An edited version of a post which I placed on info.shsarpspixley.com at the weekend - click here for original. Article was posted before we knew the results of the Italian referendum which, contrary to expectations saw the gold price fall back despite a No vote. I have already written an article on this for the Sharps Pixley site which I may post here tomorrow.
The article below deals with the ongoing argument about estimates of Chinese gold demand/consumption as disseminated by major gold consultancies and the World Gold Council and thus treated as the definitive figures by much of the world’s media, yet they come in enormously below known gold supply into mainland China which,in our view, makes them decidedly suspect as a true measure of gold flows into China which are perhaps a better indicator of real Chinese gold demand. Methodology used by the major consultancies is probably key to the huge differences.
Bullionstar’s Koos Jansen has been carrying on a several year-long crusade against precious metals analytical consultancy, GFMS, for publishing what he describes as incomplete and misleading statistics which, he reckons, hugely underestimate true Chinese gold demand. But it should also be borne in mind that other highly respected consultancies like Metals Focus (which has usurped GFMS’s previous position as supplier of statistical data to the World Gold Council) and America’s CPM Group, although they may not be quite as downbeat on the Chinese statistics as GFMS, also produce far lower estimates for Chinese gold consumption than Jansen’s preferred measure of Shanghai Gold Exchange withdrawal figures.
Jansen actually goes further in suggesting that other GFMS global gold demand data also underestimates the true position, and he calls the consultancy’s figures a cover-up to protect their longstanding business model.
What is more all the above consultancies have tended to come up from time to time with differing reasoning for the apparent consumption discrepancy – all of which have been stated with apparent absolute certainty – until the next year when the latest reasoning is replaced by the next theory.
In a new posting on bullionstar.com - Debunking GFMS’ Gold Demand Statistics – Jansen looks at all GFMS’ latest opinions on this, and why they are all, in his view, incorrect – indeed he describes them as a cover-up, which also has to apply to the theories on this matter promulgated by the other major precious metals analysts. It is hardly surprising that Metals Focus’ analysis comes up with something close to that of GFMS, although perhaps not quite so downbeat. This is because the latter consultancy utilises the services of Hong Kong based consultancy Precious Metals Insights for its Chinese data whose managing director is Philip Klapwijk, former executive chairman of GFMS and who will thus have had ultimate responsibility for the original GFMS research on Chinese consumption. Given Metals Focus provides, as noted above, the data used by The World Gold Council in its pronouncements, this is often the data used by global media as the definitive Chinese gold demand figure.
This might not be a problem if the GFMS and Metals Focus/WGC data was anywhere close to the kinds of figures which Jansen comes up with, but the figures they use are only less than half those suggested by Jansen who bases his calculations on Shanghai Gold Exchange (SGE) gold withdrawals. In part this is because what the consultancies count as gold demand ignores financial/institutional intake, which can be substantial, and which is why Jansen considers the data misleading. Last year, for example, SGE withdrawals amounted to over 2,596 tonnes of gold - a new record - whereas GFMS calculations for Chinese consumption came in at under 900 tonnes a figure also picked up by much of the world’s mainstream media. The difference between that and the SGE figure is ENORMOUS.
We have pointed out here beforehand that the real, and obvious, anomaly comes in when you look at actual gold supply into China. If we add known Chinese gold imports – from Hong Kong, Switzerland, the UK, the USA and Australia, all of which publish gold export figures - and add in Chinese gold production (China is the world’s No. 1 gold producer – some 450 tonnes in 2015) plus an estimate of scrap supply, not to mention direct imports from countries which don’t publish export statistics, we come up with a combined figure of around 2,000 tonnes or more (if anything Jansen’s calculations are even higher). As gold exports from China are officially prohibited – which isn’t to say that absolutely zero goes out, but close – these figures would seem to make the GFMS calculations even more untenable.
This year though Chinese gold demand is going to be lower by almost any standards. Up until end-October SGE withdrawals were 1,560 tonnes – 28% down on the record 2015 year and now perhaps suffering a reported import clampdown, although expectations for November withdrawals, due to be announced this week or next, are likely to be far higher than in recent months due to restocking demand ahead of the Chinese New Year holiday, the annual total is likely to be under 2,000 tonnes for the first time since 2012
Even at this reduced level, Chinese gold demand, as represented by the SGE figures is still running at over 60% of global gold output. Rising premiums also suggest Indian gold demand is back on the up which could be seen as positive for the global gold price but rhe immediate price triggers are probably the result of the constitutional referendum in Italy, the Austrian Presidential vote and the likelihood of the U.S. Fed raising rates when it meets next week - seen as high!