The latest gold import and export data from Switzerland, one of the few countries to report these flows in detail, as usual open up some interesting insights into global supply and demand. Overall Swiss gold exports rose by around 20% month on month to 177.3 tonnes making the country a net exporter in May. Generally Swiss gold imports and exports are pretty much in balance given that it mostly imports gold for re-refining and re-export.
While gold exports from Switzerland to China and Hong Kong both picked up in May, its principal country of imports was again the United Arab Emirates normally a recipient of Swiss gold, not a provider. Indeed in another reversal of normal gold flows, the U.K. was again the biggest importer of Swiss gold in May, necessary, we feel, to meet the big demand in London from the principal gold ETFs which vault their gold there. Exports to the U.S. were also unusually high. Again any gold flows to and from the U.S are normally in the eastward direction. We have surmised before that available supplies of physical gold in London are currently tight and this only serves to add weight to that premise and could also suggest that a similar position is arriving in the U.S. too given recent strong investor demand for bullion.
Re China and Hong Kong, exports to the Chinese mainland were 19 tonnes, up from 13.8 tonnes in April, while exports to Hong Kong were up by a very large 14.5 tonnes to 24 tonnes making the percentage of gold shipped to the Chinese mainland against that shipped directly to Hong Kong (which will also subsequently nearly all find its way to mainland China) at around 44%. This again confirms our oft-repeated mantra that Hong Kong gold imports and exports can no longer be taken as a proxy for the Chinese figures with so much gold now going to the Chinese mainland directly. This is a major change from three years ago when the Hong Kong:China ratio was far higher, but still some media outlets ignore this fact.
Prior to the current year, The U.K. was always a significant supplier of gold to the Swiss refineries which have specialised in melting down and re-refining 400 kg good delivery gold bars into the smaller sizes most in demand in the Asian markets. Thus, as we pointed out a month ago when the previous set of Swiss stats were released – See: Swiss gold data raises new doubts on London’s gold stocks these reversals of gold flows, if they continue, could be an indicator of some serious tightness in supply of physical gold to the markets from traditional sources as noted above.
While exports to China and Hong Kong were substantially higher in May, they remained very weak to that other traditional gold market, India, where gold seems to have fallen out of favour in recent months. In May the figure was only 18.5 tonnes, down 16% from an already low April figure. Taken together with reports of substantial discounts in the local gold price, it appears that Indian buyers are nervous of the substantial gold price rise so far this year and may be holding off purchases in expectation of a price fall.
The other big anomaly in the figures was that the two biggest exporters of gold to Switzerland in May were the United Arab Emirates again with 42.1 tonnes and Hong Kong with 11.6 tonnes although the latter was a net importer in May – not the case in April. Neither of these countries/regions are normally exporters of gold to Switzerland in any significant quantities, but are major trading centres, suggesting that the lower demand from what are probably their biggest normal export markets, India and China respectively has led to inventories running higher than traders are happy with, and with the higher prices prevailing there has been perhaps an incentive to return gold to the Swiss refiners and take profits.
We will thus be following this Swiss import/export data to see if these supply/demand anomalies continue in future months.