Koos Jansen
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Koos Jansen
Posted on 3 Jun 2014 by

The World Gold Council’s New Clothes

On this blog I’ve repeatedly questioned the Chinese gold demand figures from the World Gold Council, or “the global authority on gold” as they call themselves (which is weird when you think about it, how can any institution be the global authority on gold?). In 2013 Chinese wholesale gold demand was 2197 tonnes, though the World Gold Council claims demand was 1066 tonnes. All their arguments that should explain the difference appeared to have been untenable after researching them.

Most people on this planet who have an interest in gold simply copy the demand numbers from the WGC. The consequences of the world being misinformed on this subject is hard to comprehend.

The World Gold Council, who we are

It’s my belief the WGC continues to spread erroneous information, therefor I will continue to share where I disagree. Let’s begin with what happened in the first quarter of this year. In the WGC’s quarterly report covering Q1 2014 they state Chinese gold demand was 278.1 metric tonnes. However, in Q1 Hong Kong net exported 287.2 tonnes to the mainland and Switzerland 74.9 tonnes, on top of this Chinese domestic mining was 96.5 tonnes. This adds up to 458.6 tonnes. Domestic mining and net import from only two countries was 458.6 tonnes, yet demand as disclosed by the WGC was only 278.1 tonnes. Again there is a disparity (of at least 180.5 tonnes).

The way how I measure Chinese (wholesale) demand is by looking at Shanghai Gold Exchange (SGE) withdrawals. Because in China all imported and mined gold is required to be sold through the SGE first and the bars that leave the SGE vaults are not allowed to return to these vaults, SGE withdrawals equal Chinese wholesale demand (and thus; total supply equals SGE withdrawals equals total demand). In Q1 2014 withdrawals accounted for 564.2 tonnes, which means 105.6 tonnes (564.2  minus 458.6 ) was supplied by additional import and scrap. From this end the numbers always make sense.

Back to the WGC. In their Gold Demand Trends Q1 2014, they come up with several arguments that should validate their figures on Chinese gold demand. Confirming they have some explaining to do on the discrepancy between the huge amount of apparent supply and their demand figures, just like in their prior report China’s Gold Market: Progress and Prospects (published April 15, 2014). However, the more arguments they present the more contradiction, confusion and misinformation is being communicated. I’ll go through all the arguments the WGC presents in both reports and share my point of view, as concise as I can.

Gold Trade Flows

From page 14, Gold Demand Trends Q1 2014:

Trade flows: illustrated last year when gold flowed out of western ETFs, through refineries in Switzerland and to consumers in the East, official trade data can provide insights into global gold flows. Global Trade International Services provide access to a wide range of countries’ trade data and we also monitor individual countries’ trade data, particularly from the Hong Kong Census and Statistics Department. However, looking purely at trade data can be misleading. It can include scrap, doré and concentrates, which would be captured in supply rather than demand. Nuances such as ‘round-tripping’ can affect the data too. So, while trade data plays a valued role in informing a view on global gold flows, it is an imperfect measure of gold demand.

Sure, trade data can be misleading, but it helps if we look at right numbers. The Hong Kong Census and Statistics Department makes a clear distinction between scrap and gold in other forms. They categorize commodities according to SITC Rev. 4 (Standard International Trade Classification, Rev. 4). The 287.2 tonnes Hong Kong net exported to the mainland in Q1 2014 did not contain scrap.

SITC 97103 gold scrap
SITC code and description for gold scrap
97101 SITC
SITC code and description for gold

Is it possible net gold export from Hong Kong to the mainland contains doré and concentrates? It’s possible, but it can’t explain the difference we’re after. The WGC stated in China’s Gold Market: Progress and Prospects, on page 49:

Only banks with PBOC-issued import licenses can import gold. They can only import LBMA good delivery bars and these must be traded through the SGE.

This statement is incorrect, it should be: “Only banks with PBOC-issued import licenses can import gold. They can import gold bars made by LBMA-approved refiners that meet SGE specifications and these bars must be traded first through the SGE”. Gold bar import into China is conducted by 12 commercial banks that hold a PBOC license, though anew approval has to be granted for every shipment. The general manager of Malca-Amit Precious Metals, a global gold vaulting and transportation company that has many bullion bank clients, said the following in November 2013 (1:40):

Currently gold being transported to China is imported only by local banks. A lot of the times the gold is being parked out of China, and only transported and shipped into China when needed.

Gold bullion is being parked into Hong Kong. After the banks get approval from the PBOC it’s imported into the mainland. Most of the 400 ounce London Good Delivery bars that since 2013 were exported from the UK to Switzerland, where it was remelted into 1 Kg 9999 barswere at first shipped to and parked in Hong Kong before entering the mainland. Hong Kong serving as a depot. Hence my supposition Hong Kong primarily exports gold bars to the mainland. I can’t think of a reason why doré and concentrates, from Chinese owned overseas mines, would be imported into the mainland via Hong Kong.

The gold Switzerland net exported to the mainland in Q1 2014 is even less likely to be doré or concentrates. Switzerland is well known for its refining capacity, not for its gold mines. Everything that comes out of Switzerland is bullion. The Swiss categorize commodities according to HS 2007 (Harmonized System, click to compare HS to SITC), which is more specific than SITC. We can read from their trade reports the gold does not contain powder. In general gold bullion is traded under HS code 7108 globally.

Swiss gold trade Q1 2014
Screen shot from Swiss precious metals trade excel sheet Q1 2014

The WGC also mentions round ripping as a cause that distorts trade numbers, which should explain the difference we’re after. This is false, I’ve written two extensive posts (#1, #2) on why round tripping has got nothing to do with the Chinese domestic gold market, Chinese gold demand or SGE withdrawals.

In China’s Gold Market: Progress and Prospects, page 56, the WGC wrote:

Moreover, because nearly all gold flowing into China goes through the SGE, round-tripping can inflate the SGE delivery figures.


This is simply not true, please read my previous posts on this subject. The WGC even admitted round tripping has got nothing to do with Chinese demand in email correspondence.

In the Gold Demand Trends report they stated on page 14:

At a country level, we monitor figures released by official institutions and trade bodies which can give an insight into local gold demand. For example, we examine the Shanghai Gold Exchange withdrawal figures and China Gold Association demand figures…

The WGC mentions SGE deliveries and withdrawals in two separate reports. (i) I hope they know the difference. (ii) If they watch SGE withdrawals why not publish these numbers and inform the world on the significance of these numbers. This is essential information regarding the Chinese gold market. Why is the WGC reluctant to cover these essentials?  

Gold Stock Changes

From the WGC, Gold Demand Trends, page 14:

The number denoted as OTC investment and stock flows encompasses a number of elements, including: gold deposit accounts; stock changes that have yet to be identified; transactions in the relatively opaque OTC market; spot and forward products; as well as any statistical residual.

Chinese spot and froward products are traded in the Chinese domestic gold market. It doesn’t make the amount of supply any less. Stock increases could absorb some supply that doesn’t meet retail demand. However, the accumulative difference between wholesale and retail demand (2007 – 2013) was 2000 tonnes. Why would any jeweler or the mint add anymore stock in Q1 2014 when supposedly they already have this much in stock? And why doesn’t the WGC count gold purchased by an individual investor through a gold deposit account as demand. These are popular investment products in China. Just have a look on the website of China’s largest bank ICBC.

SGE withdrawals vs WGC Chinese gold demnad

PBOC Gold Purchases

In China’s Gold Market: Progress and Prospects the WGC speculates apparent supply (net import, domestic mining) may have been purchased by the PBOC. According to my analysis “all net import we can see” is not being bought by the PBOC. The trade reports from the Hong Kong customs (and the UK and Switzerland) are very clear in describing the gold that is being exported as NON-MONETARY. The PBOC has a strong incentive hiding their purchases, that is not to affect the market. Why would the PBOC insist their purchases to be declared by any customs department around the world while they can easily import gold without anyone seeing it?

Chinese law dictates domestically mined gold is required to be sold first through the SGE, where all gold is quoted in renminbi. I don’t think the PBOC does gold purchases on the SGE while it can exchange their surplus US dollars overseas for gold, killing two birds with one stone; getting rid of some of their exorbitant US dollars reserves and purchase physical gold for all the obvious reasons.

The chairman of the SGE, Xu Luodo, said on May 15, 2014, at the Fourth Commercial Bank Gold Investment Forum, that China net imported 1540 tonnes in 2013 and his exchange has nearly 8000 institutional investors and 5 million individual investors. Institutional investors can include pension funds and alike, this explains very well where all the SGE withdrawals end up and the difference we’re after. I haven’t come across any Western mainstream media outlet that reported on these statements from Xu, though numerous Chinese media have covered it, to date you can only read it in English on this blog.

Koos Jansen
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  • Navigator

    Koos. This article claims the Chinese central bank bought over 1000 tons last year.


    Also in your article it is stated:

    “China net imported 1540 tonnes in 2013 ”

    Do your numbers agree with this in some way?

    • Arthur Peinta-Laga

      Want China Times is a Taiwan-based propaganda agency partly funded by the US National Endowment for Democracy. You might as well ask the Dalai Lama or Dick Cheney for their views on China

      • In Gold We Trust

        I think its clear by now that Want China Times is a hoax. But what’s their motive to spread “bullish news” on gold?

        • Anna Paqueta Chysanunnyon

          it gets clicks and sells advertising; assuming that any vestige of what was originally said has actually survived the editorial process, the kicker in the article is that China is fighting the evil price suppression (which we all know is happening all the time everywhere) by buying gold which (although it apparently doesn’t move the price upwards in the same way that selling manipulates the price down) has now led to a shortage on Wall Street (hooray!!!)

          So, COMEX is about to default and Gold is going to $5000 / oz and the only problem is that with only 180,000 tons of Gold “remaining” in the world, the FACT that China now has 20% of it (i.e 36,000 tons, you got that, 36,000 tons – the “analyst” said so) means that there is none left for anyone else. Ever. Boo! Hiss! The Evil Commies took it all from us “at these bargain prices”! They are even worse than the Evil Feds and Evil Banksters!

          So, remember Tiananmen Square! Remember Tibet! Forget Bhopal and Fallujah and Libya and Syria and WMD and Victoria Nuland and this: https://www.youtube.com/watch?feature=player_embedded&v=Lv9vTT-orD0 ! Send your donations to NORAID / the Contras / The Free Syrian Army / Al Qaeda / Boko Haram / the Uighur Liberation Front – just, don’t let China get “our money”, “our jobs” or – worst of all “our gold”.

    • Arthur Peinta-Laga

      That story – reported in a blog and regurgitated through entirely credible tertiary media channels such as Max Keiser – quotes a hitherto unknown Hong Kong “analyst”. How would he know the hidden secrets of the PBOC (or for that matter the distressed reaction of “Wall Street” to the news that precisely 20% of the Worlds “remaining” Gold supply had now apparently disappeared forever. Might it help that the tagline was that this was evidence of manipulation and that there was now a shortage

      Please allow me to introduce myself – I am a hitherto-unknown “analyst” based somewhere exotic in Asia, and you can refer to me by my entirely verifiable name, “Ho Lee Fook”. I am here today to advise you, on the 25th anniversary of the Tiananmen Sq Massacre, that my Aunt’s friends sister recently read in a confidential Communist party dossier that the Chinese military has since 1949 secretly been hosting representatives from an advanced alien civilisation in orbit around Uranus, and they say that the Gold:Silver ratio is going to zero next week, so “Keep Stackin”…

      • http://google.com/+TiongHumSoh Tiong Hum Soh

        “Please allow me to introduce myself – I am a hitherto-unknown “analyst” based somewhere exotic in Asia, and you can refer to me by my entirely verifiable name, “Ho Lee Fook”…” This is brilliant LOL material. Just like one of those email scams. Thanks for the laugh.

    • Anna Paqueta Chysanunnyon

      “The analyst said that the People’s Bank of China is putting pressure on Washington and Wall Street as the US dollar has been linked with gold prices since its rise as the leading global currency”.

      That would be, like, since Nixon took the USA off Gold altogether in 1971 I suppose? http://en.wikipedia.org/wiki/Nixon_Shock

      Quality reportage indeed. I have a bridge for sale, if you are interested…….

  • Matt

    We need to take into account – in some way – the very large exports of gold from China to Hong Kong – which is up to $12bn according to Chinese trade data, therefore possible 300t (in practice some of this will be other precious metals so the total will be slightly smaller)

    That said, as much of this is round-tripping and inflates imports as well, my own estimate of Chinese imports of gold net is about 440t so far this year.

    The other reason the WGC data does not add up is they measure only retail demand, broadly speaking, not restocking, the latter which is an important component – eg I think Chinese banks have added to their stocks about 200t in those four months. In my opinion whether this is ‘demand’ or not depends on who is buying.

    • In Gold We Trust

      All the trade numbers I use for China are NET import.

      Like I said, restocking can explain a difference between wholesale an retail demand. But, SGE withdrawals continue every week. There is a blackhole where a significant amount of gold is going in and the WGC has no clue what it is. I once had email correspondence with one of their Asia experts on the difference. He said he didn’t know where all the gold was going and “the Chinese will never tell us”… It’s going into China, that’s for sure.

      • Matt

        I think you use HK reported imports from China, but they are much smaller than 300t this year. The China data shows much higher exports to HK than HK shows imports from China.

        • In Gold We Trust

          Where do you get Chinese gold numbers export numbers from (other than Hong Kong)?

          • Matt

            Chinese trade data

          • In Gold We Trust

            Than you are the first person I have ever “met” that has access to official Chinese gold trade data. Would you like to share the source?

            In any case, IMHO all Chinese gold export is processing trade, so it doesn’t influence net import.

          • Matt

            Well try HS 711319 for a start and you’ll find China exported $28bn of that in 2013.

          • In Gold We Trust

            HS 711319 has got little to do with (pure) gold.

          • Matt

            What is it then? $28bn of plastic?

          • In Gold We Trust

            It’s not pure gold, that’s for sure.

          • Matt

            Not entirely. But value and trend suggests it is mostly thus. And odd not to net it off imports if you are interested in calculating how much gold China is consuming/buying etc.

          • In Gold We Trust

            The world “gold” is not even in the description. More likely other precious metals than gold.

          • Matt

            “of other precious metal [to silver]” obviously can include gold. And the entire year’s mine production of PGMs are worth about $15bn and silver about $18bn.

          • In Gold We Trust

            It can, it can also include a lot of added value (fabrication costs). I can never know how much gold weight is in there.

            What we do know is that the PBOC is very stringent on the export of gold. Jewelry export will most likely be processing trade. So the gold used was first imported and the trade has no net effect.

          • Matt

            The trend in that code is almost identical to that of HK’s reported imports of gold from China (which you do net off), just a lot larger.

          • In Gold We Trust

            The laws of the PBOC and how it controls Chinese gold trade is the key (the difference between general trade and processing trade). http://www.ingoldwetrust.ch/the-round-tripping-myth-and-why-it-doesnt-hurt-chinese-gold-demand. The policy of the PBOC is to keep gold in China, only/mostly in processing trade gold is allowed to leave (without a net effect).

            By saying that code 7113xxxx is a lot larger than HS 7108xxxx (SITC 97101) you confirm it contains more other metals than gold, as the gold in 7108 is not calculated in 7113xxxx. Additionally 7113xxxx can contain other precious metals that are exported through processing trade.

            Can gold be imported into China for processing trade through HS 7108xxxx (SITC 97101) and exported through 7113xxxx (or SITC 52432, 68122, 89731, 89732, 97103)? Probably, we can just never tell how much. That’s why HK trade category 97101 is the best we’ve got.

            I’ve sent an inquiry to a customs official about HS 711319. Maybe she can tell us more about the content.

  • Chris Marcus

    I’ve heard from enough people I trust that the WGC leans towards the banker side of the truth spectrum, and personally don’t put any stock into their data.

    Thanks for bringing it to light Koos!

  • In Gold We Trust

    The point is the WGC spreads false numbers, with all due consequences. 1066 or 2197 tonnes is quite a difference.

    If I’m not mistaken you’re also very concerned about accurate information, aren’t you?

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