China gold

Chinese central bank buys another 19 tonnes of gold in December

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China is something of a contradiction at the moment.  Its stock market has been plummeting again – another 7% was wiped off the Shanghai Composite Index in this morning’s trade – a fall (although not as debilitating in percentage terms) which seems to have transferred itself yet again to other Asian markets, European ones and in early trading in New York with the Dow, S&P 500 and Nasdaq all opening sharply lower.  The Yuan has also been weakening against the US Dollar despite signs that the Peoples Bank of China (PBoC) has been attempting to slow any decline given a sharp fall in its forex reserves  (although given the enormous size of these reserves this seems just to have been perhaps more of a controlled Yuan devaluation.)

Meanwhile the PBoC has been continuing to bolster its officially announced gold reserves with an uptick of 19 more tonnes in December bringing them to 1,762.323 tonnes.  As we have pointed out beforehand, though, although China supposedly came clean on its official reserve figures back in June this year, and has been announcing monthly increases since in the interests of transparency in line with its pending inclusion in the SDR currency basket, it is still widely believed the total reserve figure is, in reality, hugely understated, as may well be the size of the announced monthly purchases.

With the Russian central bank also continuing to increase its gold reserves there is an anticipation that 2016 could well see a continuation of the good level of overall central bank purchases we have been seeing over the past couple of years.  However Russian forex reserves are not nearly as robust as those of China and any need to protect a continuation of the ruble downturn could be limiting.  But with Russia relying so much on oil and gas exports, ruble devaluation is at least helping those companies involved in the resource sector stay afloat. Russia is less reliant on imports from countries whose currencies are not tied to the ruble anyway than many western economies would be in a similar situation.  The lower ruble thus has less effect on the general populace than many in the west might surmise.

Regarding its gold reserves, China may well be unwilling to report its full total and monthly purchase figures in order to keep the gold market ticking over at a level which suits its long term financial aims.  A major rise in the gold price, which would likely ensue should it report far higher monthly purchases and a possible tripling or quadrupling of its total reserve figure. may not be in its best interests.  There is no auditing process on the level of gold reserves reported to the IMF on a monthly basis so, in effect, a country can just report these as it may suit its political and economic aims.  It is known that China considers gold to be a key element in the future world currency and economic power scenario, and at the moment it may well just be keen to be seen to carry on raising its gold reserves at a rate which won’t make future purchases raise any red flags among economic analysts.

That gold plays such a huge part in the Chinese psyche – as it does in that of many other nations, particularly in Asia – is already evident in the enormous level of withdrawals from the Shanghai Gold Exchange this year.  By December 25th these had reached 2,555 tonnes (See:Chinese 2015 gold demand equates to around 80% of total global gold output) – already a huge new record – and by the year end will have almost certainly reached a fraction short of 2,600 tonnes.  Whether SGE withdrawals are an accurate representation of the nation’s actual gold demand or not (there are conflicting opinions on this), the record levels involved are certainly a great indicator of the national sentiment towards the yellow metal.

With the PBoC and its wholly-owned Shanghai Gold Exchange (SGE) planning to launch a Yuan denominated daily gold benchmarking price system, to rival that of the LBMA in London, currently reckoned to come into being in April, we are likely to see yet another crack in current gold price setting which is largely a New York and London process and very much COMEX paper gold market influenced.  This may ultimately lead to  a more physical gold-related system but, for those who believe the current process, and the resultant gold price, is manipulated/suppressed by Western central banks and their bullion bank allies, we could be just replacing a Western dominated system with a Chinese one and what that outcome would result in as far as the gold price itself is very much an unknown.  With the huge amounts of gold which have found their way into very diverse Chinese personal savings over the past few years, one suspects China would do its best to eliminate any substantial downside risk since keeping its citizenry onside is a key policy aim.  But how it would handle any upside movement is rather less certain.  The greater its gold reserve build-up, perhaps the less likely it might be to interfere on the upside, assuming it does see gold as some kind of financial weapon in future global economic positioning which does seem to be the case.

China ups gold reserves 20.8 tonnes in November

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Analysts at Bloomberg have calculated that China’s gold reserves have grown from 55.38 million ounces (1,722.5 tonnes)  at end October to 56.05 million ounces (1,743.3 tonnes) at end-November by taking the announced gold reserve figures in U.S. dollars for the two months and applying the LBMA gold price prevailing at the end of each month to make their estimate.  The figures thus suggest that China increased its reserves by 20.8 tonnes over the period – the highest monthly increase in its gold reserves since it started announcing monthly reserve figures back in July.

There still remain doubts about the true levels of Chinese gold holdings, with many analysts believing these are still being understated, as they have been in the past when there were large time gaps – five or six years – between reserve increase announcements.  China’s gold reserves are seen as of political significance with the country only letting the world know what it wishes it to believe!

Writing on www.bullionstar.com this week, Koos Jansen, who undertakes perhaps the most comprehensive research on Chinese gold policy and gold holdings of anyone, came up with his view that much of the 1,750 tonnes that have mysteriously vanished from the London Bullion Market (left London without being disclosed in UK customs statistics) in between 2011 and early 2015 went to China. This supports the analysis the PBOC is buying at a pace of 500 tonnes a year in the international OTC market (not through the SGE) and owns approximately 4,000 tonnes by now.  See Koos’ blog post: Renminbi Internationalization And China’s Gold Strategy.  Some commentators put the figure higher yet, as noted above, the latest official figure is less than half Jansen’s estimate.

UK gold exports to mainland China dwarf those to Hong Kong

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Latest UK gold export figures released coverin August show gold exports to China plus Hong Kong went 74% direct to the chinese mainland bypassing Hong Kong altogether.  This is yet another hugely significant indicator that Honk Kong net gold exports to China can no longer be an accurate guide to total Chinese imports as much of the world’s media – and some analysts who should know better – seem to assume.  See graphic below from www.sharelynx.com 

ukaug1

To read more on this click on August UK gold exports direct to mainland China dwarf Hong Kong

Hong Kong gold exports ever less relevant to Chinese SGE demand

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An interesting graphic from Nick Laird’s www.sharelynx.com group of websites.  This one shows net monthly Hong Kong gold exports to China, Shanghai Gold Exchange (SGE) withdrawals and the correlation between the two.  This is hugely relevant in the context of how significant the Hong Kong net gold export figures are in relation to overall Chinese demand as represented by SGE withdrawals.

hksge

What can be seen from the charts was that there was a much more significant correlation between the Hong Kong exports and SGE withdrawals up to Q1 2014, but after that the Hong Kong percentage has been mostly declining and was down to only 23% for the latest month for which figures are available (August).  June and July figures were even lower.   This shows that Hong Kong gold export figures are very definitely no longer the proxy for Chinese gold demand they used to be despite some analysts, and the media, assuming, or implying, that they are.

The reason for this is that Hong Kong is becoming less and less important as a supply route for gold into mainland China due to gold import regulation changes.  We have already pointed out that two of the biggest supply routes for gold into China – via Switzerland and the UK – are now shipping very significant percentages to the Chinese mainland directly, whereas prior to 2014 nearly all their gold export traffic was via Hong Kong.  (See: What is China’s real gold demand?).

We can glean these statistics directly from the Swiss and UK export figures as China publishes no direct data on gold imports to the mainland.  Whereas some gold was always going direct to the mainland and bypassing Hong Kong, a relaxation on which ports of entry and who could import gold directly has significantly moved the goalposts and undoubtedly some sources of Chinese gold imports may be moving 100% of their gold directly into the Chinese mainland as opposed to the circa 40% we are already seeing  across the major import routes from countries which do publish the relevant data.

Of course the other significant source of Chinese gold is from that mined on the mainland itself, and as a byproduct from the big base metals smelting and refining sector- possibly as much as 480 tonnes this year, up from around 460 tonnes in 2014.  This comes to around 20% of China’s likely 2015 total gold demand.

Chinese Gold Reserves Up Another 15 t as Forex Reserves Tumble $43bn

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Lawrie Williams

Latest gold reserve figures from the Chinese central bank show that the country added another 15.01 tonnes in September.  At September’s average gold price that will have equated to around a little under US$600 million in value.  But total Chinese forex reserves dived by a massive $43.3 billion to their lowest level in over two years, so the official gold purchase figure – if it is to be believed – forms only a very small part of this.

Some see the additional gold taken into the bank’s coffers as yet another indication of China’s intent to diversify its forex reserves out of the dollar, but the amounts are tiny relative to the size of the country’s overall forex reserves which still sit at a massive $3.5 trillion! The big September fall (1.2%) in the latter either suggests a huge programme of mostly dollar denominated sales in order to maintain the country’s current currency relationship with the greenback and to help prop up the domestic economy, or perhaps some other unknown transactions involved – or a combination of both.

We can speculate that one such other transaction could be that China is buying much more gold than it is saying and holding it in other accounts which it doesn’t feel the need to report to the IMF as part of its official gold reserves….

This article has been published on the sharpspixley.com website.  Please note that the news and price sections on the Sharps Pixley site are now accessed via info.sharpspixley.com.  To read the above article in full CLICK HERE

What is China’s real gold demand?

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There is a huge disparity between what the Chinese Central Bank apparently sees as gold demand and that estimated/calculated by the global analytical community. The figures seem to be continually diverging and here we utilise known official data to draw our own conclusions as to what the real figures might be.

As a base we are assuming that supply to the market is roughly balanced by demand.  There is an element of well substantiated data from Chinese and non-Chinese sources available which may give us a fairly good idea of the minimum supply levels potentially available to Chinese consumers. But given China’s non-reporting of direct gold imports this certainly does not present anything like a full picture.

First we have China’s domestic gold output which this year is estimated to reach perhaps 480 tonnes. Secondly we have net gold imports via Hong Kong. The Hong Kong Statistical office reports these on a monthly basis in a throwback to the Special Administrative Region’s former British-based bureaucracy, and net exports from this source to the Chinese mainland by the end of August totalled 485 tonnes, and given the tail end of the year usually produces some strong figures, a conservative estimate for this year’s total net gold imports from Hong Kong would be around 650 tonnes.

But there’s more. Switzerland exports gold both to Hong Kong and directly to mainland China, as does the UK. Recent changes in China’s permitted import routes for gold also mean that nowadays an important part of the gold exports from these countries does go directly to the Chinese mainland, bypassing Hong Kong altogether. For example, the UK started exporting gold directly to mainland China from April last year and through to the year end sent a little over 110 tonnes by this route. This year, after zero exports in January and February, it has exported around another 110 tonnes in the following four months to end June so it would not be unreasonable to assume that around 250 tonnes, perhaps more, will flow by this route into mainland China over the full year.

Likewise Switzerland has exported a little over 145 tonnes of gold directly to the Chinese mainland in the seven months to end July this year – again suggesting a full year total of around 250 tonnes.

So, if we add together the total of net projected Chinese gold imports for FY 2015 from Hong Kong, Switzerland and the UK and add in China’s own estimated domestic production for the year we are already seeing a total of 1,630 tonnes. Add to this unquantified direct imports from other nations and additional supply from domestic scrap we are probably coming up with a figure of perhaps closer to 2,000 tonnes, which is far nearer the SGE withdrawals figures than the mainstream analysts’ figures might suggest.

The big question is, though, is a significant proportion of the Chinese available new gold supply going into the Central Bank rather than in to retail consumption? Chinese officials tell us that the People’s Bank of China does not source gold from the SGE – but the country is also currently announcing perhaps an intake of around 14 tonnes a month since it began reporting these figures 3 months ago. If this is indicative of likely central bank purchases over the full year then this would total around 170 tonnes, which presumably is coming from somewhere.

And western analysts are dubious about levels of Chinese government purchases of gold anyway, mostly assuming them to be far higher than officially stated with gold being held in other government accounts not reported to the IMF. Additional monetary gold, which is not reported in export statistics from countries like the UK, could also be going to China directly – see Koos Jansen’s latest article on this: The London Float And PBOC Gold Purchases.

If we ignore for the moment possible direct imports by the PBoC, the amount of available ‘new’ gold to the Chinese market would be the 2,000 tonnes estimated above and the analysts’ estimates of Chinese gold consumption currently of around less than half this level leaves ca. 1,000 tonnes plus of supplied gold unaccounted for, some of which may be going into the financial sector, which does not tend to be recorded in analysts’ figures for consumption. But again this is probably a relatively small amount. So the question is where is this excess gold all going? This suggests the analyst figures are substantially under-estimating true Chinese consumption. With the SGE figures indicating an even wider discrepancy there are even more questions about total Chinese gold inflows unanswered. Perhaps there are indeed elements of double counting in the SGE figures, but probably not sufficient to account for the huge differences being seen.

But whatever the real figures are, known gold exports into China plus the country’s own production, account for probably at least 50% more gold than the analysts reckon China is consuming – and these totals almost certainly under-estimate the true picture. And what matters to the gold marketplace in terms of supply/demand fundamentals is the total amount of gold flowing into China from the West – not just whatever the analysts classify as consumption.

The COMEX Warehouse situation: While there may indeed be no shortage of physical metal in the overall COMEX gold warehousing system, the registered stocks (i.e. immediately available amount of physical metal) have indeed diminished and are currently down to around 5 tonnes only. As Jeff Christian has pointed out recently, though, this low number is not an immediate cause for concern as COMEX is primarily a futures market and little actual physical gold passes through it, while there are still big ‘eligible’ stocks held by the bullion banks some of which could be transferred to meet commitments if necessary. But the low registered stock level is yet another probable indicator of continuing gold flows from West to East. It should also perhaps be pointed out that the numbers here are actually quite small compared with overall gold trade with the total fall in eligible plus registered stocks only down around a little over 30 tonnes year to date. Given continuing gold inflows into the COMEX warehousing system, of course, the total gross outflow will have been considerably higher, but reports of a pending supply squeeze should perhaps be disregarded given the overall total holdings of eligible plus registered stocks in the COMEX warehouses.

Chinese faith in gold as a foundational asset for financial security

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On Monday New York closed at $1,135.50 up $1.10. The dollar was stronger at $1.1335 at the close up from $1.1496, against the euro, with the dollar Index weaker at 95.94 down from 96.07 from Monday. The LBMA gold price was set at $1,141.90 today. The euro equivalent was €1,o14.26. Ahead of New York’s opening, gold was trading at $1,143.55 and in the euro at €1,015.54. The silver price closed at $14.64 up 5 cents over Monday’s close in New York. Ahead of New York’s opening today it was trading at $14.63.

Price Drivers

Today London re-opens after the Bank Holiday weekend and we see the beginning of the ‘gold season’. Sometimes it takes a little time before it sparks into life but with European holiday makers back at their desks with carefully nurtured sun tans, the focus turns to the festive season and preparations for it.

In India the harvesting is under way bringing tax free profits that find their way into property and gold.

Today saw Asia take gold up $7 before London opened. As we detailed yesterday, the gold and silver markets have fundamentals which are going to take it in a direction that is different from most global financial markets. While we do expect the balance of the year to see volatility throughout global financial markets, we see these two precious metals acting very differently.  

With confidence in currencies and market stability waning gold & silver performed well in currencies other than the U.S. dollar. This pattern is expected to continue.

China wants the Yuan to gain the reputation the dollar currently has, as a central global currency. To that end they have now made it expensive to speculate on the Yuan. With all the controls the Chinese authorities have imposed on their markets, all they have done is to inadvertently reinforce the Chinese faith in gold as a foundational asset for financial security.

A lesson from the past shows that in 1933 gold was not confiscated because of the need to boost money supply but to prevent it competing with the dollar, inside the U.S. Today, one government cannot dominate the gold market, leading to a situation where gold is needed as an alternative to currencies in global dealings. As volatility in exchange rates continue, this need will grow!

Yesterday saw no sales or purchases into or from the SPDR gold ETF but a sale of 0.9 of a tonne from the Gold Trust

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

As markets and dollar fall, gold is back on a rising path

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On Friday New York closed at $1,159.40 up $26.70. The dollar was weaker at $1.1444 down from $1.1062 on Thursday with the dollar Index weaker at 94.94 down from 96.50 on Friday. It opened on Monday at 94.54. Asia took the price down on Monday to $1,154 as global equity markets slid. This morning the LBMA gold price was set at $1,153.50 up $5.55. The euro equivalent was €1,006.11 down €13.42 as the euro surged. Ahead of New York’s opening, gold was trading at $1,159.50 and in the euro at €1,007.65.  

The silver price closed at $15.28 up 2 cents over Friday’s close in New York. Ahead of New York’s opening today it was trading at $15.00.

Last week and this morning, saw different factors across the world knock equity markets down heavily. In China, the conciliatory statement to the IMF that the government would move more to allowing markets to move according to market forces saw those who were still allowed to sell, do so, knocking the Shanghai market down another 10% on the day.

In the U.S. where markets have risen because better yields can be found in equity markets than in the bond markets, the Dow continued to fall through support as a rate rise will come from the Fed in September or before the end of the year. Cash is the safest place to be unless the international cash aspects of gold are used. To validate that we see the dollar has sunk against the euro, the Yen and sterling while the Yuan has fallen against the dollar. This week will see heavy volatility in global financial markets.

Gold was rising against the dollar ahead of New York’s opening today.  To that end there were purchases of the large amount of 5.96 tonnes into the SPDR gold ETF and o.6 of a tonne bought into the Gold Trust on Friday. This leaves the holdings of the SPDR gold ETF at 677.827 tonnes and 161.62 tonnes in the Gold Trust.  

While the fundamentals of markets may not drive prices all the time they do so eventually. The greatest driver of equity markets is sentiment, which eventually will respond to fundamentals. It is in the nature of investors and the media to put a positive ‘spin’ on factors, but when smart investors are joined by the crowd the response to fundamentals becomes strong and emotional as we are seeing now. That ‘thundering herd’ can become unstoppable. But what’s different today is that global equity markets are joining the herd. –

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

Shanghai’s gold pricing power ever-growing

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On Friday New York closed at $1,092.10 up $2.80. The dollar is down more than half a cent at €1.0976, with the dollar Index weaker initially before rising to 97.85 down from 97.90. This morning the LBMA gold price was set at $1,094.80 up $3.45. The euro equivalent was €1,001.01 up €3.25. Ahead of New York’s opening, gold was trading in London above $1,094.30 and in the euro at €1,000.50.

The silver price closed at $14.77 up 12 cents in New York. Ahead of New York’s opening it was trading at $14.94.

There were sales from the SPDR gold ETF of 0.24 of a tonne but none from the Gold Trust on Friday. The holdings of the SPDR gold ETF are at 667.694 tonnes and 161.83 tonnes in the Gold Trust. With so little sold from these gold ETFs the gold price floated higher and in Asia it started to accelerate higher to $1,098 before pulling back in London’s morning.

As you can see from New York’s close the ‘bear raid has stopped, it seems, with less than quarter of a tonne sold from the SPDR gold ETF. If the market believes the selling has stopped there is only one way the market can go apart from sideways. It would take a headstrong seller to enter the market now unless he had a hefty amount of physical gold to sell. Meanwhile, the first buyer to break cover may find himself leading a herd?

Chinese demand is there solidly, as this morning’s price testifies and we are three weeks from the beginning of the gold season. Europe is on holiday until then, thereafter entering the busiest time in the developed world’s gold season too. We watch to see if instead of seeing the developed world unloading gold into Asia Shanghai comes to the developed world to take more gold from there to eliminate the premium? This would tell us just how far the evolution of the gold market has come this year and just how far Shanghai’s pricing power has grown.

The news out of the U.S. on Friday was good for the economy and the prospect of a rate hike either in September or December seems certain. But this did not prompt gold sales in the U.S. or London. Has the rate hike been discounted in the gold price? Friday’s behavior tells us, yes it has.

Oh, just in case you had forgotten Greece, it must have a bailout solution before August 20 or it will miss a payout to the ECB. The fact that a nation must borrow to service debt could not be a louder signal of its bankruptcy.

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

China’s gold dilemma

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On Tuesday New York closed at $1,095.60 up $1.60. The dollar was almost unchanged at $1.1064, with the dollar Index slightly down at 96.64 down from 96.77. This morning the LBMA gold price was set at $1,096.75 up $1.15. The euro equivalent was €991.23 up €0.63 yesterday. Ahead of New York’s opening, gold was trading in London at $1,096.20 and in the euro at €991.63.

The silver price closed at $14.68 up 12 cents in New York. Ahead of New York’s opening it was trading at $14.63.

The gold market barely moved in the last day with the dollar slightly weaker and the dollar index almost static. The gold market is waiting to see if the sales out of the U.S. have finished or simply pausing to see if there will be a bounce. Our question is, “Are they finished with the ‘bear raid’ or are they waiting to continue after a bounce?” It really does depend on how much physical gold they can sell or are they physically shorting the market?

As to news warranting continuing such a raid, we don’t believe there has been a change since the raids began 12 days ago. We mention, again, the event that caused the selling to stop and that was the two days when around six tonnes of gold were sold from the SPDR gold ETF in two days but saw the gold price lift in China. With so many speculative short positions and so few Commercial short positions there, we are ready for short covering, but a decent move, either way, in the gold price is needed before that happens.

The holdings of the SPDR gold ETF are at 680.154 tonnes and 163.55 tonnes [down 0.30 of a tonne] in the Gold Trust.

China has a dilemma. Not only can it not afford to see an equity meltdown, it cannot afford to see a gold price meltdown. With gold an integral part of its financial system a heavy drop in the value of gold attacks margins and the use of gold as collateral, which is common practice! But is this enough to warrant intervening in the Chinese gold market? We suspect, it is, if done ‘invisibly’. This would only be seen in the failure of the gold price to fall further, in China.

With the Fed in the second day of its two day meeting we expect markets are waiting for a change in language, but not a rate hike. The markets are waiting to see if the hike will happen in September or December.

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

China wants healthy gold market. Is it intervening?

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On Monday New York closed at $1,094 down $6. The dollar was almost unchanged at $1.1062, with the dollar Index slightly higher at 96.77 from 96.72. This morning the LBMA gold price was set at $1,095.60.  The euro equivalent was €990.60 down from €992.50 yesterday. Ahead of New York’s opening, gold was trading in London at $1,092.60 and in the euro at €990.57.

The silver price closed at $14.56 down 13 cents in New York. Ahead of New York’s opening it was trading at $14.61.

The ‘bear raid’ is either finished or pausing today, as no gold was sold from the SPDR gold ETF or the Gold Trust yesterday. As we have said many times before, Asia does not chase prices, but in the developed world there have never been so many short positions and a dearth of longs in COMEX.

The holdings of the SPDR gold ETF are at 680.154 tonnes and 163.85 tonnes in the Gold Trust.  Meanwhile dealers are moving prices in line with the moves of the euro against the dollar.

What did happen in China in the last day was the equity market plunged 8% despite the measures put in place by the government there. In the West the acceptance of the separation of the financial system from the political system is taken for granted, but in China the government controls everything. The financial system is controlled through the People’s Bank of China including the Shanghai Gold Exchange.

With the government there nurturing the financial system to maturity, such collapses or bear raids are taken as an attack on government as well. This is particularly so now that the government has been extremely high profile in trying to protect the equity market from further falls. These have failed to prevent further falls.  We expect measures to attempt to halt further falls in the equity market and by extension perhaps the gold price?

It is more than likely that an agent of the PBoC is taking off any dumped gold from New York and sold down in Shanghai [seen at the opening in the SGE] which appears to have happened this week. We need at least the rest of this week to see if this is really happening. Bear in mind China wants healthy financial and gold markets because they have visibly encouraged ownership of gold, so they will ensure the Yuan gold price will not go the way of the equity market.

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

Gold, silver, pgms crash on overnight Shanghai trades

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While Chinese volumes may have been seen as lending support to gold and other precious metals prices through continuing high gold withdrawals on the Shanghai Gold Exchange and strong import levels, today the reverse has been true.  A reported sale of 5 tonnes of gold into the SGE has really rocked the markets, at one time driving the spot gold price down below the $1100 level, although European trading brought it back up again – but still well down on the previous day’s levels.  Julian Phillips writing here suggests that the bear raid commenced in New York, while John Meyer at London broker/banker S.P. Angel noted the Chinese element was thought to have been made into China’s smaller gold market half an hour after the market opened to take advantage of the lower liquidity and fragile market environment.

Overall, uncertainty about what prompted this big gold sale is rife.  Could it be for a liquidity necessity following the big recent Chinese stock market crash, or could it be the Chinese falling out of love with gold?  Or could it be a big gold dump on the SGE international section, tied in with a big sale out of the gold ETFs on Friday?  The evidence suggests it may well be the latter. One supposes time will tell.

Germany’s Commerzbank in its daily commentary reported it thus: “Crash on the gold market – as the new week gets underway, the price of one troy ounce plunged for a time by up to 5% or around $50 to just over $1,080 during the course of early trading, thus hitting its lowest level since February 2010. It has meanwhile recouped over half of these losses again. In euro terms, gold dipped temporarily to a 6½-month low of a good €1,000 per troy ounce.

“The price slide was triggered by high selling volumes on the gold exchange in Shanghai. According to figures from Reuters, over a million lots were traded there in one key contract. Apparently, the average figure so far in July had been below 30,000 lots….

“All other precious metals are also under pressure in gold’s slipstream: silver has been trading for a time at a 7½-month low of $14.5 per troy ounce, while platinum dropped for a while to a 6½-year low of less than $950 per troy ounce and palladium hit its lowest level since October 2012 (a good $600 per troy ounce).”

Commerzbank also noted increased pessimism on precious metals on COMEX, a further retreat by gold ETF investors who, according to Bloomberg, sold out of 15.7 tonnes on Friday – the biggest daily decline in 2 years, while it sees the Greek situation and China’s lower than expected new gold as being of relatively little significance.

Huge latest week SGE gold withdrawal figure – 62 tonnes

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While the upwards restating on Friday of China’s gold reserve position at a much lower level than the market had been anticipating may have disappointed gold investors (China ups gold reserves at last – gold bulls disappointed and China shocks bullion market with small gold reserve increase), the latest reported volume of gold withdrawals from the Shanghai Gold Exchange (SGE) should provide counter encouragement.

We keep on reading in the mainstream media that Chinese (and Indian) gold demand is weak at the moment but this, in China at least, would seem to be belied by the recent levels of SGE gold withdrawals at what is usually a very weak time of year.  And the latest figure out of the SGE for the week ended July 10th seems to have been truly exceptional for summer trading.  The figure was a fraction under 62 tonnes – the eight largest weekly total ever – at a time of year when SGE withdrawals are usually at the 20-30 tonne level – bringing the total for the year to date to 1,191 tonnes.  As I wrote in a recent article on Mineweb (China on track for new annual record gold deliveries), if the momentum keeps up into the usually stronger late third and fourth quarters, Chinese gold demand, as represented by SGE withdrawals, is heading for a comfortable new record exceeding the 2,186 tonnes of 2013.

It should be recognised here though that with China not everything is always as it seems on surface.  SGE withdrawal figures nowadays are muddied by the inclusion of withdrawals out of the Exchange’s International section – the SGEI – but these are not reported separately, but just in the cumulative total.  SGEI withdrawals do not necessarily have to be landed in China and while they are thought to have been small so far there’s always the possibility that these have been taking off thus compromising the domestic ones.  Also, as we have pointed out before western mainstream analysts dismiss the SGE withdrawal figures as not being a measure of true retail demand.  (This is partly a matter of what they see as included in demand or consumption which ignores some categories – particularly gold used in financial transactions and as collateral – as well as suggesting there could be a degree of double counting in the SGE statistics (although SGE rules should preclude this).

But as an indicator of Chinese sentiment towards gold, and of gold flows into and within what is still comfortably the world’s largest consumer, SGE withdrawal figures still have to provide the pre-eminent data.

Gold investors should remember too though, that in the previous record year for Chinese gold demand, 2013, the gold price plunged throughout the year with the huge gold flows from West to East seemingly being totally ignored by the markets which set the gold price in New York and London.  Prices are set as much – far more in fact – by sometimes dubious dealings on the futures markets than by supply/demand fundamentals.  Ultimately, gold pricing, along with most of the world’s available gold bullion, will move to the East but this may still be some time away, but with the probable launch of a Shanghai gold benchmark price setting system later this year, this would seem to be getting ever closer.

China hits new record H1 SGE gold demand figure

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Latest figures out of the Shanghai Gold Exchange show that Chinese H1 gold withdrawals are running even higher than in the record 2013 year.

With a latest week (to June 26th) total of 46.167 tonnes of gold withdrawn from the Shanghai Gold Exchange – again a high level for the time of year – the total for the year to date has reached a massive 1,162 tonnes and assuming withdrawals from the SGE have continued at around the same rate in the final two trading days of the month, we can probably add another 18 tonnes to make gold demand for the full six month period, as represented by SGE withdrawals, 1,180 tonnes.  This will be comfortably a new record for the first half of the year – the previous record was in  2013 with just under 1,100 tonnes withdrawn in H1 and when the full year figure was 2,197 tonnes.

Consider that total global new mined gold supply for the half year period will have been only around 1,600 tonnes that gives a pretty good idea of the significance of Chinese gold demand in the world picture – accounting for around 74% of new primary supply on its own.  And China only accounts for less than half of global gold demand.  Lowish gold prices mean that recycled gold supply is weak and so far this year liquidations out of the gold ETFs are small in comparison to the previous two years.  And what is apparent is that Chinese demand continues to grow – and anecdotal evidence suggests that this is receiving a further boost as Chinese investors turn back to gold following a huge crash on the overbought Chinese stock markets.

There has thus been a huge demand for gold in China over the past three years in particular.  (See the chart below of weekly SGE withdrawals since 2010 from www.bullionstar.com website’s long term SGE gold withdrawals chart).  2013 was a record year for SGE trade and 2014 only a little smaller, and given that H2 SGE withdrawals tend to exceed the H1 figures in total, we could well be heading for a substantial new annual record, confirming the overall upwards trend.

bstar weekly

Koos Jansen, in his latest bullionstar.com blog, expresses considerable surprise that global financial turmoil, as overtly expressed by the ongoing Greek tragedy and the Chinese stock market collapse, and uncertainty on western markets too, has not led to a gold price surge.  “This smells like market rigging.” he writes. ”Surely the last thing the authorities need at this moment is gold on the move. Various media and bullion dealers report demand for physical gold in Europe is strong.”  Add to this something of a resurgence in demand from the world’s other massive gold consumer – India – and an apparent recovery in demand for gold and silver bullion coins in the U.S. and Europe alongside the Chinese demand noted above and indeed it is surprising that gold has been falling regardless.

 

As usual the media puts this down to the prospect of the U.S. Fed raising interest rates sooner rather than later, but by now this prospect should have been taken into account anyway in gold pricing given that the Fed will only implement a very cautious policy and, at least initially, rates are likely to remain effectively negative after any initial rises.  As we have said before there appears to be a concerted campaign to play down gold’s potential as a significantly rising gold price would indicate a loss in confidence in global fiat currencies, and governments and central banks can’t afford for this to happen and will doubtless continue to brief against it.

Chinese middle classes’ faith in gold being restored

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Julian Phillips’  take on the drivers of the gold market ahead of the major US holiday.

New York closed at $1,165.60 down $2.90. Asia and London took it back up to $1,169.50. The dollar was 0.60 of a cent weaker at $1.1054 and the dollar Index was lower at 95.93 down from 96.37.  The LBMA gold price was set this morning at $1,168.25 up $3.95. The euro equivalent was €1,052.67 up €1.67 Ahead of New York’s opening, gold was trading in London at $1,168.60 and in the euro at €1,053.03.

The silver price fell to $15.65 up 6 cent in New York. Ahead of New York’s opening it was trading at $15.67.

Unbelievably the I.M.F. has put its foot in it! The report just issued clarifies that Greece needs to be given 40 yrs to repay its debt and needs lower interest rates and for a portion at least of its debt to be written off if it is to return to growth. Even then it will still have debt to GDP of 150%. For those Greeks who understand this, a No! vote to the past offer from the E.U. seems necessary to get the better deal one like that of the IMF’. So the story still has a long way to go. Nevertheless, the markets may react to the vote if a No! rules the day.

What is of greater importance to the gold and silver price is the behavior of the Chinese equity markets. After the hype that money may be finding its way from gold into the equity markets, that money is leaving the market in droves. The Chinese have always been gamblers and seem to have changed the equity market into a casino. The new rich middle classes are seeing a reinforcement of their faith in gold in a year that may see imports of gold higher than in 2013, their record year. As Chinese middle classes grow continuously, a good portion of their savings [and the Chinese are great savers] finds its way into gold. At some point, that demand will reach a level where it does spill over directly into London and New York and impacts the current low prices.

In India where the monsoons are now generous, there remains two months before their ‘gold seasons’ begin again.

Meanwhile, the gold price is bumping along on the bottom at the mercy of U.S. dealers and speculators. Yesterday the data on employment and on jobs was disappointing so they stepped back, at which point the gold price rose slightly.

On Thursday there were sales of 1.789 tonnes  of gold from the SPDR gold ETF and 0.39 of a tonne from the Gold Trust.  The holdings of the SPDR gold ETF are at 709.65 tonnes and at 167.40 tonnes in the Gold Trust.

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

 

Hong Kong to China gold trade and demand – the facts

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This article was originally offered to Mineweb, but Mineweb has now asked me to cut back on gold and silver related commentary-type articles as not fitting in with the direction on which they want to take the site.  Consequently it has now already been published on sharpspixley.com  and as yet where my future precious metals commentary articles will be published, apart from here on lawrieongold.com, remains undecided.

Lawrie Williams

A great chart showing the big anomaly between Hong Kong gold exports to mainland China and SGE gold withdrawals raises further questions on media coverage on the significance of Hong Kong to China gold export figures.

We have mentioned before the considerable emphasis the global mainstream media has placed on Hong Kong gold exports to China as being indicative of the level of overall Chinese gold demand, while we have long averred that this is no longer the case with a large proportion of imported gold now going directly to China’s Shanghai Gold Exchange (SGE) through which it must pass, being delivered to other Chinese ports of entry.  We have been assuming that around 40% or more of Chinese gold imports have been coming in directly rather than via Hong Kong which means that Hong Kong can no longer be considered a proxy for overall Chinese gold imports.

But looking at the latest chart from Nick Lynn’s www.sharelynx.com website, published below, it appears we have maybe significantly underestimating the true level of gold imports directly into mainland China and bypassing Hong Kong altogether – at least calculated in terms of deliveries via Hong Kong and actual SGE gold withdrawals:

chk

Chart courtesy of sharelynx.com and goldchartsrus.com

As can be seen from the chart, for a considerable period now, SGE gold withdrawals have exceeded gold imports via Hong Kong by a very substantial amount – an amount which has fallen off dramatically since China loosened its import restrictions on gold coming in directly to mainland China ports of entry.  However it should be recognised that a significant part of the difference (just under 40 tonnes a month relates to gold production from China itself, which also passes through the SGE) but even taking this into account it definitely looks as though the proportion of gold coming in directly to the Chinese mainland continues to rise despite fluctuations in the amounts coming in via Hong Kong.  On the latest available figures, if we take the difference between imports from Hong Kong and SGE withdrawals, there is a shortfall of 123 tonnes.  If we subtract 40 tonnes of Chinese production from this, the discrepancy is still 83 tonnes suggesting 47% of the gold withdrawn from the SGE is coming in to China directly.

The Sharelynx chart also shows that so far this year this kind of percentage difference between Hong Kong gold exports to China and SGE withdrawals has been fairly consistent at the 40% or above level.

Now there is wriggle room in these statistical comparisons.  Chinese gold production tends to be lower at the beginning of the year than later on so the differences may well be even larger in Q1 and Q2 – while there may well additional stockpiled gold available within the SGE which  enables it to fill the currently high-for-the-time-of-year withdrawals even when inward gold flows may be lower than actual demand.  Nevertheless the figures are yet a further strong indicator that Hong Kong gold exports to the mainland are no longer a proxy for overall Chinese gold consumption.

Concerning the impact on the overall gold price, and thus on gold and gold stock investment, while total levels of Chinese imports in terms of physical gold flows from West to East should perhaps have an impact on the gold price, it is patently obvious that this can only be happening to a very limited extent, if at all.  Gold prices are still being set in New York and London regardless of the overall level of Eastern demand – See: Gold: The US sets the price but Asia does the buying.  This anomaly can only continue for so long (but this remains an indeterminate timescale), but with continuing Chinese moves to take part in the gold price setting process, the day when gold price control shifts to the East has to be drawing closer.  But whether Asian gold price control will be any more benign for the gold and gold stock investor remains to be seen!