official gold reserves, collected by my colleague Ronan Manly in three extensive blog posts, released on 13 May 2015, 14 May 2015 and 1 November 2015. From these posts we learned, inter alia:
1) By February 2012 Venezuela owned roughly 366 tonnes in official gold reserves, of which 316 tonnes were stored in Caracas – in equal amounts of Good Delivery bars (995 fine or higher) and US Assay office bars (995 or lower) – and 50 tonnes were stored in London.
2) In November 2013 talks started between BCV and Goldman Sachs for a 1.45 million ounces (45 tonnes) gold swap (a dollar loan collateralized with gold), which was expected to be settled at the Bank of England in London. But allegedly a deal was not reached.
3) The topic was renewed in March 2015 when Reuters reported several Wall Street banks were pitching at BCV for a 1.4 million ounces swap to be agreed before the end of April 2015. At the end of April 2015 El Nacional reported Citibank had won the pitch. El Nacional wrote, “the gold will remain at the vaults of the Bank of England” and the Venezuela Analysis wrote, “the value of the gold will continue to appear on the Central Bank’s balance sheet – an advantage that Goldman Sachs denied the in earlier talks”. Implying, the 50 tonnes of gold BCV stored in London was swapped for dollars with Citibank.
4) Manly calculated from the monthly balance sheets published by BCV that Venezuela’s official gold reserves had dropped in March and April 2015 by roughly 61 tonnes in total from 363 tonnes to 302 tonnes. He concluded this decline was not related to the swap deal with Citibank.
5) On 1 July 2015, Venezuelan news site La Patilla published an article titled “BCV exported for pledging [swapping] the gold that Chavez had repatriated”, which described how monetary gold was exported by airplane from Caracas on 2, 3 and 7 July 2015.
Furthermore, Bloomberg reported on 19 August 2015:
“Cash-strapped nations could trigger further downside price risk as the temptation to sell gold reserves mounts. Venezuela is one such country at risk.” Citigroup analysts Wilson and Doshi said in an 18 August report.
“The problem is most of the Venezuelan gold is located in Caracas,” Aberdeen’s Gutierrez said by phone from London on Tuesday. “No bank is going to take collateral for gold that’s actually held in Caracas.”
On 5 February 2016 Reuters reported BCV was in talks with Deutsche Bank to carry out gold swaps in order to improve the liquidity of its foreign reserves. In addition Reuters noted:
The sources said Venezuela in recent years had been carrying out gold swaps with the Switzerland-based Bank for International Settlements (BIS) in operations ranging in duration from a week to a year. One source said Venezuela conducted a total of seven such transactions.
BIS halted these operations last year, both sources said, as a result of concerns about the associated risks.
@KoosJansen President Maduro says his socialist government is under “economic war”…
Reuters wrote Venezuela’s gold involved in swaps does not enter the market. I beg to differ. Normally, in a swap the gold is sold spot from the client to the dealer in exchange for dollars, while both parties agree to reverse the purchase at a future date at a fixed price. If the gold is physically moved during the swap depends on several factors. Because Venezuela had repatriated 160 tonnes of gold in 2011/2012 this metal left the London Bullion Market Association’s chain of integrity. Hence, Gutierrez stated no bank is going to take gold collateral that’s held in Caracas. When BCV’s 50 tonnes stored in London were already on swap with Citibank, it was forced to bring gold to the bullion banks when it needed additional dollars. The gold moving to Switzerland is an example.
It’s not possible to trace exactly how much gold BCV has exported for swap deals, or potentially sales, through foreign trade statistics. Official gold reserves are monetary gold, which is exempt from being disclosed in foreign trade statistics (click this link for a detailed analysis on how monetary and non-monetary gold transfers are recorded in foreign trade statistics and in balance of payments around the world). Whenever BCV chooses to ship any of its gold abroad, for swaps or sales, there are two options with respect to foreign trade statistics, (i) the monetary gold is exported abroad, or (ii) the monetary gold is demonetized in Venezuela and exported abroad. Only in the latter option the gold would show up in foreign trade statistics, as such data solely records movements in non-monetary gold. For all clarity, gold can leave the London Bullion Market Association’s chain of integrity although still being monetary gold, these are separated classifications.
From all sources and evidence presented above actually I think both options are explored. We can clearly see demonetized gold going to Switzerland, but there are also hints monetary gold is exported abroad. Foreign trade statistics by the UK, Switzerland and Hong Kong – the major gold trading hubs – have not shown any gold import from Venezuela reflecting BCV’s declining reserves in March and April 2015 or export in July 2015, meaning Venezuela had probably exported metal invisibly as monetary gold. Needless to say, if BCV would sell any of its gold reserves directly to a fellow central bank, for example the People’s Bank Of China, the related shipments would never show up in foreign trade statistics.
From all information at my disposal I cannot conclude how much gold BCV has on swap or unencumbered in the vaults in Caracas. Surely, Venezuela its official gold reserves are not as much as the World Gold Council portraits. According to the Council BCV still holds 361 as of Q4 2015, though the balance sheet at the BCV website from November 2015 states “Oro monetario 69,147,656,000”, which is worth $11 billion US dollars at an official exchange rate of 0.16, and roughly 296 tonnes of gold at a nine months rolling average gold price of $1,152.68 an ounce (which is how BCV gold is valued, pointed out by Manly). The 296 tonnes will not be fully unencumbered as bullion banks offer swaps while the gold remains on the client’s balance sheets (/double counting).
Obviously Venezuela is in a tight spot. The country is trying desperately to survive on its last reserves and the bullion banks seem to offer shark deals. How long this can go on is anyone’s guess.
Withdrawals from the vaults of the largest physical gold bourse globally, the Shanghai Gold Exchange (SGE), accounted for 54 tonnes (in week 45 / 16 until 20 November), up 10 % from last week. Year to date SGE withdrawals have reached 2,313 tonnes, which is an all time record.
Given elevated SGE withdrawals and continued weakness in the gold price it looks like the Chinese population is buying the dips. The Chinese central bank (PBOC) is likely doing the same, but not through the SGE. The PBOC does its monetary gold purchases in the international OTC gold market – for example, in London or Hong Kong.
According to Reuters China has imported 72 tonnes of (non-monetary) gold from Hong Kong in October – this gold is required to be sold first through the SGE, it’s not directed to the PBOC. Data from the Hong Kong Census & Statistics Department has not been released, but Reuters has a contract with the Department in order to obtain data a few days before the public release.
Known gold exports to China year to date: From January until October Hong Kong has exported 653 tonnes to China mainland, which is 784 tonnes annualized. Switzerland has exported 217 tonnes to China from January until October, annualized 260 tonnes. The UK shipped 210 tonnes to China in the first nine months of this year, annualized 280 tonnes. Australia net exported 49 tonnes in seven months, which is 84 tonnes annualized. So, without counting shipments from exporters such as South Africa and Singapore, China has imported 1,129 tonnes of gold year to date and is on track to import 1,408 tonnes of (non-monetary) gold in total this year. In addition, Chinese domestic mining output is set to reach 476 tonnes. Chinese apparent gold supply – without counting scrap – in 2015 will be 1,884 tonnes.
Using SGE withdrawals as a measure for Chinese gold demand canbe slightly deceiving for a number of reasons. For example, Chinese citizens can buy gold on the SGE but prefer not to withdraw this metal from the vault, or chose to withdraw next month/year. This way, wholesale demand would actually be higher than the amount of gold being withdrawn. On the other hand, since the inception of the Shanghai International Gold Exchange (SGEI) gold can be withdrawn from SGEI (IB) Certified Vaults in the Shanghai Free Trade Zone (SFTZ) and exported abroad. According to the accounting rules from the SGE, any SGEI withdrawal is included in SGE withdrawals. An export from the SFTZ would be included in SGE withdrawals. I’m always occupied with the details regarding SGE withdrawals, why we can use it as a measure for Chinese wholesale gold demand and why not. I think SGEI withdrawals can have been a cause for inflated SGE withdrawals this year.
Late 2014 and early 2015 I’ve written SGE withdrawals could have been distorted by withdrawals from the SGEI. For a while I corrected SGE withdrawals by SGEI trading volume to be conservative about Chinese wholesale gold demand. We simply didn’t know what happened to the SGEI gold that was traded – was it withdrawn from the vaults or not withdrawn. Then, in February 2015 SGE chairman Xu Luode published some figures in an article for Bullion Bulletin that pointed outmost of the SGEI trades that were withdrawn from the vault was imported into the Chinese domestic mainland. Meaning, SGEI trading volume could only have slightly distorted our measure of Chinese wholesale gold demand (SGE withdrawals).
After a run up in SGEI trading volume this year, from January until March, it appeared trading of iAu9999 (the most commonly traded SGEI contract – 1 Kg 9999) severely declined in recent months and I stopped subtracting SGEI trading volume from SGE withdrawals to measure Chinese wholesale gold demand. But, the other day I studied the Chinese SGE weekly reports. What I failed to see in recent months was that iAu9999 has been trading in the Chinese OTC market. Mea culpa. In the Chinese OTC market SGE contracts can be negotiated off-SGE, while settlement is done on-SGE.
In the Chinese weekly SGE reports we can see OTC trades on the first page. Below is a screen shot of the report, the OTC settlements are framed in red. Framed in blue is ‘this weeks’ trading, which was in week 45 (framed in green).
Some analysts, including myself, thought the SGEI was dead. But it isn’t.
First of all, the iAu9999 contract is traded increasingly in the OTC market. In the chart above the black line resembles OTC iAu9999 trading volume. In the OTC market volume has declined from a peak in May, but I wouldn’t say trading has ceased.
It certainly is possible the gold of these OTC iAu9999 trades can have been withdrawn from the vaults in the SFTZ and exported abroad and thus inflated SGE withdrawals. When acontract (iAu9999) at the SGEI is exchanged, four things can happen (in the context of this investigation):
The gold stays in the vault.
The gold is withdrawn and stored elsewhere in the SFTZ.
The gold is withdrawn and imported into the Chinese domestic gold market.
The gold is withdrawn and exported to, for example, India.
Option 2 and 4 would increase SGE withdrawals without increasing Chinese wholesale gold demand.
When looking at the numbers from the OTC iAu9999 trading we can see an interesting pattern.
Have a look at the data labels in the chart above. We can see that all weekly OTC iAu9999 volumes end on two zeros (blue bars) or three zeros (red bars). These volumes are the sum of all trades executed during the week. It’s safe to conclude these volumes are exchanged by large traders, as iAu9999 is changing hands in batches of one hundred (blue bars) or in some weeks one thousand (red bars) 1 Kg 9999 bars. For example, in the week that ended 3 July 2015 exactly 73,000 Kg’s were traded. In theory, 20,855 Kg’s were traded on Monday and 52,145 Kg’s on Thursday, aggregating at 73,000 Kg’s in total for the week. Though, this coincidence cannot have occurred each and every week. More likely the OTC iAu9999 traders buy and sell per 100 or 1000 Kg’s. No other SGE or SGEI contracts show this bulky trading pattern.
Did any foreign nations buy gold through the SGEI OTC market and export it from the SFTZ? Hard to say. The most obvious gold trading partner for China is India. Early this year the SGE chairman wrote about the SGEI [brackets added by me]:
… Using the International Board [SGEI] as a launch pad, China’s gold market will embrace greater openness and foster stronger ties with its neighbours and, together, elevate the trading and pricing influence of Asia in the world’s gold market.
As a perennial major consumer of gold and a close neighbor of China, India will undoubtedly become one of SGE’s most important partners in the coming years. SGE looks forward to forming close partnerships with the Indian market.
Imaginably, the iAu9999 purchases were withdrawn from the SGEI vaults in the SFTZ and exported to India. Though, India’s trade statistics can be tracked very precisely and only a small amount of gold has been exported from China to India since the SGEI was erected in September 2014.
In the table above we can see India imported 1.205 tonnes from China Since September last year. These imports into India can be processing trade from any Free Trade Zone in China (no SGEI involvement required), but can also be from purchases at the SGEI in the Shanghai Free Trade Zone. In the latter scenario these exports would have been captured in SGE withdrawals (the metal is bought at the SGEI, withdrawn from the IB Certified Vault and exported).
In any case India imported very little gold from China in the past year. The only other gold importer from China I could find was Thailand at 1.488 tonnes, which makes me think foreigners have not yet been very active on the SGEI. More likely, at this stage, is that SGEI withdrawals are imported into the Chinese domestic gold market. Another option, given the large round number volumes, is that OTC iAu9999 is trading in China’s foreign exchange market.
I should add, the customs departments from Switzerland and Hong Kong confirmed that when gold is exported from local soil to the Shanghai Free Trade Zone it’s disclosed in their data as an ‘export to China’. It is irrelevant if that gold is ever imported into the Chinese domestic gold market. No matter what happens to the gold in the SFTZ it is initially disclosed as an export to China.
In short, trading at the SGEI can have blurred SGE withdrawals this year. More research should point to what extent.
Withdrawals from the Shanghai Gold Exchange (SGE), the best indicator for Chinese wholesale demand, have been strong in 2014. In total 2,102 tonnes was loaded out from the SGE vaults. Mid 2014 withdrawals were relatively low, then they ramped up in September.
In this post we’ll examine where this gold was sourced from.
At this moment we don’t know exactly what the composition was of the supply side of SGE withdrawals in 2014 – scrap, mine or import, though SGE chairman Xu Luode gave us a hint at the ninth China Gold & Precious Metals Summit that took place in early December:
As regards the concerns over the Chinese gold demand, chairman of the Shanghai Gold Exchange Xu Luode told the conference that the gold market in 2014 is still a CHINA YEAR. …China has imported over 1,100 tonnes of gold by November this year and the whole year’s bullion import is estimated to reach 1,200 – 1,300 tonnes, a number only next to the year of 2013.
As I have demonstrated before the main feeder for China’s gold hunger is the London Bullion Market (the UK), though in 2013 this was more so than in 2014. Let’s go through the most recent customs data published by the largest suppliers to China mainland: the UK, Switzerland, Hong Kong, Australia and the US.
The great gold exodus from West to East started early 2013; 12.5 Kg London Good Delivery bars (995 purity) from the UK are shipped to Switzerland, where it’s refined into 1 Kg (9999 purity) bars and send forward to the East. The big change since 2014 is that more gold is being send directly to China instead of going via Switzerland and Hong Kong, partially because China has increased its refining capacity.
In total the UK net exported 173 tonnes in November, up 282 % m/m; the biggest outflow since July 2013. Net export to Switzerland also saw a huge spike in November, 118 tonnes, up 179 % m/m, the largest tonnage in 9 months.
In the next chart I have added SGE withdrawals to UK gold trade – since January 2013 we can see a correlation between net export from London and withdrawals in China.
January – November total UK net gold export stands at 447 tonnes, net gold export over this period to Switzerland was for 579 tonnes.
In November UK gold export to China was 30 tonnes, up 186 % m/m, an all time record. Aggregated net gold export (January – November) heading for the mainland was 105 tonnes.
For all UK trade data I have used the tonnage disclosed by Eurostat.
The Swiss imported 1,597 fine tonnes in the first eleven months of 2014; export was 1,616 tonnes over this period.
I would like to emphasize fine tonnes in the chart above. Thanks to a commenter on this blog (named sb) I have calculated the fine content of Swiss gold trade. One of Switzerland’s core businesses is refining gold; this means the import tonnage disclosed by Swiss customs is of a significant lower purity than the exported tonnage. A good example is 2014:
First the data:in November import was 219 tonnes, up 137 % m/m, a record for 2014; export was 232 tonnes, up 20 % m/m, a record for 2014 as well. Net outflow was 12.5 tonnes.
We can see the more Switzerland is importing the higher the purity of the imported gold. Here is why; there is a certain amount global mines can produce as doré every month (low purity), when demand exceeds this amount the Swiss need to import bullion bars, which makes the overall purity of import rise. The last chart clearly illustrates that the more gold is passing through, the more is drained from global bullion bar inventory.
The top destinations of Swiss gold are India, Hong Kong, Singapore and China mainland.
Export to China matches, again, the trend of SGE withdrawals; relative weakness from May until August, strength from September till present.
In November Swiss gold export to China was 35 tonnes, down 18 % m/m. Switzerland net gold export January – November heading for China was 187 tonnes.
Hong Kong is Asia’s main trading hub. Gigantic amounts of gold are imported, most of which is destined for the mainland, though Hong Kong has also net imported hundreds of tonnes itself since 2013.
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.
… It will be interesting when Hong Kong becomes a net exporter.
Not by staggering amounts, but Hong Kong is currently a net exporter for four months in a row.
Hong Kong started net exporting in August when demand in China was relatively weak; I expect these net exports to further increase, as Chinese demand accelerated in September through December.
In the first eleven months of 2014 Hong Kong net exported 742 tonnes to mainland China – down 30 % y/y.
In November net export to China was 99 tonnes, up 28 % m/m, a record since February. Note, again, the SGE withdrawalpattern in exports.
Australia is the second largest miner in the world, producing roughly 250 tonnes a year. Gold that is nearly all exported, as the ozzies themselves do not have an appetite for yellow metal comparable to Indians or Chinese.
Export data of the land of down under can be tracked through COMTRADE – that copies its data from the Australian Bureau Of Statistics. This data is deceiving though, as I’ve just found out. Australia discloses gold export to China, also when it’s shipped via Hong Kong. This results in double counting, as Hong Kong counts this gold as exported to China as well.
When I compared Australia’s export to China data from COMTRADE with Hong Kong’s import from Australia data from the Hong Kong Census And Statistics Department, I noticed they are nearly the same. This is an accounting inaccuracy by the Australian Bureau Of Statistics in my opinion.
To make sure the COMTRADE numbers are reliable I double-checked them with numbers from GTIS – that copies its data from the Australian Bureau Of Statistics as well.
These data sets are the same – the differences are negligible.
I asked Bron Suchecki, manager at the Perth Mint in Australia, if he knew whether his company sends gold destined for China always via Hong Kong or not. He replied (published with permission):
Generally, little of what gets shipped from the Perth Mint to Hong Kong would stay there – most would be in transit to China. There are many reasons for why Chinese bound metal would transit through Hong Kong, including logistics (more flights Perth to Hong Kong than Perth to China) and the breaking up of the usual one tonne plus sized deals we do with bullion banks into smaller shipments for their end customers.
In another email he explained the Perth Mint mostly sells to Bullion Banks, who are subsequently the legal exporters from Australia to China or Hong Kong. There for he doesn’t know how gold destined for China is shipped.
This comment Bron posted at his own blog, he stated about Perth Mint shipments to China in 2013…
The Perth Mint probably accounted for 15% of that 1500t China import.
The 15 % (225 tonnes) doesn’t reflect a precise tonnage, however I think it shows Australia exports more gold to China than is disclosed by COMTRADE/GTIS (180 tonnes).
Conclusion: the numbers I used in this post for gold export from Australia to China have been double counted (I’ll put a link in to this post for clarity). Although we know Australia exports huge quantities to China, we don’t know how much is shipped in addition to what travels via Hong Kong. I don’t feel comfortable, therefor, using any of Australia’s export numbers at this stage.
Right, so what’s the score? We are chasing 1,100 tonnes, thus far we’ve got 105 tonnes from the UK, 187 tonnes from Switzerland and 752 tonnes from Hong Kong, all added up makes 1,044 tonnes. Where could the remaining 56 tonnes could have come from? Not from the US, according to data from USGS.
The US exports substantial amounts of gold to Switzerland and Hong Kong, but very little to China itself. Worth mentioning, however, is that in September the US for the first time exported a few tonnes of bullion directly to China.
Needless to say the 6 fine tonnes that were exported from the US do not fill the 56 tonnes gap. Were the remaining 50 tonnes came from I don’t know. It can be from mines in Africa or central Asia.
From looking at rising SGE withdrawals and Indian import in recent months, we knew demand was increasing consistently and huge amounts of physical gold had to be supplied from somewhere. As I’ve written in a previous post, this type of gold demand can’t be met by just mine supply and so the metal has to be sourced from countries that have large stockpiles, the usual suspects: the UK, Hong Kong and Switzerland.
In 2013 the UK was severely drained (net 1424 tonnes), last week we learned Hong Kong became a net exporter since August 2014, the latest trade data from Switzerland shows the Swiss net exported 100 tonnes of fine gold in October. 75 tonnes net to India and 45 tonnes net to China.
Customs data of the usual suspects (Switzerland, the UK and Hong Kong) is getting exciting; they can’t net export gold forever. We know there are often shortages in these trading hubs, it’s only the price of gold that tells us otherwise. The Financial Times reported there are currently shortages in London, from November 14:
As one refiner told me: “Over the past four weeks my cost of hedging has risen by 30 per cent. Not only that, but there is not enough liquidity in the physical market in London to settle my obligations as they come due. I have to fly gold from Zurich to London, because there just is not enough gold on offer in London. You never used to have to do that.”
Personally, I’ve heard statements, second hand, from a Swiss refiner that supply is extremely tight at the moment. Record lows in the GOFO rate suggest the same dynamics. Meanwhile demand in India and China is rising.
Even the World Gold Council is reporting on strong Chinese gold demand.
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.
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).
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.
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.
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.
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.
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.
Wednesday I had the privilege again to interview Alex Stanczyk, Chief Market Strategist for the Anglo Far- East group of companies, who just returned from a trip to Switzerland. Alex confirmed to me the distribution of gold from west to east is not slowing down whatsoever. Refineries in Switzerland are still working 24 hour a day to cast bars for China, sometimes having difficulties sourcing the gold..
What was the purpose of your trip to Switzerland?
The purpose was two fold. We go to Switzerland once a year as part of our governance, we’re required to have an annual inspection of the gold, that was the main purpose of the trip. But in addition to that we also liked to talk to the refineries. It was myself, it was the managing director of Anglo Far-East mister Philip Judge, and Jim Rickards went with us, he sits on our advisory board.
We met with the managing director of the largest refinery in Switzerland and spend about two hours talking to him, we learned some very interesting things. Whats going on in the gold market as far as the price, is I think very counter intuitive. Everybody understands, knows and believes the price should be higher than it is, but it isn’t. There’s confusion in the marketplace, and there are two reactions; the reaction in the west is fear, confusion and uncertainty; the reaction in the east is buying. Now, this gentleman we were talking to probably has a better idea of physical gold flow than anybody else globally. He sees what is coming from the mines, he sees what is coming from the UK, and all over the world, as well as where its going. He indicated the price didn’t make sense because he has got so much fabrication demand. They put on three shifts, they’re working 24 hours a day, and originally he thought that would wind down at some point. Well, they’ve been doing it all year. Every time he thinks its going to slow down, he gets more orders, more orders, more orders. They have expanded the plant to where it almost doubles their capacity. 70 % of their kilobar fabrication is going to China, at apace of 10 tons a week. That’s from one refinery, now remember there are 4 of these big ones [refineries] in Switzerland.
That makes sense because withdraws from the Shanghai Gold Exchange vaults are 40 tons a week on average this year.
Well, there you go.
…At this Swiss refinery there have been several times this year on which they were unable to source gold, this shocked me. They’re bringing in good delivery bars, scrap and dore from the mines, basically all they can get their hands on. This gentleman has been in the business for 37 years, he was there during the last bull market in the late seventies. I asked him when was the last time this has happened, that he was unable to source gold, he said never. And I clarified it, I asked: let me make sure if I understand what you’re saying to me, in the last 37 years you’ve worked in the gold industry this has never happened? He said: this has never happened.
…There was one other comment that was fascinating, he said sometimes when they get gold in, it’s coming from the back corners of the vaults. He knew this because these were good delivery bars marked in the sixties. This is a huge supply squeeze and its worse than anything that has happened in the last four decades. At some point there is going to be a massive squeeze on the price.
…All four Swiss refineries combined may be doing as much as [supply China] 2000 tons this year. That doesn’t include what the Perth Mint ships to China, it doesn’t include the 400 tons the Chinese mined domestically, and it doesn’t include what they mined offshore with the mining companies they own all over the world. I suspect that total Chinese demand can reach as much as total global mining production this year.
…He also noted, in China there are 6 LBMA refineries but he has never seen a Chinese gold bar, they’re keeping it all. Gold that goes into China is like going into a black-hole. I don’t think it will be available on the market for decades to come, which only tightens the physical supply.
…The Chinese aren’t buying it for trading, they’re buying it as part of their wealth foundation for future generations. When the communists came to power in 1949, Chiang Kai-shek and the nationalist army fled the country and took all the gold with them. On that moment China had no gold, although they had thousands of years of history with gold, they had to start all over. I think the importance of rebuilding their gold reserves had been there in the last decades, but it accelerated the last three years or so, encouraging their people heavily to buy.
I also heard there is strong kilobar demand from the Middel East.
That’s because Dubai does a lot of clearing for that entire area. Given what’s happening to Saudi Arabia, and the potential that Saudi Arabia is separating itself from the United States, essentially the whole petro-dollar is at risk for them. Normally what they would do is sell their oil for dollars and then buy US treasuries, but if they’re gonna separate from the US they’re not gonna buy US treasuries. So what are they gonna buy?
Yes, possibly. That’s what we think. We don’t think they will be buying US treasuries, they supported them for 40 years, but the US has basically stabbed them in the back.
Alasdair Macleod actually said, on the Keiser Report, that a lot of 400 ounce bars from the Middle East are being refined in Switzerland into 1 K 4 nine bars [a gold bar of 1 kilogram, 99.99 % purity] and then sent back. Is the 1 K 4 nine bar becoming some new form of liquidity?
Possibly, all the demand that we can see in China is for 1 K bars. They want kilo, and they want four nines.
When do think the price is going to rise?
I’m not comfortable to put a time on this. What I do know is that we are on the threshold of a situation that has never occurred before. A squeeze is imminent, it could take 3 months or 6 months, but all I know is that it’s coming, and I know that with 100 % certainty.
The great distribution of wealth and power, facilitated by gold, from west to east is still going strong. From looking at available global trade numbers we know the main gold vein runs from the UK through Switzerland, through Hong Kong, eventually reaching Shanghai. Let’s take a look at the latest data.
Starting Point: The London Gold Vaults
It started in January when the UK, home of the London Gold Market, net exported 74 tons of gold to Switzerland. As we can see in the chart below this is not unusual, we saw similar events in the beginning and in the end of 2011. But this year export accelerated to a spike May, in which 237 tons were net exported to the Swiss. A staggering amount of gold, nearly as much as the official gold reserves of the Bank Of England. Through the summer these exports remained elevated, year to date the UK has net exported 1235 tons of gold in total, of which 1109 tons to Switzerland.
In September the UK net exported 117 tons of gold, down from 119 tons in august, – 1.7 % m/m. Net export to Switzerland was 107 tons in September, up from 98 tons in August, + 9.1 % m/m. This implies we have not seen the end of the gold exodus from the UK.
A significant portion of UK gold exports are being supplied by ETF stocks. GLD, which is the biggest gold ETF in the world and whose vaults are in London, was drained for 444 tons in the first three quarters of this year. At this moment GLD’s inventory stands at 866 tons, more stock suited for it’s authorized participants to be redeemed and shipped to the east.
note “Unallocated Accounts”
Remelting The Gold Bars In Switzerland
Although the Swiss, discreet as they are, do not publish country specific with whom they trade gold, nevertheless, their total trade numbers are very clear. Being one of the biggest trading, refining and storage centers in the world, vast amounts of gold cross their borders. In 2012 they have imported 2267 tons of gold and exported 1550 tons. On average import has transcended export by 25 % in recent years, which emphasizes Switzerland’s storage function over this period. This has changed as the Swiss have imported 2420 tons and exported 2184 tons in the first three quarters of this year. Meaning not only trade is surging, but also that the gap between import and export is tightening. As was confirmed by Switzerland’s biggest refinery, all gold coming in from London is being remelted into kilobars and sent forward to China.
If we annualize gold export for 2013 the outcome is 2912 tons, 1362 tons more than in 2012. Gold that partially is shipped to Hong Kong, partially directly to Shanghai.
Transit Port Hong Kong
Most (but certainly not all!) gold that is imported by China mainland comes in through Hong Kong. Year to date Switzerland has net exported 697 tons of gold to Hong Kong. A surge of 445 % if we measure just the first three quarters relative to 2012 totals.
Net export from Hong Kong to the mainland is 826 tons of gold year to date.
Just the official route has brought 826 tons of gold to China year to date, annualized 1100 tons. If we add 400 tons Chinese mining supply the total is 1500 tons othat will meet demand.
Whilst the World Gold Council estimates Chinese consumer demand will be over 1000 tons, my estimate is it will be over 2000 tons. In my humble opinion just the official route raises a few eyebrows to the WGC demand numbers. If we then take into account gold is also shipped into China through other ports than Hong Kong, more eyebrows are raised.
In a future post I will describe in detail how I calculated my estimate.
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