Chinese gold demand remains extraordinary robust in 2014. Last week (17-03-2014/21-03-2014) wholesale demand, aka SGE withdrawals, was 36 metric tonnes, year to date demand is 523 tonnes.
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a screen shot from the weekly Chinese SGE trade report; the second number from the left (blue – 本周交割量) is weekly gold withdrawn from the vaults in Kg, the second number from the right (green – 累计交割量) is the total YTD.
Of course the big question is; where on earth is this gold coming from? Let’s have a look at global trade numbers published so far this year to shine some light on this mystery. As I have written about in 2013, the main gold vein that supplied China ran from the UK, through Switzerland, through Hong Kong eventually reaching the mainland. As we all know China mainland doesn’t disclose its gold trade numbers, but the other countries do (to a certain extent, monetary gold is usually not disclosed).
The Physical Gold Distribution From West To East
The UK net exported 1425 metric tonnes in total in 2013. The peak was in May, 338 tonnes were net exported to meet demand in the east after the drop in the price of gold in April, whereafter UK gold export somewhat slowed. Chinese demand came down from unprecedented highs in April, but remained robust throughout 2013. UK gold export and Chinese demand were correlated during last year.
Now the global trade numbers from that period are released we again see matching trends in global gold trade and Chinese demand (/SGE withdrawals). In January 2014 there was a steep increase in UK’s net gold export; 143 tonnes in total, 118 tonnes were net exported to Switzerland and 33 tonnes net to Hong Kong.
What a surprise, there is still gold left in the London vaults. Most analyst thought these vaults were practically empty at the end of 2013. Like Kenneth Hoffman, who stated in December 2013 on Bloomberg TV that the London gold vaults were virtually empty. All gold was exported to Switzerland, remelted into kilobars and sent to China. He also stated: The most interesting thing is, as we look into 2014, if there ever is interest in gold again, that gold is just not there anymore. Well guess what, there is interest in gold again, coming from China. And doesn’t seem to stop at these prices.
Another reason why analysts thought the UK wouldn’t be coughing up more physical gold was because GLD inventory stopped falling since the beginning of January. After being drained for 552 tonnes in 2013, year to date GLD is up 22 tonnes.
A Gift From Switzerland
Since January the Swiss Customs Department decided to change the way they disclose their gold trade numbers. Previously they only disclosed total gold and silver trade numbers, now they break it down per country. This gives us gold analysts very valuable insights. A pleasant side-effect is that the Swiss publish their data much sooner than all others.
In total Switzerland gross imported 477 metric tonnes of gold in first two months of 2014. The biggest supplier was the UK, smaller ones were Brazil, Burkina Faso, Chile, Peru, Russia, South Africa and the US. Total Swiss gross gold export over this period accounted for 400 metric tonnes.
A we can see from the chart not only did the UK net exported 118 tonnes to Switzerland in January, in February another 114 tonnes were shipped to the Alps. In two months the Brits net exported 232 metric tonnes to Switzerland, while GLD inventory was up! What Keynesian is still selling in the UK? Or more important, how much is there left to sell? There are probably a few thousand tonnes left in the vaults of the Bank of England, but that’s all owned by foreign nations.
As we heard from the biggest Swiss refinery in December 2013, they were having a very hard time throughout 2013 sourcing the gold for demand from China. An event that never happened in the last 37 years, according to the managing director of this refinery. Yet, in February the Brits shipped 114 tonnes to Switzerland. Anybody who knows the seller please comment below.
Also worth noting; in January Switzerland net exported 12 tonnes to China and 85 tonnes to Hong Kong. In February net export to China accounted for 37 tonnes and to Hong Kong 98 tonnes. Coming months will point out if this change, direct exporting to China bypassing Hong Kong, will become a trend.
In January Hong Kong net imported more gold than they net exported to the mainland. The Special Administrative Region net imported a staggering 114 metric tonnes (some of this gold is smuggled into the mainland in jewelry form by mainland tourist, please read at the end of this post), while they only net exported 89 tonnes to the mainland.
If we gather all the data we have from January we must conclude that although the main gold vein is still in full swing, it’s not enough to supply the Shanghai Gold Exchange. SGE withdrawals in January accounted for 246 tonnes.
This is a screen shot from the monthly Chinese SGE trade report; the second number from the left (blue – 月交割量 ) is monthly gold withdrawn from the SGE vaults in Kg.
In January China net imported 89 tonnes from Hong Kong, 12 tonnes from Switzerland, domestic mine supply was 36 tonnes, domestic scrap supply couldn’t haven’t been more than 25 tonnes, which leaves 83 tonnes that had to be imported from other countries. I still don’t have any estimates on how much gold China imports from its own overseas mines, however I doubt its 83 tonnes a month. Concluding not only in the UK, also in other countries around the world large stock piles of gold are still being sold to China.