60% of Swiss gold exports to China this year going direct rather than via Hong Kong

A follow-up article to the one I published here recently on Switzerland nowadays shipping more gold to mainland China than to Hong Kong has been published on sharpspixley.com.  The original article related to Swiss gold export figures for January showing the highly significant fact that the country shipped 42.1 tonnes of gold to mainland China and only 24.5 tonnes to Hong Kong.  Now Switzerland has released its February gold export statistics showing that again more gold went directly to mainland China than to Hong Kong (26.0 tonnes to 19.4 tonnes)  This works out That 60% of Swiss gold exports in the first two months of the year went directly into mainland China, bypassing Hong Kong altogether.

Go back around three years and nearly all China’s imported gold went to Hong Kong first and then to the Chinese mainland, so Hong Kong gold exports to China were taken by the media and major gold analysts as representative of total Chines gold imports.  This is obviously no longer the case with perhaps more than half Chinese gold imports not touching Hong Kong at all – yet some media still publish the figures as though a sharp year on year fall in Hong Kong gold exports to the mainland indicates a similarly sharp fall in total Chinese gold imports.  As the Swiss figures show this is no longer the case.

To read the Sharps Pixley article click on China taking in more Swiss gold than Hong Kong for second successive month

Update with chart: 2015 SGE gold withdrawals total 2596 t – 19% up on previous record year

The Shanghai Gold Exchange’s announcement of the full year figure for gold withdrawals for calendar 2015 show that a huge new record of 2,596.4 tonnes was taken out – 19% higher than the previous record of 2,182 tonnes recorded in 2013. This is just short of the 2,600 tonnes we had been estimating.  In the four days of trading in the final week of the year 40.94 tonnes were withdrawn – suggesting around 50 tonnes for a full 5-day week including Jan 1st – which is pretty much on par with other recent weekly withdrawal figures despite any minor disruption from the big Christian Christmas holiday period which has little, but possibly some very minor, impact on Chinese domestic trade.  This time of year does seem to see strong gold withdrawal levels from the SGE in the buildup to the Chinese New Year – a traditional time of gift giving in the Middle Kingdom of which gold ornaments and jewellery tend to figure strongly.  This year the Chinese New Year falls on February 8th.

Here’s Nick Laird of Sharelynx’s chart setting out the SGE withdrawal figures for the past eight years, which demonstrates nicely the huge (and very consistent apart from a blip in 2014) upwards trend in withdrawals as China’s economy has continued to grow and individual purchasing power has grown with it. The growth in the economy may be slowing down, but it is still growing at a rate which any Western Government will envy enormously.

SGE 2015

While the Chinese central bank – the People’s Bank of china (PBoC) – seems to equate SGE withdrawals to total Chinese demand, Western analysts tend to suggest that the actual figures are considerably lower and come up with various, and differing, reasons for the possible discrepancy.  Indeed their consumption estimates may well prove to be around 1,500 tonnes lower than those the SGE withdrawals figure might suggest.

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.

But these same western analysts also seem to ignore the evidence of known Chinese gold import figures and China’s own gold production. Together these look as though they will have totalled just short of 2,000 tonnes in 2014.  It seems strange that in the age old argument as to which country is the world’s largest gold consumer – China or India – that the analysts pretty well equate India’s reported gold imports as that nation’s consumption, while not applying the same principle to China’s known gold imports plus its own domestic gold output (reckoned to be around 470 tonnes in 2015).

Whatever the analysts may suggest, SGE withdrawal levels in comparison with previous years, have to be a good indicator of total Chinese demand (excluding Central Bank purchases which apparently don’t go through the SGE).  Thus it appears Chinese gold demand remains very strong indeed despite the sharp fall in the country’s GDP growth over the past year.

Update with chart: Gold taken out of China’s SGE to top previous record by huge 400 tonnes.

The following is an edited version of an article I’ve written for sharpspixley.com – and was posted on that site on Friday, entitled: CHINA: SGE Gold withdrawals head for huge new record year.  This year’s withdrawal figures passed the 2013 full year record a months ago already and at the current rate will exceed the previous record figure by around 400 tonnes by the year end – although there’s a chance the figure could be higher still as withdrawals tend to rise as we get closer to the Chinese New Year, which falls on February 8th in 2016.

The big growth in SGE withdrawals this year is demonstrated  by the chart below from Nick Laird’s www.sharelynx.com website  which shows total withdrawals at the same time for the past seven years.  As can be seen gold taken out from the Shanghai exchange have been growing strongly year by year apart from a blip in 2014.    This year’s figure for week 47 is thus a massive 538 tonnes higher than at the same time last year and 382 tonnes higher than in the previous record 2013 year.  As can be seen from the chart the growth in withdrawals accelerated hugely in 2013 compared with previous years – a trend which has continued pretty well since.

sge 47

The Sharps Pixley article notes that although Shanghai Gold Exchange (SGE) weekly withdrawal figures seem to have fallen back a little from their heady July/August/September heights, when at times over 70 tonnes of physical gold were taken out of the Exchange’s vaults in a single week, this year’s total is still heading for a huge new record high.  Total withdrawals so far this year to the end of last week (Dec 4th – the SGE reports withdrawals a week in arrears) have amounted to just under 2,405 tonnes after a figure of 42.6 tonnes in the latest reported week.  The record full year withdrawals figure was back in 2013 when 2,181 tonnes were withdrawn – a figure which was already surpassed several weeks ago and with virtually four weeks of withdrawals still to come this year the full year total looks to be heading for the high 2,500s.  For reference the full year SGE withdrawals figure in 2014 had fallen back somewhat to 2,102 tonnes – still comfortably the second highest year on record at the time.

It was also noted that SGE withdrawal figures do remain running well in excess of known Chinese gold imports plus domestic production so far this year (See: 2016 a crunch year for physical gold supply).  The linked article suggests total gold availability of only around 2,100 tonnes for the full year (which includes a perhaps conservative estimate of around 200 tonnes from scrap sources).  However China is extremely reticent about reporting all its import and gold supply figures, so it is conceivable the actual figure could well be higher still perhaps bringing it closer to the SGE withdrawals metric.

But be that as it may, and given the huge discrepancy between the SGE figures and those for Chinese domestic gold consumption from the major analytical consultancies, if one just looks at comparative SGE figures they will provide a great guide to the trend in Chinese domestic gold flows and consumption so these gold flows have thus been trending sharply higher this year.  With the Chinese economy continuing to expand, even though at a much slower pace than in previous years, it would not be unreasonable to assume Chinese gold demand will continue to grow alongside the nation’s GDP.  It will thus be interesting to see what next year brings.

As readers will know, China is going through a centrally planned restructuring of its economy which is moving away from being export and manufacturing driven to being domestic consumer and services oriented following a pattern much of the Western World took generations to accomplish, yet China is aiming to do this in a few short years.  It is proving to be a painful process, but perhaps not so much for the Chinese themselves, but more for those who had been relying on ever-growing Chinese manufacturing growth as their primary market for raw materials to fuel manufacturing growth.  Looking ahead China, having built new cities and a remarkable infrastructure, is well placed to build on these plans which will continue to see the domestic purchasing power of its people grow as more and more services type better paying jobs are created.  Antiquated manufacturing plants are being closed down, particularly in the ongoing drive to reduce pollution which will perhaps put China at the forefront of new technological development, further enhancing its global position.

Big Chinese gold import figure from Hong Kong in November

Big Chinese gold import figure from Hong Kong in November

By Lawrence Williams

While the Hong Kong gold export figures may no longer provide such a good proxy for the level of Chinese gold imports as in days past, given the apparent rise in imports through Shanghai and Beijing (which are not imported) the Hong Kong figures do provide an important indicator to what is going on in terms of Chinese gold consumption.  We still consider the weekly Shanghai Gold Exchange (SGE) withdrawals figure as the most significant statistic in this respect for overall demand but the Hong Kong figure (the continuation of statistical data set up under the old British Administration) does provide an indicator of gold import flows into China.

Thus the latest figure to emanate from Hong Kong do support much of our other data which show that China’s gold imports (and consumption) have been picking up strongly in the latter part of the year as the Chinese New Year approaches.  Figures released by the Hong Kong Census and Statistics Department show that net gold exports to mainland China via this route totalled 99.11 tonnes – the highest level for nine months, following a strong month in October too when a net 77.6 tonnes were imported into mainland China through the former British Crown Colony.

Chinese gold demand tends to pick up in the runup to the Chinese New Year celebrations, which next year falls at one of the latest possible dates on February 19th.  With the strong figures seen through the SGE, and now Hong Kong we could be looking at a very strong December, January and February period for gold imports into mainland China and total gold consumption there.  See: Chinese gold demand already over 2,000 tonnes in 2014

The Chinese also tend to be price sensitive in their buying patterns and low gold prices may also be stimulating demand both from consumers directly, and fabricators and traders looking to build up stocks ahead of the New Year celebrations.

Recently we noted here that Chinese gold demand as represented by withdrawals from the SGE had already reached over 2,000 tonnes and was heading towards a year-end total of probably just under 2,100 tonnes – getting close to 2013’s 2,181 tonne record.  It looks like Chinese demand, which on a fundamental supply/demand basis should in theory be the key factor in driving up the gold price, seems to be as strong as ever.  However as we noted here in our article on silver, also posted today that, increasingly, real supply/demand fundamentals are being superseded by manipulative trading on the futures exchanges in setting gold price, and silver price, levels.  But even so, this incessant flow of gold from weaker hands in the West to strong hands in the East is certain, one day, to have a positive impact on price, but when that day will come is hard to predict.