SGE withdrawals have been in a down trend for five weeks. In these weeks withdrawals have been lower than the year to date weekly average. This is not surprisingly after an unprecedented start of 2014. During four of the first seven weeks of this year SGE withdrawals, which equals Chinese demand, transcended global mining production.
SGE withdrawals are still 23 % up compared to the same period last year. This will most certainly change in the period after April 15, which was the date in 2013 the gold price tumbled more than $100 and Chinese demand for physical gold exploded. The result was that in week 16 (April 15 – 10, 2013) 65 metric tonnes were withdrawn from the SGE vaults and in week 17 (April 22 – 26, 2013) 117 metric tonnes were withdrawn. The following screen shot is from the SGE report of week 17 2013, the second number from the left (blue – 本周交割量) is weekly gold withdrawn from the vaults in Kg.
How the SGE was promptly able to supply these amounts of gold is perhaps explained by the next chart.
We can see import from Hong Kong, the main conduit for Chinese gold, reaching an all-time high in March 2013, before demand exploded. Which I find suspicious. Needless to say the mainland must also have imported gold through other ports in this period.
On April 11, 2014 Bloomberg reported the SGE will be launching a gold leasing platform. According to one of my sources in the mainland this service will not lead to fractional reserve banking or double counting as happens when central banks lease gold. He wrote me:
The lease on the SGE doesn’t seem to allow fractional banking according to the lease agreement rules.
Translated: “Article 1.4. The gold lease in this agreement, means under the credit limit, within agreed tenor, the lender lends HIS OWN gold to the borrower for use.”
And the SGE gold account I have is directly with the SGE not with the bank that I use as a broker. That’s why the SGE account number never changes.
Overview Shanghai Gold Exchange data 2014 week 14
– 26 metric tonnes withdrawn in week 14 (31-03-2014/04-04-2014)
– w/w – 28 %
– 585 metric tonnes withdrawn year to date
My research indicates that SGE withdrawals equal Chinese wholesale gold demand. For more information read this.
This is a screen shot from the weekly Chinese SGE trade report; the second number from the left (blue – 本周交割量) is weekly gold withdrawn from the vaults in Kg, the second number from the right (green – 累计交割量) is the total YTD.
This chart shows SGE gold premiums based on data from the SGE weekly reports (it’s the difference between the SGE gold price in yuan and the international gold price in yuan). It seems as if the change of the premiums on the SGE are the inverse of the direction of the price of gold.
Below is a screen shot of the premium section of the SGE weekly report; the first column is the date, the third is the international gold price in yuan, the fourth is the SGE price in yuan, and the last is the difference.
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