SGE IS publishing gold withdrawal figures – but only monthly

I am indebted to Koos Jansen (who else) of www.bullionstar.com for initially guiding us in the right direction, and to LawrieOnGold reader John Bentin and his Chinese speaking wife for interpreting the tables, in that, contrary to our previous assumptions, the Shanghai Gold Exchange (SGE) is still publishing SGE gold withdrawal data – but now only on a monthly, rather than a weekly, basis.  Thus for January 2016, some 225.1 tonnes were withdrawn from the Exchange, compared with 255.4 tonnes in the first month of the record 2015 year when full year deliveries reached 2,596.4 tonnes.  The amount is close to the 228.2 tonnes recorded in December last year, and ahead of November 2015 deliveries of 202.7 tonnes.  In January 2013, the previous record year for SGE deliveries, only 173.7 tonnes were delivered out of the SGE.

Given there can be quite substantial month-to-month fluctuations in withdrawals it is far too early to tell how 2016 will measure up to last year, but the figures do show that gold demand as represented by SGE withdrawals remains at a strong level – 56.3 tonnes  a week on average.  However it remains to be seen how the surge in the gold price over the past few weeks will affect February deliveries (which are anyway likely to be substantially lower due to the week-long Chinese New Year celebrations next week during which the SGE will be closed.)  We will really need to wait until March and April to see how 2016 deliveries are measuring up to previous years.

Even so, the January figures are quite encouraging in showing that gold demand has indeed been holding up pretty well so far.  Overall China and India, where gold imports of over 100 tonnes were recorded in November, look like remaining the key gold market drivers.  We are also seeing a pick up in a third key market, the U.S. where there have been strong gold ETF inflows year to date, and very strong demand for gold coins from the U.S. Mint.  With the gold price up 9% year to date the yellow metal is currently outperforming any other asset class.

(But, be warned.  Gold started off strongly in January 2015 too, also rising by around 9% in the first three weeks of the year.  But from then it was almost all downhill.  This year’s upturn is looking perhaps stronger and longer, and does seem to have more going for it than a year ago, but the price is still largely set by the COMEX paper gold market in New York where huge amounts of virtual metal are traded on a daily basis and there may well be other forces at play here which seem to ignore fundamentals.  Could this yet be déjà vu all over again!!)

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Enormous physical gold demand on at least three continents

Contrary to some reports of poor physical gold demand, the latest gold price falls seem to have yet again stimulated big demand on at least three continents.  It may have already led to arresting the recent price falls but can it do even better for gold?

In the US very strong gold coin sales have been reported by the US Mint.  In China the latest reported week of Shanghai Gold Exchange withdrawals were simply enormous for the time of year.  India too is reported to be seeing strong demand at the lower prices.  And in Australasia the Perth Mint has stated that it has been unable to keep up with demand.  No doubt European demand for physical gold in coin and bar form will also be running very high, although we haven’t seen any official figures to confirm this yet.  Perhaps the physical demand is at last leading to shortages of available gold and pushing prices higher again – or at least arresting the fall – despite virtually every mainstream gold analyst talking the gold price down.  Indeed many bank analysts have been suggesting falls of $100-$200 or more from the current gold price level. It would be a brave financial analyst to see things differently in the face of consistently negative forecasts from virtually all his/her peers.

Let’s take the US Mint’s gold coin sales figures first.  Announced July figures show that the Mint sold a very large 202,000 ounces (6.28 tonnes) in gold coins – the highest figure since April 2013 and the third highest monthly total ever.  Demand certainly seems to have been stimulated by the lower gold price which dropped below $1,080 an ounce on the spot market at one stage.  Gold closed at $1,095 an ounce this weekend.  And silver coin sales were also huge – particularly given that the Mint suspended sales for nearly three quarters of the month due to lack of sufficient supplies – at 5.53 million ounces.

In China, the latest reported week of flows out of the SGE – the week ended July 24th – also saw the third highest weekly gold withdrawal figure on record at 73.3 tonnes – and this at a time of year when Chinese gold demand is usually at its weakest with normal levels less than half those announced.  In short it was thus a phenomenal week on the SGE, even if not a record.  As we always point out there are arguments put forward against SGE withdrawals correlating to Chinese demand, the latest argument against coming from GFMS in its Q2 gold report, suggesting (See Mineweb article: GFMS ‘curate’s egg’ gold report) that this has been down to ‘cash-strapped Chinese jewellery fabricators having to offload their inventories at attractive discounts, either to their competitors or directly to smelters. They then refine the gold pieces into bars and eventually this will flow back to the SGE, helping to inflate SGE its turnover by comparison with physical offtake. Whether there is concrete evidence of this, we don’t know.’  Be this as it may, SGE withdrawals, however they are made up, are a great indicator at least of overall Chinese demand and sentiment towards gold, as well as indicative of the huge gold flows into the Asian Dragon.  Even in an economic downturn China remains a hugely significant market for physical gold.

In Australia, the Perth Mint which does significant trade in gold and silver bullion coins and bars, and has been doing so for more than 100 years, says it is having trouble keeping up with demand, the restriction being the amount of unrefined gold coming in from the mines – and don’t forget Australia is the world’s second largest gold producer after China.  Nigel Moffatt, the Pert Mint’s Treasurer, has recently said on Bloomberg’s TV channel, “everything we get in is going straight out the door as soon as we refine it.”

India has just published its May gold import figures and this was back to 2011 and 2012 levels – a year when it was arguably still the world’s largest gold consumer.  May imports totalled 96.1 tonnes  excluding smuggled gold which reports suggest may have been running at significant levels given the 10% import tariff remained in place.  Taken together with China’s gold demand as represented by SGE May figures volume for these two countries alone for the month came to 296.55 tonnes according to Nick Laird’s sharelynx.com website , which monitors a huge amount of data and presents it in graphical form – comfortably more that the world’s total new monthly mined gold production that month which will probably have totalled around 270 tonnes.  (See GFMS reservations about SGE withdrawal figures above)

So, we’ve covered demand in Asia, North America and Australasia.  One doubts that the phenomenon is absent in Europe.  The Greek effect may not yet be over and in the past, the Germans and austrians have tended to generate strong demand in times of economic uncertainties and these are continuing within the Eurozone.  The low gold prices will probably have also stimulated demand – we do see evidence of this in statements from bullion dealers.  While mainstream analysts may be looking for further sharp falls, but the old adage ‘buy when there’s blood in the streets’ may well be coming into play.  Maybe we haven’t reached the bottom yet.  Thoes using the futures markets to drive prices lower may not have exhausted their ammunition yet, but someone out there does appear to be trying to stabilise the markets.  Julian Phillips, writing here, has suggested it might be China.  Given that it has been encouraging its citizens to buy precious metals, the Chinese government  may be keen to prevent further drastic falls, just as it has appeared to intervene to halt the recent stock markets crash there.

Perhaps gold is bouncing along the bottom.  This is generally a quiet time of year for the precious metals markets – so maybe we will get a better indication of where gold and silver are heading when New York’s bankers and institutional managers get back from sunning themselves, and from whatever else they get up to, in the Hamptons or further afield.  We’ll no doubt start to see in just over a month’s time.  Until then opportunists may try to take advantage of thin markets so we could be in for a month of price volatility.  Fed interest rate raising may be a bit of a red herring – surely this has been built into the price decline already?  It certainly should have been.  But all the time physical gold is flowing East

Will gold fix in yuan take over from London?

Julian Phillips’ latest gold and silver market commentary and what he sees as the main market drivers with Indian imports running at high levels

New York closed at $1,188.80 on Monday. Asia held it there and so did London. The LBMA Gold price was set at $1,187.40 up $8.40 on Friday. The euro equivalent stood at €1,070.69 up €23.62 while the dollar was stronger at $1.1090 up from $1.1260 against the euro. Ahead of New York’s opening, gold was trading higher in London at $1,187.60 and in the euro at €1,069.09.

The silver price closed at $16.42 up 26 cents on Friday’s level. Ahead of New York’s opening it was trading at $16.40.

Yesterday saw very little gold trading done in New York with London closed for the Bank Holiday. The dollar is rising today with the dollar index at 95.80 up from 94.64 yesterday as did the dollar at $1.1084 from Friday’s $1.1269. There were purchases of gold into the SPDR gold E.T.F. of 2.389 tonnes on Friday but none yesterday and none from or into the Gold Trust on Friday or Monday. The holdings of the SPDR gold ETF are at 741.750 tonnes and at 165.58 tonnes in the Gold Trust.

With the dollar’s correction now seemingly over, we expect to see it rise against all currencies again. This time it is possible to see the dollar reach $1: €1. But other currencies such as the Yen may fall further against the dollar.

Indian imports of gold in the first quarter of the year has been reported as up by 19.5% for the 2014-15 year, according to the Reserve Bank of India. Bullion imports rose to $34.32 billion for the 2015 year ending in March, up from $28.7 billion imported in the fiscal 2014. This is roughly 900 tonnes in the last year against roughly 750 tonnes in the previous year. Please note that these figures exclude smuggled gold, which could be 250 tonnes +.

The rise in imports is moving faster now as confirmed by the Commerce Ministry, which reported imports nearly doubling in March to $4.98 billion or roughly 130 tonnes. The implication of this figure, if imports continue to rise throughout the year at this pace, could lead to imports hitting 1,200 tonnes, excluding smuggled gold. While duties of 10% persist, smuggled gold will continue to pour in, particularly if the developed world markets hold prices around the $1,200 level.

Taking Chinese demand at the level we saw last year together with Indian demand, we see a figure way above total newly mined production levels. Add all Asian demand and Middle Eastern demand and we see them taking all available gold in the markets if prices remain down.

This adds a large question mark over using the LBMA Gold price as a reference price for gold contracts. Later in the year we will see a Yuan Gold Fix. If that comes in at a higher level, when translated into dollars, we wonder if the Yuan gold Fix will be used as the reference price for contracts?

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

Indian summer for gold and silver. Can it go on?

Indian summer for gold and silver.  Can it go on?

By: Lawrence Williams

According to the latest official figures out of India, gold and silver imports during November were enormous – right back to the kinds of levels seen when India, not China, was the world’s largest gold importer.  Indeed real figures will have been even higher – particularly for gold.  Although some import restrictions have been eased by the government (the withdrawal of the 80:20 rule whereby 20 percent of the volume of imported gold had to be re-exported) there will still have been a substantial amount of smuggled gold coming in to bypass the 10% import duty which is still in place.  Indeed the official import figures had been rising very sharply before this restriction was lifted after dipping enormously early in the year to a fraction of previous level.

The official gold import figure for November is thus 148 tonnes – the highest level since May 2013 and back then traders had been stocking up ahead of the telegraphed 10% duty imposition.  One can see the huge impact on Indian gold imports as a result of the government restrictions, imposed because gold imports were a huge factor in an unacceptable Indian Current Account Deficit, by checking out the chart published below which we have taken from Koos Jansen’s article on the latest Indian gold and silver import figures published on www.bullionstar.com.  Do click on this link direct to the article to view Koos’s opinion on this and for the silver imports chart too – more of which later.

Koos India 1

148 tonnes of gold is worth around US$5.7 billion at current prices so imports at this kind of level are very significant to a country already running a Current Account Deficit, which it has been trying to bring down to help arrest the fall in the value of the rupee.

Jansen puts official gold imports into the nation as running at 745 tonnes year to date suggesting a year end figure of 800 tonnes plus.  But add to this smuggled gold.  Some estimates of smuggled gold into the nation put this as high as 300-400 tonnes.  The World Gold Council puts the figure at a more conservative 200 tonnes but India’s own Directorate of Revenue Intelligence is reported as estimating gold smuggling at 500kg a day with less than 1% being intercepted.  This estimate was made in late 2013 and there are indications that the figure could be even higher in 2014.  So the suggestion is that Indian gold imports (including smuggled gold) could be in the region of 1100 to 1200 tonnes this year – much on a par with Chinese imports which are probably a little higher.  Jansen, again, puts the likely Chinese figure at around 1,300 tonnes plus this year.  Chinese total demand (excluding possible Central Bank purchases) is seen as reaching over 2,000 tonnes with the balance made up from its own new mined production (around 430 tonnes) and scrap and recycling making up the balance.  There is some argument as to whether there is, or is not, some double counting relating to recycled gold going through the Shanghai Gold Exchange, the source of the overall Chinese gold demand figures, but if so it may not be very significant with total scrap supply seen as being around 200 tonnes.

For the follower of gold fundamentals it thus appears that Chinese and Indian demand between them pretty well account for total global new mined gold supply on their own.

For India now the big questions are a) whether imports will continue at this kind of level and b) will the government revert and re introduce new gold import restrictions?  This observer thinks the answer to both is no – at least for the moment.

The big October and November surges coincided with the major Indian festival of Diwali and the start of the festival season in earnest and the beginning of the Indian wedding season, all of which are heavily associated with gold gifting.  This all starts to wind down after the year end and we should see a sharp fall in official imports in Q1 next year as trade returns to a more normal flow.  If the Current Account Deficit is then seen as getting under control again there may not be a necessity to reintroduce additional restrictions – indeed there has always been an intimation since the election of the new Modi Government that even the 10% import duties might be reduced.  The Reserve Bank of India would likely be against this but they would bow to the wishes of the Administration, as we saw when the 80:20 rule was dropped.

And what of silver?  Although also subject to the 10% import duty Indian silver imports have also been huge, both for jewellery and for general industrial usage.  Silver imports are largely ignored by the media but Koos Jansen, yet again, does much more research into such matters.  He points out that India’s silver imports in November alone were an enormous 1,254 tonnes and total imports are headed to over 7,000 tonnes this year (6,789 tonnes so far).  But unlike gold where Indian production nowadays is minimal, India does mine an important amount of silver, largely as a byproduct of its lead/zinc mining industry.  Last year its new mined production was just over 370 tonnes, so adding this to this year’s likely silver imports suggests Indian 2014 consumption could be as much as 8,000 tonnes – or nearly one-third of global new mined silver output.

Recently analysts at HSBC suggested an 11 million ounce silver supply deficit next year, so as for gold silver fundamentals are beginning to look better and better – but whether these factors will impact positively on prices for either precious metal remains to be seen.  Control still seems to be in the hands of players of the COMEX and LBMA futures markets.