China middle class growth to add to record gold buying levels there

New York closed yesterday at $1,155.20 down $2.70 with Asia and London holding it there. The dollar was weaker at $1.1011 down from $1.0992 against the euro with the dollar Index at 96.66 down from 96.94 before London opened.  The LBMA gold price was set this morning at $1,154.75 up $1.55. The euro equivalent was €1,047.53 up €2.02. Ahead of New York’s opening, gold was trading in London at $1,155.00 and in the euro at €1,047.90.

The silver price fell to $15.38 down 12 cents in New York. Ahead of New York’s opening it was trading at $15.33.

The gold market is seeing thin trade with few buyers or sellers, allowing the gold price to be nudged around by currency moves. Since the 8th July the holdings of the SPDR gold ETF have moved from 709.65 tonnes and at 167.40 tonnes in the Gold Trust to 709.071 and to 167.76 tonnes in the Gold Trust. This continues to show that the U.S. investor is not interested in gold at present. All the action in gold is occurring below the surface of the price and in Asia, primarily China.

The news that China is doing better than expected, achieving over 10% growth on their retail side and 8.4% on the services side, points to a fast growth rate in their middle classes. It is this group that will add to the current record levels of buying of gold into China. These numbers directly impact gold demand.

While the Greece tragedy, we feel, is no longer impacting the euro exchange rate, the report from the IMF that Greek debt is unsustainable with it reaching 200% of GDP within 2 years really does make a real tragedy of the current deal, which sad to say the Greek Parliament looks like accepting. While it may be politically acceptable to give a “grace period” [postponing repayments and interest?] for 30 to 40 years, according to the IMF, all this does is to emasculate Greek sovereignty and allow the creditors that time to write-off the debt. The country is bankrupt and this deal makes sure it stays that way for more than the next generation. Keeping such a weak link in the E.U. does achieve the objective that it will keep the euro weak for the foreseeable future and maybe longer. Overall this will be positive for the gold price in euros. The entire exercise has weakened the credibility of the Eurozone. For weak nations to use the euro, which reflects far greater strength than their economies deserve, is a fundamental mistake for them.

Silver will likely recover faster than gold now.

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

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China hits new record H1 SGE gold demand figure

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.

China’s huge gold demand figures – the Jansen viewpoint

As we’ve noted here before, following Koos Jansen’s blog on bullionstar.com is perhaps the best way of keeping up exactly with what is going on in the Chinese gold market, and on Shanghai Gold Exchange withdrawal figures in particular.  He describes the latest weekly withdrawal figure we noted in an earlier article on this site (Chinese gold demand 70 tonnes w/ending Jan 16th), as being ‘incredible’, in part because the withdrawals were made at a time the gold price was rising sharply, but also because it was the third highest withdrawal figure on record.  The first few paras, and a couple of charts on his latest blog post, are shown below – as is a link to read his full article which adds additional insights into the place of Chinese gold demand in terms of the global supply/demand balance.

Withdrawals from the vaults of the Shanghai Gold Exchange (SGE) in week 2 of 2015 (12 – 16 January) accounted for an incredible 70 metric tonnes. Aggregated withdrawals in the first two weeks of this year stand at 131 tonnes.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 2, dips

Shanghai Gold Exchange SGE withdrawals delivery only 2014 - 2105 week 2, dips

Corrected by the volume traded on the Shanghai International Gold Exchange (SGEI), withdrawals in week 2 were at least 65 tonnes (read this post for a comprehensive explanation of the relationship between SGEI trading volume and withdrawals). Year to date withdrawals corrected by SGEI volume were at least 122 tonnes.

The numbers just mentioned are truly amazing, 70 tonnes withdrawn in one week is the third highest amount ever. Only in January 2014 when the Chinese were also buying gold for the Lunar year – but the gold price in renminbi was lower, and in April 2013 when the price of gold fell of a cliff, were withdrawals stronger than last week. This is important, as illustrated in the charts above the Chinese tend to buy gold when the price is declining, last week they bought like there was no tomorrow while the price was rising sharply. Now that’s strong demand! …

In perspective; 65 tonnes demand (the bottom limit) can only have been met by mine supply, scrap supply or import supply. Domestic mine production was 8.7 tonnes; gold was not trading at a discount, but at a premium to London last week, which means scrap couldn’t have been abundant; estimating scrap that supplied the SGE at 4 tonnes leaves import to have been at least 52.3 tonnes (in one week). Nothing unusual if this would occur sporadically, but since 2013 China has net imported 2,838 tonnes for just non-government demand, continuously draining global above ground gold inventory – as world mine production is not sufficient. How long can this go on? Deutsche Bank estimates the PBOC imports an additional 500 tonnes a year, according to a report released in November 2014………

To read Jansen’s full article please click on this hyperlink

Chinese gold demand 70 tonnes w/ending Jan 16th

Lawrie Williams

Note:  More detailed article now up on  Mineweb.com

Latest figures from the Shanghai Gold Exchange show that just over 70 tonnes of gold were withdrawn from the SGE for the week ending Jan 16th.  This is the 3rd highest level of gold withdrawals ever recorded by the Exchange and suggests that Chinese gold demand remains extremely strong in the runup to the Chinese New Year which falls on Feb 19th this year.  With four weeks still to go until the actual New Year date, if this level of gold demand holds up given the higher gold price, China will show a very strong start to the year, buying up far more than the global total tonnage of newly mined gold over this period on its own.

Chart of SGE gold withdrawals over past six years courtesy of Nick Laird’s sharelynx.com website

SGE2

A more detailed analysis of what the latest figures imply may be viewed on the Mineweb.com website.

 

Asian disenchantment with Western gold market manipulation

Asian disenchantment with Western gold market manipulation

Lawrence Williams

The forthcoming launch of a gold kilobar contract by the CME group in Hong Kong is an element in Asian attempts to wrest controil of gold benchmark pricing from the West

A phrase at the end of a Reuters report on the forthcoming launch by CME Group of a gold futures contract in Hong Kong caught my eye.  In commenting on the implementation of several gold futures trading options in the Asian region the report noted that Asia is the top consumer of physical bullion in the form of jewellery, bars and coins, but there is growing disenchantment with benchmark prices set in the West, which tend to be influenced by speculators.”  The new Hong Kong contract is due to go live on January 26th.

That disenchantment note is perhaps understating the case. There has to be little doubt that speculative elements are indeed manipulating the gold price on COMEX using the paper gold futures markets to do so.  It is hard to see any other reason behind some of the strange pricing moves involving enormous trades often at very thin trading times.  Recently most of these moves have resulted in large downwards price falls and not surprisingly the gold bulls have been crying ‘foul’.  However there may also come a time when such trades could move the markets sharply in the other direction. This, though, would run contrary to a strongly held theory within the pro-gold sector that the bullion banks, at the behest of certain central banks, are driving the price down to suppress the gold price lest a soaring gold price is seen as an indicator of serious currency weakness and instability.

But whether these new Asian contracts can indeed counter the COMEX speculative activity in particular is rather less certain.  So far the take-up has been far from immense on the Shanghai and Singapore bourses.  As the Reuters article again points out liquidity appears to be an issue with the 25kg contract on the Singapore Exchange, and the three new international contracts on the Shanghai Exchange, yet to see significant trading volumes.

But the setting up of the new contracts does indicate a change in attitude in Asia and perhaps represents just the beginning of an attempt to wrest control of benchmark price setting away from the U.S. and Europe and, given the huge flows into the Asian markets, there is a strong chance that they will succeed in time.  The Chinese in particular find it hard to understand why, when demand is running so high (Chinese consumption alone has accounted for around half total global gold supply from all sources in both 2013 and 2014), that the gold price has been falling over the same period.  They are looking to implement a price benchmarking system which better reflects the now-dominant Asian physical precious metals market activity.

Martin Murenbeeld of Dundee Capital Markets in Canada, and a hugely respected analyst and forecaster of the gold markets,  has reminded me that China itself could not set a benchmark price for gold while there remain gold import and export controls, but perhaps Hong Kong could.  He feels that the latter should perhaps set up a rival ‘fix’ to that in London and that this might one day grow to supersede the London benchmark.

This article has also been submitted to www.mineweb.com – the world’s leading website for global mining news and comment