Tag Archives: Chinese gold market

Chinese Gold Panda Coins now trading on the Shanghai Gold Exchange (SGE)

In an interesting development on Wednesday 12 September, the Shanghai Gold Exchange (SGE) launched trading of a new Chinese Gold Panda Coin contract on the SGE trading platform. With the addition of this listing, the SGE now offers physical trading of these famous Chinese gold bullion coins alongside its extensive range of physical gold bar and ingot trading contracts. As a reminder the Shanghai Gold Exchange is the largest physical gold exchange in the world, and nearly all gold in the Chinese gold market passes through the SGE.

Ji Jiayou from the Chinese central bank at the SGE’s Gold Panda contract launch

The trading unit of the new Gold Panda coin contract is 30 grams which corresponds with the current weight of the largest denomination of the Gold Panda coin, i.e. 30 grams.

SGE Trading to facilitate Price Discovery

Launched in 1982, the Chinese Gold Panda used to be produced in troy ounce weight denomination up until 2015 (such as 1 troy ounce and 0.5 troy ounce weights). Then from 2016 onwards, the Gold Panda switched to using metric weights, and  is now produced in a 30 gram weights, 15 grams, 8 grams, 3 grams and down to a 1 gram weight. All Gold Panda coins have a gold purity of 99.9%. Chinese Gold Panda coins are produced by China Gold Coin Corporation which is fully-owned by China’s central bank, the People’s Bank of China. The actual fabrication of the Gold Panda coins takes place in Shenzhen Guobao Mint which is owned by China Gold Coin Corporation. China Gold Coin Corporation also coordinates marketing and distribution of gold panda coins on the international market.

Chinese Gold Panda coins are simultaneously legal tender in China as well as being known as commemorative coins. As the SGE said in its announcement announcing the new Gold Panda contract listing:

“The Chinese Panda Gold Coin is the legal currency of the People’s Republic of China issued by the People’s Bank of China (PBoC). It has the dual attributes of national authority and product investment.”

According to the SGE, trading of this new gold panda contract will expand the overall customer base of the Gold Panda, allow the Gold Panda coin to play a greater role in China’s investment gold market, and provide diversification benefits for investors, as well as centralise and improve price discovery for the coin. It will also crucially integrate the gold panda coin market into the wider Chinese gold market through the SGE.

Launch of the Gold Panda coin contract on the SGE: 12 September 2018

Trading of the 30 gram Gold Panda Coin

Trading details of the new Chinese Gold Panda coin contract are as follows. The contract is a spot trading contract with a trading unit of 30 grams. The price is denominated in Yuan per gram. The minimum price movement is 0.01 yuan /gram. The lot size is 1 unit. The largest single bid quantity is 1000 lots. Delivery method is physical delivery, and delivery time is T+0, i.e. same day. Transactions are executed by matching the prices of buyers and sellers. Trading times for the Gold Panda contract are the same as SGE’s standard trading hours which as  9:00 – 11:30 (morning), 13:30 – 15:30 (afternoon), and a night trading session of 20:00 – 02:30 (i.e. 2.30 am the next morning).

Given that the new contract has a trading unit of 30 grams (which was the trading unit approved by the People’s Bank of China), this means that only the standard Gold Panda coins produced in either 2016, 2017 or 2018 would be eligible for trading, and only in the 30 gram weight. But for this contract listing, there are no different between release years, editions or imagery on the coins (2016, 2017 or 2018), and they are traded under the same contract.

Hall of Prayer for Abundant Harvests in the Temple of Heaven, Beijing

Coins produced in 2015 or earlier, which were manufactured as 1 ounce Gold Pandas would not be eligible. Each year the Chinese Gold Panda bullion coins feature different imagery of pandas on the coin’s reverse of the coin, but with a consistent image of the obverse face of the coin, which is the Hall of Prayer for Abundant Harvests in the Temple of Heaven in Beijing. Examples of the 30 gram Chinese Gold Panda coin designs can be seen on the BullionStar website from 2018, from 2017 and from 2016.

Another factor which facilitated and eased an exchange listing, according to the SGE, is the fact that since 2012,Gold Pandas transactions have been exempt from VAT in China. For trading the new Gold Panda contract, this in practice means that those who are qualified for the Gold Panda’s tax exemption, including individual customers and institutional clients of the SGE can participate. Clients without such as tax exemption, can, according to the SGE, apply to China Gold Coin Corporation for tax exemption.

The first transaction in the new Panda Gold Coin 30g spot contract came in at 278.8 Yuan/gram when trading opened on 12 September. Trading data for the new contract, under the contract symbol ‘PGC30g‘ can be seen in the Daily Trading Report on the SGE website. An impressive 275 kgs of gold panda coins were traded on the first trading day 12 September, with a more modest 43 kgs of coins traded on the following day 13 September.

A Full Launch Ceremony – Chinese Style

On launch day, 12 September, the SGE and China Gold Coin Corporation held a full launch ceremony in Shanghai with speeches from senior PBoC, and SGE staff in front of 200 guests and assorted dignitaries from the Chinese government, Chinese commercial banks and representatives of the Shanghai Free Trade Zone. Short videos of 3 Chinese news reports covering the SGE’s launch ceremony for the Gold Panda contract can be seen on the SGE website’s media page, here and here.

Speakers at the Gold Panda coin contract launch, 12 September in Shanghai

Interestingly, one report on the launch ceremony, (translated from Chinese), concludes with the following paragraph:

“After the ceremony, the Shanghai Stock Exchange, the Shanghai Gold Exchange (SGE) and China Gold Coin Corporation signed a memorandum of cooperation on the development of the Panda General gold coin ETF. The Shanghai Stock Exchange and the Shanghai Gold Exchange signed a memorandum of understanding on Shanghai gold development cooperation.”

Does this mean a new Gold Panda backed Exchange Traded Fund (ETF) is in the works to be launched by the Shanghai Stock Exchange, Shanghai Gold Exchange (SGE) and China Gold Coin Corporation? It looks possible.

Two weeks prior to the launch on 29 August, the SGE also held a training seminar for the Gold Panda coin’s listing which was attended by 79 SGE member companies including commercial banks, securities dealers and bullion companies, which covered trading rules, delivery procedures for the coin (since it’s a physically delivered contract), and tax policy / tax exemption.

Lastly, a number of media reports about the new Gold Panda SGE contract claims that it’s the “only gold coin product in the world to be traded on an exchange market“. For example a report from China focused website GBTimes here states that. However, this is not true. In South Africa, the famous Krugerrand gold bullion coin is listed and trades on the Johannesburg Stock Exchange (JSE) for a long time now. As the JSE website states:

“The JSE offers trading in Krugerrands through a well-regulated secondary market and are traded in the same way as any listed Equity Market instrument, with prices being quoted on the various types (weights) of coin.”

Trading of Krugerands on the JSE is also documented in the South African gold market page of BullionStar’s Gold University gold market profiles.

So although the Gold Panda is not the first gold coin to be traded on an organised exchange, it is one of the few, and given the immensity of the Chinese Gold Market and the importance of the SGE, this development – of gold coin trading on the world’s largest physical gold exchange – is another evolution to watch in China’s constantly evolving physical gold market and should heighten the global profile of Gold Panda coins in other markets around the world.

Chinese Gold Market: Still in the Driving Seat

With the first half of 2018 now behind us, it’s an opportune time to look at whats been happening in the Chinese Gold Market. As a reminder, China is the largest gold producer in the world, the largest gold importer in the world, and China’s Shanghai Gold Exchange is the largest physical gold exchange in the world.

For various reasons such as cross-border trade rules, VAT rules and deep liquidity, nearly all physical gold supply in China passes through the Shanghai Gold Exchange (SGE) vaulting network. These flows include imported gold, domestically mined gold, and recycled gold. Therefore, nearly all Chinese gold demand has to be met by physical gold withdrawals from the SGE, and SGE gold withdrawals are a suitable proxy for Chinese wholesale gold demand. Therefore, at a high level:

Physical Gold Supply to the SGE = SGE Withdrawals = Chinese Wholesale Gold Demand

Gold supply includes gold imports, mine supply, gold scrap / recycling and disinvestment. Disinvestment on the SGE is the reverse process of investment. Investment is when any institutional entity or individual purchases gold directly on the SGE. Disinvestment involves selling gold bullion which then goes to a refinery and re-enters the SGE vaulting network.

Wholesale gold demand includes consumer demand and institutional demand (direct gold purchases at the SGE). For a fuller explanation of this gold supply – demand equation as it applies to the Chinese gold market, see ‘Mechanics of the Chinese Domestic Gold Market’ on the BullionStar website.

Chinese Gold Market: Still Buoyant

SGE Gold Withdrawals in 2018

For the 6 months to the end of June 2018, physical gold withdrawals from the Shanghai Gold Exchange totalled 1038.4 tonnes. These flows represent gold which has actually been physically withdrawn from the network of SGE vaults across China. The monthly SGE gold withdrawal figures from January to June 2018 are as follows:

January 223.6 tonnes
February 118.4 tonnes
March 192.6 tonnes
April 212.6 tonnes
May 150.6 tonnes
June 140.6 tonnes

This withdrawal total, 1038 tonnes, is the third highest SGE withdrawal total on record for the first six months of any year of the SGE’s existence, only lower than the 1098 tonnes and 1178 tonnes recorded at the end of June 2013 and June 2015, respectively. The following chart highlights the cumulative Month 6 gold withdrawals from the SGE vaults, comparing all years from 2008 to 2018.

SGE Gold Withdrawals at Month 6 (YTD 2018 June): 2008 – 2018. Source: www.GoldChartsRUs.com

This year’s gold withdrawals to end of June, if annualised, would be 2076 tonnes, which would represent the fourth highest SGE gold withdrawals year on record after 2015, 2013 and 2014, in that order. All in all, SGE gold withdrawal figures year-to-date point to a very buoyant and healthy gold market in China and very strong wholesale gold demand, with volumes in line with the last 5 years.

SGE Annual Physical Gold Withdrawals, 2008 – 2017, including YTD 2018. Source: www.GoldChartsRUs.com

Imports of Gold into China

Around the world, monetary gold (i.e. central bank gold) is exempt from customs and trade reporting when it moves across borders. Given this exemption, it is difficult to really know how much gold central banks (including the Chinese central bank, the PBoC) actually have at any given time.

Non-monetary gold is any gold that is not classified as monetary gold. Normally, non-monetary gold flows are estimable since there is no general exemption from customs and trade reporting. However, China is the exception, as it does not publish its gold import or export statistics. Therefore cross-border non-monetary gold trade flows involving China are more difficult to gauge than most. But it is still possible to gauge gold imports into China by looking at other countries’ gold exports to China.

During the year to date, Hong Kong and Switzerland, as expected, remained the two primary suppliers of non-monetary gold to China. Smaller direct suppliers of gold to China include the UK, Australia and the US. While Hong Kong remains the largest supplier of gold into China, China has been for a few years now, sourcing more gold directly from other countries and less gold via Hong Kong,

Looking first at Switzerland, for the first six months of 2018 from January to  June, the Swiss supplied 274.7 tonnes of non-monetary gold into China. Specifically, 41.2 tonnes in January, a very large 67.2 tonnes in February, 39.6 tonnes in March, 26.6 tonnes in April, 38 tonnes in May and 62.1 tonnes in June. In fact, China topped the table as the largest single destination for Swiss non-monetary gold imports in every month from January to June 2018, ahead of India and Hong Kong.

China imported 62.1 tonnes of gold from Switzerland in June 2018, Source: www.GoldChartsRUs.com

If extrapolated on an annual basis, the 6 month flows would suggest Swiss gold exports to China of 274.7 tonnes from January to June would be roughly 550 tonnes for the full year. Comparing this to the full year 2017 when China imported 299.8 tonnes of non-monetary gold directly from Switzerland would suggest that a major change has occurred this year in the way the Chinese are sourcing their gold imports, with far more direct imports and less indirect imports from the interpot of Hong Kong.

Swiss Gold Exports by Country Destination, 2017, Source: www.GoldChartsRUs.com

According to Hong Kong’s Census and Statistics Department (HKCSD), Hong Kong net-exported 144.2 tonnes of gold to mainland China during the first 3 months of 2018. Extrapolating this on a 6 months basis would be about 290 tonnes, and 580 tonnes on an annualised basis. This would be a 7.5% drop compared to 2017 full year net gold exports from Hong Kong to China, but such a drop is to be expected as there is a trend of China is now engaged in more direct gold imports from destinations other than Hong Kong.

Chinese Gold Imports from Hong Kong, Source: www.GoldChartsRUs.com

China sources gold directly from a number of other countries such as the UK, Australia, US and Canada. Together these other sources are still relatively insignificant as gold exporters to China compared to Hong Kong and Switzerland, but based on 2017 figures, together they may have sent about 30-40 tonnes of gold to mainland China during H1 2018.

Gold Production in China: 2018

Beyond gold imports, gold sourced from mining remains a critically important source of gold supply in China. According to the China Gold Association (CGA), China produced 98.22 tonnes of gold from mining in the first quarter of 2018, which was down 3 tonnes on Q1 2017. This comprised 80.8 tonnes from direct gold mining and 17.4 tonnes from extracting gold as a byproduct of other mining.

While the CGA has not yet published a gold mining output total for the second quarter of 2018 and its website has not yet been updated with such a news release, extrapolating the first quarter figure would suggest a Chinese domestic mining output figure of just less than 200 tonnes of gold for the first half of 2018 and about 400 tonnes for the full year.

Given that China produced 426.14 tonnes of gold during 2017, and the 2017 gold output total of 426.14 tonnes was itself 27.3 tonnes, or 6%, less than in 2016, it looks like 2018 will see another year of reduced gold production from the world’s number one gold producer. With continued buoyant demand from the Chinese gold market, these relative production shortfalls will have to be made up by larger gold imports or increased volumes of gold recycling.

SGE Premiums

Premiums of the Shanghai gold price to the international gold price have remained positive and steady throughout 2018, and generally low, except for a short period at the end of March. In price terms, SGE premiums during the year-to-date period have been recorded at between 1-2 Yuan per gram , or in percentage terms between 0.3% and 0.8%.

The positive premiums point to the attraction of sending gold from West to East, while the generally sedate levels of these premiums during 2018 indicate that there are currently no major supply constraints, such as tighter gold import rules, that could send the premiums higher into positive territory. Contrast this to late 2016, when the SGE gold price traded 2-3% higher than the international gold price, on the back of rumoured PBoC restrictions on gold import quotas and consignments that were said to be an attempt to control capital outflows.

SGE Premiums on Gold 2018. Source: www.GoldChartsRUs.com

With Chinese wholesale gold demand running at over 1000 tonnes for the first six months of 2018 as indicated by SGE gold withdrawals, China’s gold market has to principally meet this gold demand from the key supply sources of domestic mine production, gold imports and gold recycling and disinvestment.

For the year to date to end of June, we can assume that Chinese gold mining contributed about 200 tonnes to Chinese gold supply. Non-monetary gold imports, principally from Switzerland and Hong Kong, contributed another 560-580 tonnes. This would leave about 250 – 300 tonnes to be sourced from gold recycling and scrap through the SGE system and from disinvestment.