Latest SGE gold deliveries suggest enormous 2015 total of over 2650 tonnes!

The huge level of weekly Shanghai Gold Exchange delivery numbers is becoming something of a repetitive news item and is perhaps losing its impact, but it shouldn’t.  Week 37 (ending September 18th) saw another 63 tonnes delivered out of the Exchange, which makes the year to date total 1,892 tonnes – 281 tonnes more than at end week 37 in the massive 2013 record year for Chinese gold consumption.  If we extrapolate from the year to date figure this would suggest total SGE gold withdrawals for the year would come to an enormous 2,650 tonnes or higher – equivalent to over 80% of total global supply of new mined gold.  With SGE deliveries usually rising late in the year in the long build-up to the Chinese New Year, which falls on February 8thnext year, we certainly shouldn’t discount the likelihood of this level being achieved, or even bettered.  There seems to be no slowdown happening as yet.

Overall, SGE deliveries started to pick up in early July (normally one of the weakest months of the year) and have averaged 62 tonnes a week since then.  The figure for the week ended September 11th was the third highest weekly total ever

12 week withdrawal figures on SGE to September 18th

SGE Withdrawal week ended

Physical gold withdrawn

July 3rd

44.3 tonnes

July 10th

61.8 tonnes

July 17th

69.2 tonnes

July 24th

73.3 tonnes

July 31st

53.3 tonnes

August 7th

56.1 tonnes

August 14th

65.3 tonnes

August 21st

73.0 tonnes

August 28th

59.9 tonnes

September 4th*

36.8 tonnes*

September 11th

73.7 tonnes

September 18th

63.2 tonnes

Total

729.9 tonnes

*September 4th figures are for a three day trading week with the Exchange closed for the Chinese Victory Day celebrations on the Thursday and Friday.

These figures fly in the face of the same mainstream analysts’ estimates of Chinese demand this year, which they say is slipping, along with the nation’s declining GDP growth rate – although this is still currently estimated at over 6% .  The disparity between the SGE figures and the analysts’ assessments of Chinese consumption is ever growing – and this year looks as though the difference by the year end may be as much as 1,500 tonnes or more.

As we have noted before, a significant proportion of the difference is down to how the analysts estimate ‘consumption’.  Demand categories such as gold used in financial transactions tends to be ignored by the analysts, yet this is still gold flowing into China and in terms of gold movement from West to East remains hugely relevant.

Jeff Christian of CPM Group, in his recent presentation at the Denver Gold Forum attributed the enormous disparity to a very large proportion of SGE gold being in a loop between jewellery manufacturers and the Exchange which meant that he considers there’s a huge amount of double counting involved.  Yet if this is the case then presumably it would also have applied to 2013 to the same extent and back then there was recognition from all that Chinese demand hit a new record level, although still not as high as SGE gold withdrawals for that year.  With SGE withdrawals so far this year now being 17% higher than at the same time in 2013, then we should expect to see demand as calculated by the analysts at considerably higher levels than even in 2013 – not lower as they are claiming this year.

Jeff Christian and CPM’s view that SGE gold withdrawal figures overstate the demand position by as much as 233% does seem excessive under these circumstances.  It suggests recognition that there is this huge assessed  discrepancy between the SGE figures and actual Chinese demand as calculated by the analysts and then coming up with a theory to fit their own calculations.  This theory is then presented as fact.  I may be doing Christian a disservice here, but given the other mainstream analysts have sometimes come up with differing answers to the massive gap, one has to wonder how accurate any of their Chinese demand assessments actually are.  There is a severe lack of transparency here which presumably the Chinese have no wish to clarify.

If we add up known gold exports to China from Hong Kong, and direct to the mainland, from Switzerland and the UK, all of which publish these data, add in China’s own domestic production plus an assumed level of domestic scrap supply and imports from other nations, all this looks to be heading to a total of 2,000 tonnes or more this year.  This, like the SGE withdrawal figures, is also hugely more than the analysts’ demand estimates.  But this gold is all being ‘consumed’ inside China in some form or other – perhaps including some by the central bank – and continues to demonstrate China’s dominant position in the absorption of global physical gold flows.

According to gold and China watcher Koos Jansen, SGE withdrawals are indeed recognised by the Peoples Bank of China as equating to the country’s real gold demand – but then of course the PBoC has also been complicit in under-reporting the Chinese central bank gold holdings for many years. And there are few outside China who believe that the supposed increase in transparency engendered by now reporting monthly central bank purchases is necessarily any more realistic than the times when information on these purchases was withheld.

The PBoC, of which the SGE is a subsidiary, also tells us that the Gold Exchange rules prevent roundtripping of gold which, if correct, would totally negate Christian’s theory – but then it’s a case of who do you believe to provide the more realistic data – the PBoC, or the World Gold Council, GFMS, Metals Focus or CPM.  Perhaps none of the above.  The analysts are all good at picking up and collating data from reliable sources, but perhaps not from countries like China which can make disinformation into an art form if it suits.

This blog post was originally published on www.sharpspixley.com.  View more of my articles by clicking on the site.

Update: 44% of June Swiss gold exports to China bypassed Hong Kong

The importance of Hong Kong as a channel for Chinese gold imports continues to diminish with nearly half of Swiss June gold exports going direct to the mainland.

As we have noted here before, there has been an increasing trend for China to import gold directly via its mainland ports of entry rather than via Hong Kong, which makes Hong Kong to China gold export data less and less relevant.  So headlines like the recent one from Bloomberg: China’s gold buying from HK drops to lowest in a year  and the accompanying ‘analysis’, which puts it all down to lack of mainland China demand, have to be seen in context and as potentially misleading.  Firstly June is normally a low month for gold trade in the area, but even so the sentiments expressed in the accompanying article seem to be countered by Shanghai Gold Exchange withdrawal figures.  These arerunning exceptionally high for the time of year with 69 tonnes withdrawn from the SGE in the latest week for which stats are available at a time of year when we might normally expect to see withdrawals of 20-30 tonnes – See: What to make of gold

One of the biggest exporters of gold to Hong Kong and China is Switzerland, and luckily we have official Swiss statistics to throw a little more light on this subject.  In June total Swiss gold exports totalled just under 100 tonnes with 32.3 tonnes going to China and Hong Kong combined. But of this total fully 43.6% went direct to the Chinese mainland, bypassing Hong Kong altogether which makes the Hong Kong export figures to China less and less indicative of overall Chinese gold imports.  Indeed for the whole of 2014 around 37% of Swiss gold exports to China and Hong Kong – which together amounted to 600.3 tonnes – went directly to the Chinese mainland without first landing in Hong Kong.  It is perhaps fair to assume that gold exports to mainland China from other nations is also seeing an increase.

Here’s the www.sharelynx.com chart showing the major country-by country breakdown of Swiss gold exports for June: (apologies – the chart somehow didn’t appear when article first posted)

swissgold

As can be seen from the above chart, India, Hong Kong and China between them accounted for 54% of total Swiss gold exports, and if one adds in other south Asian and east Asian nations the area accounted for around 65% of all Swiss gold exports that month.

hong kong becoming less and less relevant as gold import route for China

Recent Reuters headline: China’s gold imports from Hong Kong dipped to 7-month low.  The brief article which followed implied that Chinese gold demand was also dropping in commenting that Honk Kong imports remain a proxy for Chinese gold demand.  They used to be, but not any more!

A more significant article from Bloomberg on Swiss gold exports- probably by far the biggest source of Chinese gold imports – in March noted that 46.4 tonnes was exported directly to mainland China, and only 30 tonnes to Hong Kong.  Thus 60% to China and 40% to Hong Kong.  This massive change in gold export routes from a year earlier when most Swiss gold going to China was still being routed through Hong Kong, failed to elicit any comment at the time.  We had noted earlier here also that U.S. gold exports to China were increasingly being sent direct after virtually all going through Hong Kong in early 2014: 36% of October U.S. gold exports to China went direct rather than via Hong Kong

Now we don’t know exactly what proportion of Chinese gold imports are now going in directly and bypassing Hong Kong, but judging by the Swiss export data it could be as much as 50% or more and while Hong Kong obviously remains a significant route for the gold imports it looks to be becoming less and less relevant – particularly given further restrictions being lifted on the number of banks and companies allowed to import gold directly.

Thus the days of Hong Kong figures being relatively close to providing a very good idea of total Chinese gold imports would now definitely seem to be ending which will make estimating overall Chinese gold imports ever more difficult given that mainland China does not report this data. But on the basis of the latest Shanghai Gold Exchange withdrawal figures which are, if at least nothing else, an excellent trend indicator of overall Chinese gold demand, the Asian Dragon could be heading for a record year for gold demand with around 780 tonnes withdrawn so far this year from the Exchange up until one week ago.  While it is far too early to make an annual estimate given these flows out of the Exchange tend to fall off mid-year, before picking up again from September onwards, should withdrawals continue as expected we could well be in for a comfortable new record come the year end.

Continuing strong Asian demand has gold bucking the technical trend

Julian Phillips’ commentary on what is currently driving the gold and silver markets – and market action overnight and this morning.

Isn’t it infuriating? The Technical picture has no discernible pattern at the moment, but pointed down to most people, yesterday. But prices went up instead, as Asian demand filtered through constantly, pushing short positions to close once again. To illustrate just how strong Asian gold demand is the Swiss reported exports of re-refined gold [in the 1 kg range] of 46.4 tonnes of gold to China and a larger number of 72.5 tonnes of gold to India up from 23.6 tonnes and 27.1 tonnes of gold respectively for February. Please note that this was not for a specific festival [the main one was in April] but a general stocking up. This increase in tonnage has much more to do with low prices that went to gold’s low of $1,143. The demand from China was not festival driven either.

Traders with an eye on currencies saw the need to lift the gold price, when others felt the opposite. So we are seeing the waters of the gold market roil and make them turbid [boiling and unclear].  So where do we go from here? We can only say, as we said above, in the forecast.

Today E.U. Finance Ministers meet in Riga to discuss Greece. It is these Ministers who will decide on the matters so Merkel’s meeting with Tsipras did not change the likelihood that no deal will be reached there. It’s the accountants that hold the power not the politicians at this moment, but at the end of the day we feel the politicians will win out. This story will drag out all the way, it now seems, right through June. The exchange rate of the $:€ will not be affected by Greece until a conclusion is reached one way or the other. Until then it is all about the dollar and its strength.

The dollar index fell to 97.18 after yesterday’s 98.16 with a stronger euro at $1.0833 now.  Gold is back in consolidation mode for the weekend, it seems.

There were no purchases or sales of gold into the SPDR gold E.T.F. or the Gold Trust on Wednesday. The holdings of the SPDR gold ETF are at 742.347 tonnes and at 165.58 tonnes in the Gold Trust.

Markets yesterday and this morning

New York closed at $1,194.70 up $7.90 on Thursday in NY. Asia held it there before the LBMA Gold price was set at $1,192.15 up $4.90. The euro equivalent stood at €1,099.87 down €5.84 while the dollar was stronger at $1.0834 against yesterday’s $1.0742. Ahead of New York’s opening, gold was trading lower in London at $1,192.30 and in the euro at €1,101.74.

The silver price closed at $15.89 up 10 cents on Thursday. Ahead of New York’s opening it was trading at $15.87.

 

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com

 

How much gold is now going directly to mainland China? 36%?

By far the largest exporter of gold to China and to Hong Kong is Switzerland and its latest figures for 2014 suggest that 36% of Swiss gold exports are now going to mainland China directly

Lawrie Williams

Latest precious metals export data out of Switzerland for the full 2014 year suggest that in that year, taking gold specific exports only, around 36% of the gold exported to Hong Kong and China  combined actually went directly into China rather than via the former British Crown Colony.  As various reports in the media have suggested, India was the biggest recipient of Swiss gold at 471.2 tonnes, but China and Hong Kong, which after all is a special administrative region of China, together took in 590.4 tonnes, further suggesting China, contrary to some reports, remained the world’s biggest gold consumer last year..

Totals Swiss gold exports for the year were some 1,746 tonnes and the top 10 importers of Swiss gold in 2014 are set out in the table below.  Between them they account for over almost 90% of all Swiss gold exports.  The next three most significant importers of Swiss re-refined gold were France with 37 tonnes, the UK with 29.8 tonnes and Malaysia with 22.6 tonnes.

Table: Top 10 recipients of Swiss gold exports

Country Tonnes imported % of Swiss Gold exports
1.       India 471.2 27.0
2.       Hong Kong 377.2 21.6
3.       China (Mainland) 213.1 12.2
4.       Singapore 134.2 7.7
5.       Germany 88.9 5.1
6.       Turkey 69.1 4.0
7.       United Arab Emirates 66.3 3.8
8.       Saudi Arabia 60.5 3.5
9.       Thailand 44.4 2.5
10.   Italy 43.6 2.5

Source: Swiss Federal Administration

So what is the significance of this?  For many years very little gold was imported directly to mainland China.  Nearly all came in via Hong Kong.  So Hong Kong (which published its gold import/export data) was widely seen as a proxy for total Chinese gold imports.  China itself didn’t publish such data so what might have been coming in directly was widely disregarded by Western analysts as of no consequence.

But last year, China moved the goalposts, and eased the path of gold imports directly to the mainland from other countries than Hong Kong.  However because China doesn’t publish direct gold import data no-one really knows exactly how much gold is now flowing into China directly and although Hong Kong is now not the only significant import route Western mainstream media often imply the Hong Kong data still equates to Chinese demand – so the recent news that exports from Hong Kong to China fell 32% last year was widely seen as an indicator that Chinese consumption fell by a similar amount.

Thus the latest official export data from Switzerland (as do the latest figures for U.S. gold exports) show that for a large part at least of China’s gold imports, around a third are now going into China directly which makes the Hong Kong figures ever less indicative of the overall picture.

The other interesting point from the Swiss statistics is that this small nation takes in, re-refines and then exports a volume of gold equivalent to around 56% of the world’s newly mined annual gold supply.  The volumes of gold being exported to other countries than India and China/Hong Kong are also worthy of note – particularly imports into Singapore and Thailand being other key Asian gold consumers – and Saudi Arabia, Turkey and the United Arab Emirates, which between them accounted for  as being strong indicators of Middle Eastern demand.  Between them these three states imported 195 tonnes of Swiss re-refined gold – some of which was doubtless destined for Iran and Islamic State, both of which are cut off from direct gold supplies from normal sources.  Gold exports and imports can be a murky business at the extremes!