Shanghai definitely now calling the gold tune

Gold Today –New York closed at $1,256.10 yesterday after closing at $1,257.20 Wednesday. London opened at $1,263.10 today. 

Overall the dollar was slightly stronger against global currencies, early today. Before London’s opening:

         The $: € was slightly stronger at $1.1227 after yesterday’s $1.1234: €1.

         The Dollar index was slightly stronger at 97.08 after yesterday’s 97.01

         The Yen was slightly stronger at 111.10 after yesterday’s 111.80:$1. 

         The Yuan was stronger at 6.8615 after yesterday’s 6.8737: $1. 

         The Pound Sterling was weaker at $1.2871 after yesterday’s $1.2973: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    5    26

     2017    5    25

     2017    5    24

SHAU

SHAU

SHAU

 

 

280.35

279.54

Trading at 280.60

280.04

278.55

$ equivalent 1oz at 0.995 fineness

@    $1: 6.8615

       $1: 6.8737

       $1: 6.8906     

 

  /

$1,263.58

$1,261.82

Trading at $1,266.97

$1,262.18

$1,257.35

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 

New York closed $6.08 lower than Shanghai’s close yesterday. London opened today at a $3.87 discount to Shanghai.

And there you have it. The evidence is clear that Shanghai is pulling both London and New York higher. Shanghai followed New York on the world clocks with London opening after that. While both London and New York are more volatile than Shanghai, Shanghai gold prices in the Yuan have moved steadily higher over the last few days.

This was in the face of the People’s Bank of China trying to control the Yuan and change the formula on which it is permitted to trade.

This year has seen the People’s Bank of China attack speculation. In the gold market rampant speculation has been controlled by putting a ceiling on the amounts traded per contract reducing them in the process. This has made it expensive to speculate in force. We have seen the results of this in a less volatile market there.

Now we have the People’s bank of China not just trying to limit speculative forces but change the orientation of the Yuan exchange rate to a ‘global-centric’ rate from a ‘dollar-centric’ rate. History shows that Chinese markets have lost credibility because of wild speculative forces [particularly the equity markets]. These efforts, while delaying the full lifting of Capital Controls, are stabilizing markets. We foresee that, as a result, we will see Chinese markets reputations improve and gain a stronger foothold in world markets.

In the gold world we foresee more producers and buyers of gold on contract turn to the Shanghai Benchmark prices from the pm London price setting. This is particularly so as the London price setting is different from the ‘spot’ prices at the time of price setting.

We are now convinced that gold’s pricing power has moved to Shanghai.

Silver Today –Silver closed at $17.16 yesterday after $17.19 at New York’s close.

LBMA price setting:  The LBMA morning gold price was set today at $1,265.00 from yesterday’s $1,257.10.  The gold price in the euro was set at €1,130.37 after yesterday’s €1,120.81.

Ahead of the opening of New York the gold price was trading at $1,265.80 and in the euro at €1,130.38. At the same time, the silver price was trading at $17.26 

Price Drivers

Currency markets across the world are relatively steady today as the gold price, once again nudges up against overhead resistance on this, the last and most active day of the week, the last week in May. Will the U.S. be volatile today in the gold market or silver market? We see New York following London higher. With long positions at low levels on COMEX that ‘paper’ market is more likely to go long than short, we feel. Hence we expect a positive day for gold there. Before New York opened gold was already pushing up through resistance, but more is needed before the break is convincing!

Will the present moves bring the long awaited strong move in gold and silver prices? We don’t know for sure, as we are in an important area for both gold & silver from a long term perspective, making any strong move now significant for the long term.

G-20 meeting

The G-20 meeting in Sicily is the center of attention for the media. In the past this has usually turned out to  be a non-event, but with President Trump there already lecturing on NATO allies failure to pay their bills for the protection the U.S. affords them, we expect a far more lively meeting. Of importance is now the huge surplus Germany has on the trade front. This has been apparent from the day the E.U. was formed as it prevented the exchange rate used in global trade by Germany [the euro] from reducing these surpluses, as it rose. If Germany still had the Deutschemark its rate would be so high as to prevent the surplus from happening in the first place. To bleat about it now is a little pointless and non-productive and far too late.

U.S. physical gold investors remain on the sidelines still and will do so until they see a strong rise in the gold price.

Gold ETFs – Yesterday, saw no sales or purchases of gold to or from the SPDR gold ETF and no change in the holdings of the Gold Trust. Their holdings are now at 847.452 tonnes and at 202.82 tonnes respectively.

Julian D.W. Phillips 

 GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

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Gold and silver rising?

Gold TodayNew York was closed on Monday but closed at $1,325.60 on Friday after Thursday’s close at $1,313.30.  London opened at $1,330.

    • The $: € was almost unchanged at $1.1167 down from $1.1165 yesterday.
    • The dollar index was slightly weaker at 95.59 from 95.65 yesterday.
    • The Yen was almost unchanged at 103.26 from yesterday’s 103.28 against the dollar.
    • The Yuan was slightly stronger at 6.6800 from 6.6770 yesterday.

 

  • The Pound Sterling was stronger at $1.3338 from yesterday’s $1.3328.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  6

2016  09 5

SHAU

SHAU

285.59

284.84

285.73

285.24

Dollar equivalent @ $1: 6.6800

$1: 6.6770

$1,329.77

$1,326.87

$1,330.42

$1,328.73

After a lackluster day in London, when the gold price sat around $1,326 all day, Shanghai took the gold price higher to $1,330 and London held it there at the open. Will New York follow suit?

The Yuan was slightly weaker against the dollar once more. The pound continued to strengthen as you can see.

LBMA price setting:  The LBMA gold price setting this morning was at $1,330.05. Yesterday it was at set at $1,328.30.

The gold price in the euro was set on Tuesday at €1,191.05 up strongly on yesterday’s 1,189.91.

Silver Today –The silver price held its level while New York was closed at $19.36, after $19.39 yesterday.  

Price Drivers

With New York closed we saw London do nothing and then follow Shanghai this morning. With London being the center of physical demand and supply one would have expected London to lead the way, but is followed both New York and Shanghai. But we do need to see strong moves to see clearly which market holds pricing power. At the moment it is New York and has been for a long time. Gold itself wanted to drift higher, which should set the tone for New York today.

Another underwhelming G-20 meeting was held in Shanghai where only the nicest things were said about China’s hosting the event and the inclusion of the Yuan in the currencies that make up the SDR of the IMF.  Essentially, it is recognition of the present and growing use of the Yuan in the world monetary system. Having set that milestone in place we expect to see a steady erosion of the use of the dollar in global trade at the expense of the dollar over time.

We see the role of gold growing in this structural change largely being used to ‘smooth out’ the transition’.

In our next issue of the Gold Forecaster we will discuss just what strategy will tremendously increase your returns in a time when gold prices are rising and just how to maximize returns, when it is not.

Over in China, we note there is a number that is not issued and could well have a big impact on the volumes imported into China. While Chinese officials point to the withdrawals from the Shanghai Gold Exchange as a measure of imports into China, the size of gold holdings in the SGE are not published. It is possible that these could be growing solidly, increasing the levels of imports. While the People’s Bank of China uses SAFE and others to hold gold for them before these are included in “Official reserves” we note that the PBoC controls the SGE and may well also hold gold through the SGE? Usually “Official Gold Reserves” are imported separately and not included in SGE numbers but there is no reason why they should not be, in reality, part of these.

Gold ETFs – As New York was closed yesterday there were no sales or purchases into or from the SPDR gold ETF or from or to the Gold Trust, leaving their respective holdings at 937.89 tonnes and 225.39 tonnes.

Silver – The silver price is keen to follow gold but needs to see action in New York after the holiday yesterday before we see any big moves.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

China’s SGE gold withdrawals YTD 25% down on 2015 but still in line with 2014

The latest announcement of gold withdrawals out of the Shanghai Gold Exchange, show something of a declining pattern month on month this year – and in cumulative terms are sharply down (25%) on the record 2015 withdrawal figures, but pretty much still on par with 2014.

SGE withdrawals are one measure of total Chinese gold demand – but are seemingly discounted as such by the principal Western precious metals research consultancies which seem to categorise Chinese consumption using some quite rigorous parameters which some feel hugely understate actual gold flows into the Chinese mainland.  The consultancies’ figures even come in comfortably below known Chinese gold imports from countries which report these, and certainly take no account of additional supply from Chinese domestic gold production – currently around 450 tonnes a year.  It seems that flows into the Chinese commercial banking system for use as collateral and in other financial transactions, which are by all accounts quite considerable are ignored in the consultancies’ ‘consumption’ analysis.

Interestingly, the Chinese central bank, The People’s Bank of China (PBoC), equates SGE withdrawals with total Chinese gold demand, while the consultancies maintain there is a degree of double counting in the SGE figures.  But, whatever the truth of the matter, movements out of the SGE, looked at month on month and year on year, are certainly an acceptable indicator as to how overall Chinese demand is faring.

Shanghai Gold Exchange Monthly Gold Withdrawals (Tonnes)

Month 2016 2015 2014
January 225.08 255.42 246.00
February* 107.60 156.36 171.67
March 183.24 213.35 146.56
April 171.40 195.45 129.59
May 147.28 162.15 129.34
June 138.51 195.67 128.03
July 117.58 285.50 137.53
August   265.27 161.95
September   259.98 202.43
October   176.29 201.11
November   202.71 212.49
December   228.21 235.66
Year to end July 1090.69 1,463.90 1,088.72
Full Year   2,596.37 2,102.36

Source: Shanghai Gold Exchange

*February withdrawals figures tend to be anomalously low due to SGE closure during the Chinese New Year holiday

As can be seen from the above table, last year’s record withdrawal figures were hugely boosted   by some very high monthly figures between July and the end of the year.  Past SGE withdrawals have tended to come in higher in the second half of the year, so subsequent monthly figures will be watched with interest to see if this kind of pattern continues in the current year, or whether Chinese demand remains depressed.  But it’s hugely unlikely that this year’s total will come anywhere near that of last year’s record.

GFMS blows hot and cold on gold

The latest GFMS Gold Survey Update taking Q2 figures into account doesn’t make for particularly positive reading for the gold investor in terms of fundamentals, but nevertheless the consultancy has upped its average gold price forecast for the year from what looks to have been a rather low estimate of $1,184/ounce to what might seem a still relatively conservative $1,279/ounce.  It should be recognised, however, that this is an average price forecast for the full year, and despite the headline spot price currently heading for the $1,350 level after a downbeat US GDP assessment, the actual average for H1 is still some way below this at around $1,219 based on LBMA figures, so this still suggests a second half average of close to $1,340/ounce to achieve this kind of level for the whole of the year.  Perhaps not quite so conservative after all!

So why do we say that the fundamentals do not look quite so positive as the relatively upbeat survey title might suggest?  That is because of a remarkable estimated downturn in gold’s principal demand sector – jewellery manufacture, particularly in gold’s two largest markets, China and India.  GFMS does come in for some criticism on its Chinese consumption statistics in particular, largely because of its definition of what actually comprises demand.  This actually comes in way below known Chinese gold imports and even further below withdrawals from the Shanghai Gold Exchange (SGE) which the Chinese Central Bank defines as Chinese demand in its Gold Yearbook.  The discrepancy is in part because GFMS consumption statistics ignore some very substantial gold flows into the banking and institutional sector, purportedly for use in financial transactions, but we have surmised they may also provide a back-door, and unreported, addition to China’s gold reserves given the country’s commercial banks are all state-controlled.  Certainly gold flows into China in total are way in excess of GFMS-estimated Chinese demand figures.

For China so far this year, GFMS reckons Chinese jewellery demand is seen as down by 31% year on year – the worst Q2 performance since 2009.  Investment demand is also seen as falling by 12% quarter on quarter for Q2.  Overall GFMS describes Chinese demand, as it calculates it, as being in freefall, although it is anticipating a pick-up in Q3.

While SGE gold withdrawal figures will also be substantially higher than the GFMS definition of Chinese gold consumption – they too are down sharply year to date as well by around 17% – which certainly confirms the trend noted by GFMS, if not the size of the downturn. Up until the end of June some 973.1 tonnes of gold had been withdrawn from the SGE.  Analytical consultancies like GFMS believe SGE figures include a significant degree of double counting, although some other analysts who follow these figures disagree saying SGE rules prevent this.

Chinese demand may also indeed be beginning to pick up, despite media headlines which look to suggest the opposite.  Hong Kong remains the conduit for perhaps around 60% of gold imports into the Chinese mainland and the May figure was the best for five months at 101 tonnes.  June did see a fall back to 68.7 tonnes but theBloomberg report headlined China’s Gold Imports Slide in June as Rising Prices Deter Buyers, where the headline suggested a major downturn in Chinese imports, rather glossed over the fact that even so the June figure was still more than three times higher than the figure for June 2015 – and 2015 was a very strong year for Chinese gold imports and demand!  The SGE withdrawals figure for the year was a huge new record at just shy of 2,600 tonnes – equivalent to over 80% of global new mined gold output.

GFMS also saw Indian jewellery demand as being even worse with jewellery consumption down 56% – and even globally it sees overall jewellery consumption down 27.3%.  It also puts global industrial demand as down by 7%, net official sector purchases down 48.5% (due primarily to reduced purchases by Russia and China in H1 coupled with sales by Venezuela) and global retail investment demand off by 2.6% overall.  To make things worse, despite seeing a 2% fall in new mine supply, overall supply is estimated as growing by around 6% due to an increase in scrap sales brought on by higher prices, and an increase in gold hedging activity.

The one bright spark in the supply/demand fundamentals balance has been the huge inflow into gold ETFs, totalling an estimated 568 tonnes in the first half of the year, so while GFMS sees gold in a supply surplus over the period, it has not been nearly such a severe one as the other supply/demand statistics might suggest.  But what if the ETF inflows start to reverse as they have been over the past week or two?  The likelihood could be a summer slump in the gold price, unless some global black swan event intervenes to regenerate more safe haven demand.  Or can sentiment alone hold the gold price at around current levels?  The FOMC meeting this week saw no indication of any timetable for increasing US interest rates, which gave the gold price a strong boost.  The latest US GDP growth  figures have also come in way below expectations, which may dim further expectations of a September US interest rate increase – and the feeling is the Fed won’t want to rock the boat ahead of the US Presidential election, which will likely see any interest rate rise decision to be postponed until December at the earliest.

What positives for gold does GFMS see?  It is now reckoning that new mined gold supply is definitely on the downward path.  There are relatively few new projects and expansions expected to begin producing this year to replace old mines closing down or those seeing lower grades, and those new operations in the near-term pipeline are generally fairly modest in scale, hence an opinion that global mine supply is now set to begin a multi-year downtrend this year.  But even if mine supply were to fall by 10% next year, which is probably a hugely excessive guess (the more likely figure would be 2-3%), this would only take 300 tonnes or so out of the global picture and unless Asian demand picks up again we could be heading for quite a major surplus.

But, even so, GFMS has raised its price projections as noted above, which means perhaps its analytical team is a little more positive than its figures might suggest.  It puts this down to political uncertainties ahead including the ongoing impact of the Brexit vote in the UK, reduced expectations of a rate rise from the Fed, a wobbly Italian banking sector and the U.S. Presidential race.

The full GFMS Q2 Gold Survey update is available for download to corporate email addresses athttps://forms.thomsonreuters.com/gfms

The above article is a lightly edited and updated version of one published earlier this week on info.sharpspixley.com 

Chinese central bank buys another 19 tonnes of gold in December

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.

Chinese 2015 gold demand equates to around 80% of total global gold output

The latest gold withdrawals figure out of the Shanghai Gold Exchange of 52.83 tonnes for the trading week ended 25th December brings total withdrawals year to that date of 2,555 tonnes, with four trading days to go until the year end.  Given that this tends to be a strong time of gold demand in China in the runup to the Chinese New Year, which this year falls on February 8th, and if we assume similar delivery levels over the final few days of 2015, total gold withdrawals out of the SGE for the full year should end at between around 2,590 – 2,610 tonnes. While some analysts reckon that SGE withdrawal figures do not represent actual Chinese demand (mainly due to interpretations of what actually constitutes demand), others disagree.  And the Peoples Bank of China, in its own statistics, does indeed seem to equate SGE withdrawals with national consumption.

We were predicting a full year SGE withdrawals total of around 2,650 tonnes back in September.  See: Latest SGE gold deliveries suggest enormous 2015 total of over 2650 tonnes!  In the event the figure is not going to be quite this high as withdrawals from the Exchange have slowed a little over the final quarter of the year – although have still remained very strong, but not as high as the exceptional figures being reported in Q3.  Nevertheless, as we have been reporting all along, the full year total is going to be a massive new record – over 400 tonnes higher than in 2013, previously the highest year ever for SGE gold withdrawals.  This annual figure also equates to around 80% of global new mined gold output.

If Chinese demand holds up in 2016, along with central bank purchases – mostly by China and Russia – and Indian imports, we anticipate gold prices coming under pressure as the supply/demand balance looks like being in deficit given scrap sales and divestment out of the gold ETFs are both falling and new mined production will likely be flat, or perhaps beginning to decline.

It should be noted though that the decline in global new mined gold output has not so far materialised to the extent that many analysts had suggested, largely due to the gold price not falling nearly as much in many major producer currencies as it has in the US Dollar.  With mining costs mostly incurred in the local currency, but with the media fixated on the gold price fall in the US Dollar alone, gold mining economics are not quite as dismal as the media, and some analysts, would have us believe.  See the Table below for what has happened to the gold price in the top 10 major gold producer currencies over 2015.

Rank Country Gold output 2014 (tonnes) Gold Price change over year (%)
1. China 462.0 -7.4%
2. Australia 272.4 -0.8%
3. Russia 266.2 +10.5%
4. USA 210.8 -11..4%
5. Peru 171.0 +4.5%
6. South Africa 167.9 +18.5%
7. Canada 151.3 +5.5%
8. Mexico 110.4 +3.6%
9. Ghana 104.1 +4.5%
10. Brazil 90.5 +32.0%

Source: 24hgold.com, lawrieongold.com

With only two of the top 10 gold producing nations seeing any kind of significant gold price decline, and seven actually seeing a higher gold price in their own currencies over the full extent of the year, yet receiving their revenues in US Dollars, all is not quite as many analysts predicted.  While this might suggest that gold output will carry on rising instead of falling, this is not the case either as capital expansion programmes and new project developments have been severely curtailed through lack of availability of finance, while many older mines seeing reserves depleted, or ore grades falling, will still be closing down due to the aging process.  These are not going to see new projects or expansions coming on line to replace them.  Up until around now, new projects which were already well into the production pipeline had been adding more output thus replacing the aging assets which have had to close.  But these new projects and expansions are now mostly at full production levels so the downturn in global new mined output is now only just beginning.

All this suggests a supply squeeze ahead in physical gold.  This is already being seen in terms of declining gold inventories in the US and the UK – the sources for most of the gold currently flowing from West to East.  The other major source of stockpiled gold, the big gold ETFs, are also seeing slowing outflows. 2016 could see this all coming to a head with a strong positive impact on the gold price by the time this new year comes to an end.

China may now be close to new gold benchmark pricing system

Lawrie Williams

Reports out of China suggest that the currently chairmanless Shanghai Gold Exchange (SGE) is on the verge of announcing a new chief executive in Jiao Jinpu, a senior official from the Chinese Central Bank – the Peoples Bank of China.  (The SGE is an arm of the PBoC).  The likely appointment of Jiao is seen as the definitive indicator that the SGE is now very close to setting up its much-heralded Yuan gold price benchmarking system to rival that in London and give China more control over gold prices in the future.  Whether this will still happen this year, though, is rather less certain despite earlier suggestions that it would.  Jiao will have to work fast to achieve this, but undoubtedly the groundwork is already well under way.

But the Chinese have also shown that they don’t hang around in implementing key new economically-oriented entities once the go-ahead decision has been taken and, according to a Reuters report Jiao is seen as a mover and shaker who should be able to move things forward rapidly assuming that the benchmark system process would be high on the agenda.

The SGE has been without a Chairman since the previous incumbent, Xu Luode, was promoted to Executive Vice President of the PBoC – which itself is an indicator of the importance of gold in the central bank’s policies.  The Chinese view gold as a vital element in the global economic system and in its generally accepted push to position the Yuan as one of the world’s accepted reserve currencies, and while not necessarily to replace the US dollar as top dog yet it probably does have this longer term ambition and with far faster domestic growth still than is being seen in the Western economies. It would seem to be well on its way to achieving this.

But first it will need a ‘seat at the table’ and the initial goal will be to have the Yuan recognised as a constituent of the US-dominated IMF’s Special Drawing Right ‘currency’ – the revised new make-up of which has now been deferred into the second half of next year.  In theory this delay has been seen as creating time to give China’s currency a little more time to meet the necessary criteria to be part of the SDR system, but in practice perhaps another delaying tactic by the US which recognises the potential threat to its global economic dominance.

China does see gold as providing a significant part of the global economic system and would thus like to have a much bigger influence in its pricing.  Chinese banks are beginning to be admitted into the new London benchmarking system introduced earlier this year, but probably at a slower rate than the Chinese would like.  Even with the Chinese bank participation it is suspicious of the London price setting mechanism as being potentially under the control of the Western bullion banks which it sees as working on behalf of their respective national central banks.  A Yuan gold ‘fix’ in Shanghai is reckoned to be a way of influencing the global gold price (probably equally geared towards the interests of the PBoC, although this will be denied.)  There are no level playing fields in global economics, and gold is almost certainly no exception in this.

In its article Reuters quoted a reliable Chinese source as commenting: “The exchange [SGE]will continue with the internationalisation of the Chinese gold market. That should not change because it is not just the ex-chairman’s policy but also state policy”.  The last sentence perhaps says it all!

A greater role for gold in future monetary system?

New York closed with the gold price at $$1,146.80 up from $1,135.70 yesterday. While China was closed and ahead of London’s opening the price moved up to $1,150. China reopens tomorrow. When London opened the gold price slipped slightly to $1,148.60 after which it was set at $1,147.90 up from $1,136.90 at the LBMA gold setting. The dollar Index was down at 95.47 from 95.89 and the dollar trading against the euro at $1.1254 up from $1.1217. In the euro the fixing was €1,019.87 3.55 up from €1,013.55.  Ahead of New York’s opening gold was trading at $1,149.75 and in the euro at €1,020.41.

The silver price closed at $15.80 up 18 cents over yesterday’s close. Ahead of New York’s opening, silver was trading at $15.90.

Price Drivers

A piece of news that goes straight to the heart of the dollar’s hegemonic position in the global monetary system was released yesterday. China’s Yuan overtook Japan’s yen to become the fourth most-used currency for global payments in August. The Yuan was second for global issuance of letters of credit by value with a 9.1% share, compared with 80.1% for the U.S. dollar. This confirms that the Yuan is a ‘well-used currency’, which is part of the definition the IMF needed to be included as one of the Special Drawing Rights basket of currencies. In November the I.M.F. will review whether it will be included. The list currently comprises the U.S. dollar, euro, yen and the British pound.  Each step forward by the Yuan is an incursion into the dollar’s dominance of the global monetary scene. The persistent acquisition of gold by China both in its reserves and by Chinese citizens [The People’s Bank of China told us to consider gold owned by its citizens as part of its gold holdings implying that if needs be it would be acquired/confiscated by the PBoC] points to a greater role for gold in the monetary system in the future, in a multi-currency system.

Yesterday saw more short covering increases in long positions on COMEX taking the gold price through $1,140 resistance to $1,150 this morning. There are more shorts to be closed! The next level of resistance is close. If that falls, it’s a game-changer in the U.S. for the gold price.  

While the paper gold market is seeing action, the U.S. physical gold market remains lackluster. Consequently, there were no increases in the holdings of the SPDR gold ETF or the Gold Trust. This leaves the holdings of the SPDR gold ETF at 688.983 tonnes and 160.62 tonnes in the Gold Trust.

Silver continues to outperform gold and is likely to keep doing so in the future. As we said yesterday, “If gold does breakout to the upside we may see a sprint higher by the silver price.” We are seeing the beginning of that now.     

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

What is China’s real gold demand?

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 central bank now reporting buying gold on monthly basis

On Monday New York was closed. Gold finished in London at $1,120 and the euro at $1.1200.  This morning the dollar index started the day at 96.11. The LBMA gold price was set at $1,120.85 down 15 cents from Monday. The euro equivalent was €1,004.75 up 54 cents. Ahead of New York’s opening gold was trading at $1,120.00 and in the euro at €1,003.90.  

The silver price was unchanged at the close of London of $14.58. Ahead of New York’s opening silver was trading at $14.66.

The chart picture indicated a fall to around $1,100, but instead the gold price has been stuck at $1,120 so far this week apparently not wanting to fall lower. We saw yesterday that neither China nor London wanted to take it lower.

China is doing its best to please the IMF ahead of what it hopes will be the acceptance of the Yuan as a currency that is one that makes up the Special Drawing Right of the IMF. As part of this acceptance it is now reporting its official purchases of gold. After the 600 tonne addition of gold to its reserves in June it is now reporting its monthly purchases. In July it bought 19 tonnes during the month and in August 16 and reported the purchases to the IMF. The statement that it does not expect a longer term devaluation of the Yuan appears to be part of this program of cooperation, despite the reality that the Yuan went 8% higher with the dollar, when there were few reasons for it to keep the ‘peg’ alignment. This cooperation is likely to continue until at least September 2016 when it is hoped it will be accepted by the IMF in this role.

Of importance to gold investors is that the PBoC is now continuously buying gold for the reserves and at this rate will acquire 210 tonnes over the next year. But the opaque nature of China’s gold policy does not tell us that this was from local sources or from overseas. When it raised gold reserves initially it stated that the gold came from overseas as well as from local sources. We are of the opinion that the tonnage bought now on a monthly basis was from overseas not from the 430 tonnes produced annually inside China. As we said yesterday, “Demand as reported by the Shanghai Gold Exchange is far ahead of the record 2013 demand levels to date. As we reported last week, add this to Indian demand and there is nothing left for the rest of the world, and yet London and New York are taking prices lower and currently holding them there.”-

There were no sales or purchases of gold into or from the SPDR gold ETF or the Gold Trust, on Monday. This leaves the holdings of the SPDR gold ETF at 682.354 tonnes and 160.77 tonnes in the Gold Trust.

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

CORRECTED: Staggering August Chinese gold deliveries out of SGE

Correction to total SGE withdrawals for August – these had previously been overstated

With recorded deliveries of just under 60 tonnes in the final week of August, the Shanghai Gold Exchange statistics would seem to disprove general media reports that Chinese gold demand is falling.  The week 34 figures (up to August 28th) bring SGE withdrawals for the month to a staggering 302 tonnes (with one trading day to go).  This is already a new monthly record and what is even more significant is that August is usually one of the weaker months of the year for SGE deliveries.  To put this figure into context, the world’s second largest gold producer, Australia, mined 272 tonnes of gold last year, so the SGE delivered nearly 50 tonnes more than this out of the exchange in a single month.  And don’t forget the SGE only deals in physical gold – there’s no paper gold element involved.

Year to date SGE figures show that physical gold withdrawals out of the Exchange are already running hugely ahead of those at the same time of year even in the record 2013 year for Chinese gold demand.  Indeed withdrawals are running fully 219 tonnes higher than by the end of August 2013.  With Chinese demand usually stronger in the tail end of the calendar year, particularly in November and December as the Chinese New Year – a time when domestic gold consumption normally is at its highest – approaches, it does currently look as if we will see a huge new record in the SGE figures this year.  This just doesn’t gel with the general position on Chinese demand as expressed by the media.

Chinese gold demand still running extremely high for Summer months

Contrary to some of the expressed media-disseminated information Chinese physical gold demand, as indicated by gold withdrawals from the Shanghai Gold Exchange (SGE), remains at a very high level indeed for the time of year.  The latest figure for withdrawals for the week ended August 7th was 56 tonnes, bringing the total for the year to date to a massive 1,520 tonnes.  This is a full 135 tonnes higher than the previous record for Chinese gold demand at the same time of year – back in 2013.

A particular feature of this year’s SGE withdrawal figures has been the continuing strength of demand so expressed through the Summer months when demand normally falls away.  This year weekly demand over the period has been mostly above the 50 tonne mark – indeed it was well over 70 tonnes just three weeks ago – and this is at a time of year when 30 tonnes plus normally represents a strong demand week on the SGE!  See chart below from www.sharelynx.com.

sge aug 15

If one checks out the weekly withdrawals bar chart (the lower section) one can see just how strong recent movement through the exchange has been in comparison with previous years.

Interestingly the Chinese Central Bank – the Peoples Bank of China (PBoC) – has also now started to report monthly updates in its gold reserves (see China gold reserves up 19 tonnes in July. Really?!) which could be seen as adding to overall Chinese demand, although many Western analysts are unconvinced about the accuracy of PBoC statements regarding the size of the nation’s real gold reserves.

The big question may well be has the recent devaluation of the yuan against the dollar, coupled with the admittedly fairly small gold price recovery to date, started to redress sentiment in the gold market in the West where prices are set.  There is news now of some of the big bullion banks taking deliveries of physical gold on their own account, and also of shortages of registered gold available for delivery in COMEX warehouses having to be ‘rescued’ from dangerously low levels by a major reclassification of a big hunk of gold from the Eligible to the Registered category by JP Morgan.  Is the tide turning at last?  This could presage a very interesting second half of the year in the gold markets of the world.

 

China gold reserves up 19 tonnes in July. Really?!

The People’s Bank of China (PBoC) – the Chinese central bank – had been somewhat reticent about reporting increases in its gold reserves as part of its total forex holdings having previously stated them as being at the same 1,054 tonne level for six years up until June before announcing that they were then actually magically 1,658 tonnes that month.  This amount was received with widespread scepticism, with most analysts reckoning they are actually far higher and there had also been criticism of the way the bank had been reporting its gold holdings – or rather not reporting them.

Now the PBoC seems to have changed tack and appears to be reporting its ‘official’ gold reserve figures on a month by month basis and for the latest month – July – now puts them at 1,677 tonnes – a rise of 19 tonnes in the month out of its now $3.65 trillion in total forex reserves – still equivalent to only around 1.5% of its total.  Per contra, the U.S. claims to hold an official gold reserve, of 8,133.5 tonnes – or 72.6% of its total forex holdings – and Germany 3,384.2 tonnes (67.8% of its forex total).  China thus would still seem to have an awful long way to go to catch up with the top Western nations’ holdings in purely tonnage terms and hugely more in percentage of its foreign exchange figures.

But how accurate are official gold holdings for any country as reported to the IMF anyway – at least in terms of nationally-owned gold?  There have been widespread doubts expressed about the true physical gold reserve figures of many Western nations – The U.S. in particular – as IMF rules allow leased and swapped gold to remain in the reserve figures as if they were still physically present.  Similarly, but on the other side of the coin, most Western analysts believe the Chinese reserve figures are hugely understated with massive amounts of gold held in ‘non-reportable’ government-controlled accounts, thus enabling the Chinese to avoid having to report much larger gold holdings to the IMF with a straight face.

And how important is the amount of gold held anyway?  Western central banks seem to decry any value to gold – yet still continue to hold vast amounts of it.  The Chinese and Indians, and a number of other nations too, seem to see gold as the ultimate money.  Whether gold is just a ‘pet rock’, as a recent disparaging article in the Wall Street Journal described it, or true money as perhaps half the world or more sees it, it still has a tremendous psychological hold.  It has been money, and been seen as the ultimate indicator of wealth, since time immemorial.  It is inbuilt into the collective psyche and that certainly will not change overnight – if ever.

It also seems to be the situation that in China, a very substantial gold holding – far above the currently stated ‘official’ figure – is considered to be a prerequisite for attaining a stronger position for the yuan in global trade.  However there are political niceties to be observed here in that China does not – at least for the time being – want to rock the U.S. economic boat and a huge increase in its announced gold holdings might be seen as doing so.  China’s initial aim would seem to be having the yuan accepted as being part of the SDR bundle, which would effectively bring with it reserve currency status.  Once this is achieved – who knows?

China’s limited yuan devaluation and controlled floating of the currency is being seen as a way of meeting at least part way some of the criticisms levelled at it by the IMF leading to a delayed inclusion within the SDR basket – which has to be inevitable ultimately.  If this SDR decision is delayed too long, given the U.S. dominance of the IMF in terms of voting power, China could see this as an unfriendly act stimulated by the Western superpower and make moves to destabilise the latter’s global position – and it has a strong capability for so doing given its huge forex holdings, mostly in U.S. treasuries.  But the time is not yet right, though if China has its SDR and reserve currency ambitions thwarted again the game could well change.  China thinks long term in a way the West mostly does not.  It may lose the odd battle but ultimately aims to win the economic war and who would give odds against the growing Asian superpower so doing!

Gold doing its job – protecting Chinese wealth (and in many other countries)

On Thursday New York closed at $1,115.20 down $8.60. The dollar was slightly weaker at $1.1142 down from $1.1111 with the dollar Index weaker at 96.42 down from 96.58 on Friday morning. This morning the LBMA gold price was set at $1,116.75 up $0.6. The euro equivalent was €1,003.23 down €3.68. Ahead of New York’s opening, gold was trading in a very narrow 30 point spread around $1,119.10 and in the euro at €1,001.79.

Silver Today – The silver price closed at $15.41 down 11 cents in New York. Ahead of New York’s opening it was trading at $15.47.

The moves of the Yuan are now under control so we should see a steady Yuan from a while at least. Chinese gold investors have had a sharp reminder of just how gold protects their wealth. Just look at the gold price in the Yuan over the last week!It started the week at Y6,848.97. Yesterday it stood at Y7,223.07 a rise of 5.46% over the week. It is a reminder to us all that gold has a global market and that its price is only in dollars for reference purposes.

Investors in each one’s own world looks at the gold price in his own currency.  For instance, in October 2013 the Rand [South Africa] price of gold was R8,432. Today it is at R14,336 a rise of 70%. Look at the gold price in several of the world’s currencies and it has done well when gold appeared to be falling in the dollar. You may say, well hold dollars. Firstly most people are not allowed to do that without good trade reasons and secondly it would not be in the interests of the U.S. to see the dollar move much stronger than other currencies, for international trade reasons.

There were no sales or purchases in either the SPDR gold ETF or the Gold Trust yesterday leaving the holdings of the SPDR gold ETF at 671.867 tonnes and 161.02 tonnes in the Gold Trust.

With Friday being the day when most action is seen in the U.S. gold market we expect to see U.S. perspectives on gold shown in their action later today. What we ask you to notice is the narrowing of the gold price ‘spread’ from $0.80 to $0.30 between the bid and the ask.  It seems that volumes are higher and dealers appear to see higher prices.

Silver is ready to run

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

China wants healthy gold market. Is it intervening?

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

China ups gold reserves at last – gold bulls disappointed

China has announced a long awaited update to its gold reserves but its figures will disappoint.  In the event, after reporting the same 1,054 tonnes for the past six years, the People’s Bank of China has now announced a paltry 604 tonne rise to 1,658 tonnes.  While this official figure enables China to leapfrog Russia to again become the world’s 5th largest gold holder according to IMF figures, the size of the uprating of the reserve, although by what might seem a significant 57%, will have come as a huge disappointment to gold bulls who had been predicting a very much larger figure.

Top 10 National Gold Reserves updated

Rank Country Gold Reserve (t)
1. USA 8,133.5
2. Germany 3,383.4
3. Italy 2,451.8
4. France 2,435.4
5. China 1,658.4
6. Russia 1,250.9
7. Switzerland 1,040.0
8. Japan     765.2
9. Netherlands     612.5
10. India     557.7

Source: World Gold council, IMF, lawrieongold

Indeed even the more conservative China followers, almost unanimous recently in the view that China had again surreptitiously been increasing its gold holdings, had been looking for a figure of virtually double that of the Chinese Central Bank’s latest announcement, while the ardent gold bulls had been looking for a figure of perhaps 5,000 tonnes or more.  But to an extent the new increase does at least demonstrate that China continues to manipulate its own gold holdings figure without reporting the actual levels to the IMF until it chooses a specific moment to do so. And even then is this really a true reflection of China’s actual gold holdings.   Thus speculation will continue that the country’s true gold reserves will still be far higher than those stated and the latest announcement will not really have changed anything, apart perhaps from sentiment.

China’s own gold production over the past six years has totalled somewhere around 2,500 tonnes and many will have seen this as being the absolute minimum level of accumulation by the nation’s Central Bank – which would tie in pretty well with the more conservative analysts’ predictions.

There had been recent additional speculation that the Chinese desire to have the Yuan as part of the make-up of the IMF’s Special Drawing Right would indeed lead to an official uprating of the nation’s gold reserves, perhaps bringing them more in line with top gold holders like the U.S. and Germany, but the latest increase falls far short of the levels necessary to accomplish this.

It looked as though initial gold price reaction to the PBoC announcement was muted, the market treating it as something of a non-event – which in reality it is.  However expectations of a much higher Chinese gold reserve level could be seen as being dashed by the announcement and this could have an adverse impact on gold holders who had been banking on something more.  As the details sunk in gold was being marked down.