The Shanghai Gold Exchange deliveries dilemma

We were hoping for some clarification on the latest reporting of Shanghai Gold Exchange(SGE) gold deliveries in today’s SGE gold data report for week 2 given the seemingly massive figures being reported so far this year and this has not been forthcoming.  The announced figures so far this year are so far in advance of anything we have seen beforehand that the natural conclusion is that the goalposts have been moved and this year’s figures can not be compared with last year’s.

For example, the average weekly withdrawals figure from the exchange – the literal translation of the category headline as reported by the SGE is ‘deliveries’  – was around 50 tonnes in 2015.  So far this year the reports out of the SGE for weeks 1 and 2, using exactly the same heading in the released table – 本周交割量 – as for last year’s released tables of deliveries, have been 238.2 tonnes in week 1 and 247.2 tonnes in week 2 giving an apparent  total for the year to date of 485.5 tonnes.  (However there has presumably been a small unannounced adjustment for week 1 as the cumulative total (累计交割量 )  reported by the SGE with the week 2 figures was actually 491.2 tonnes.)  These are so much larger than last year’s figures that we are now pretty certain that although the descriptive headline in the tabulated announcement is exactly the same as for last year, the new figures relate to a different statistical make-up.

Koos Jansen, as always, writing on , has come up with an explanation for the huge differences between this year’s and last year’s statistics .  He draws our attention to an announcement by the SGE dated January 16th (in English) which states:

With a view to distributing market data regarding physical deliveries in a more comprehensively way and helping market participants interpret delivery-related data and reports more accurately, the Shanghai Gold Exchange (the “Exchange”) has adjusted some terms in the Delivery Reports which are included in Market Data Weekly Reports and Market Data Monthly Reports. The adjustments shall be effective as of Jan. 1st 2016 and are clarified as follows:

        1.The term “delivery amount” refers to the sum of the trading volume of physical products and the contract delivery volume of deferred products. The term “delivery ratio” refers to the proportion of delivery amount to the total trading volume of both physical and deferred contracts.

        2.The term “load-out volume” refers to the total volume of standard physical bullions withdrawn from SGE-certified vaults by members and customers.

        3.The terms “accumulative delivery amount”, “accumulative trading volume” and “accumulative load-out volume” respectively refer to the sum of delivery amount, trading volume and load-out volume from the beginning of the year to the statistical time point. The term “accumulative delivery ratio” refers to the proportion of accumulative delivery amount to the accumulative trading volume.

        4.Delivery-related data of silver products are added into the reports.

To an extent, this only serves to confuse.  According to Jansen – perhaps the foremost expert on things SGE – the old reported withdrawals figure to compare like-with-like would be the “load-out volumenoted as item 2. in the SGE announcement.  Unfortunately this is not one of the figures released by the SGE in its new weekly statistical presentations.

So, for the moment, all that we can glean from the SGE figures is that total volume through the Exchange remains very high and those for week 2 were a little higher than for week 1, but the amounts which relate to the old SGE withdrawals figure would seem to remain obscured within the new, supposedly improved, SGE data announcements.

For Koos Jansen’s full explanation of how he sees the latest SGE presentation of its statistics click on: Are SGE Withdrawals Gone?

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.

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 buy 29 tonnes of gold in last 3 days of 2014

Lawrence Williams

Gold demand in China remains strong in the build-up to the Lunar New Year, with gold price premiums on the SGE rising to 7%. Article as published on .  Check out Mineweb for more articles on mining, metals and minerals.

In releasing the latest information on Chinese gold withdrawals, the Shanghai Gold Exchange (SGE) both confirmed that total withdrawals for the year came to over 2,100 tonnes, only 3.6% down on the previous year’s record, but also that withdrawals for the final three trading days of the month amounted to some 29 tonnes suggesting that demand remains strong ahead of the Chinese New Year.  Indeed with a longer runup to the Lunar New Year this year – the actual date is February 19th – the second latest date in the Western calendar on which the Chinese New Year can fall, we can expect strong gold withdrawal figures out of the SGE for both January and February.

In the Chinese Zodiac 2015 is a Sheep year (also known as Goat or Ram year) and denotes both calmness and prosperity.

If last year’s pattern of gold buying ahead of this date is followed then January could be a very big month for Chinese gold demand indeed.  Last year gold withdrawals from the SGE that month were actually substantially higher than at the start of the record 2013 year – and if demand in the last quarter of 2014 is anything to go by, they could be at close to record levels again this year.  Traditionally Chinese New Year celebrations involve gold gifting, and January tends to be the month that gold traders and banks stock up ahead of the date and holiday period surrounding it.

Anecdotal reports suggest that this is already the case with high demand levels already being seen at the beginning of the month.  Reuters reports, for example, a Shanghai trader as saying “We saw consistently strong buying this week, premiums and volumes are better than what we saw in the last month.”  As confirmation SGE premiums for gold have risen to $7 an ounce as demand grows.

Withdrawals from the SGE have been averaging over 50 tonnes a week for virtually all of the past three months.  With the actual date of the Chinese New Year falling more than 2 weeks later than it did last year when it fell on January 31st we can probably expect a slower, but more prolonged, build-up this year.   Judging by the increased premiums, if the Shanghai trader is correct we could also see something of a boost in the early January figures.

China 2014 gold consumption only down 3%

China gold demand only down 3% in 2014

By Lawrence Williams

An update and complete rewrite of earlier article on China’s 2014 gold demand as recorded on the Shanghai Gold Exchange

Gold withdrawals from the Shanghai Gold Exchange (SGE) came to just under 58 tonnes for the week ending December 26th bringing the total for the year to that date to just short of the 2,100 tonnes we predicted back in November (see: China 2014 gold demand heading for 2,100 tonnes).   With three trading days still to be reported on it looks as if our predicted level will be exceeded.  With demand always strong in the runup to the Chinese New Year, January and early February figures are also likely to continue at a high level given the date of the Lunar New Year falls this year on February 19th, the second latest date possible in the Chinese calendar.

SGE withdrawals are seen by the Chinese as equating to that nation’s total gold demand. There is an argument that there may be a small element of double counting with respect to recycled gold, and the total figures have again been slightly muddied as they now include trade through the new international section of the SGE – the SGEI – which doesn’t necessarily move into Chinese hands, but these amounts are small at the moment and the overall figure still provides an excellent year on year comparison of true Chinese demand figures.  See charts below for comparisons with prior years from Nick Laird’s excellent and websites.  It shows that this year’s SGE withdrawals, due to a late surge, are getting remarkably close in total to last year’s record level and very significantly higher than in 2012 and earlier. Indeed the plots on the first chart indicate that if anything, Chinese demand in the final quarter of this year has actually been running stronger than in the same period in the record 2013 year following a substantially weaker middle section of the current year after a very strong start

Reports that India may have again overtaken China as the world’s largest gold consumer look to this observer to be a flight of fantasy……..

To read full article on Mineweb, click here

Path of the gold price is in China’s hands

Path of the gold price is in China’s hands

This is an updated and almost completely re-written version of an article first published on  immediately following the Swiss Gold Referendum at the beginning of December.  The general premise of the earlier article holds good.  To read the original on Mineweb click on this link:  China holds the gold price key

By: Lawrence Williams

The predictable ‘No’ vote in the Swiss gold referendum did indeed prompt a quick knee-jerk downwards reaction in the gold price, this was exceedingly shortlived, the result  having been already assumed by the markets, and an immediate bounceback took the gold price back above the $1200 level and the price has stayed within range of this figure for nearly a month now, although there has been some intra day volatility, perhaps due to short covering coupled with the big money players in the market seeming loath to allow any significant upwards breakout.

We said at the time on Mineweb that we could be in for a volatile few days, although we felt that we were perhaps beginning to see some positive momentum in gold, after its dip down to around $1160 in the referendum aftermath.  After its rapid recovery from this level we have been seeing $20-30 price moves up and down, but in general these have seen gold return to a trading range a few dollars above or below the $1200 level.

The question now though could gold fall yet further by the year-end or in early 2015?  Views are very mixed on this possibility among the major bank analysts.  What should be worrying for the gold bulls is that some of those predicting further falls, back perhaps to the $1000 level, are also analysts for entities with very deep pockets who could perhaps make this happen if they are so inclined to do. And they are not the only ones suggesting there could be a further big fall in price.  Will we perhaps get down to WaveTrack International’s predicted $1,100 level (although this also sees a rapid very strong gold price increase following on), or perhaps Goldman Sachs’ $1,050 or lower – an entity with the financial clout to make this happen.

See:  Elliott wave analyst sees big gold and silver price surge ahead

There are even those predicting even worse things for gold – my eyes were drawn to a prominent advertisement on for a U.S. financial newsletter writer (Harry Dent) suggesting that the gold price could yet fall back to $700 an ounce.  (We don’t believe China will allow this to happen though.)

For gold mining companies most can survive (just) at $1200 gold.  But company executives will be reconsidering their options if the price should dip further – if indeed they have any. After all well-respected commentators have noted that much of the gold mining industry is already under water at $1,200, although the bigger ones are remedying this through effective cost cutting.  Lower oil prices will be helping here too.  But in reality costs can only be cut so far – and these may well adversely impact longer term profitability. Even those who have felt that using a gold price of only $1,000 to calculate whether their operations are viable or not at lower gold prices will be looking to re-assess where they stand at $900 gold. Some mostly smaller companies may well give up the battle to stay afloat.

Is there thus any hope out there for the gold investment sector? The pressures driving the gold price downwards have been enormous, although as we have pointed out on Mineweb on a number of occasions, demand already appears to be exceeding supply, probably comfortably – and at $1,100 gold or lower the supply gap is likely to continue to widen as scrap sales dwindle away, the lower price stimulates new purchases in the East and new mine production falls as some miners bow to the inevitable and have to shut down lossmaking operations.

It may not quite be that simple though. Those miners that may have high grade sections may concentrate on these and higher grades through the mill at full throughput means higher gold output. But the scope for this to be implemented becomes more and more difficult as time progresses and this can only be a short-term measure – and also leads to reducing values longer term for those which survive. And of course, the scope for high grading among many of today’s massive tonnage, low grade operations, and some others too, is strictly limited.

Is there any light at the end of the tunnel? Maybe. But is this just clutching at straws? Under the Goldman scenario, the answer is probably no until the bankers feel they have driven prices down sufficiently to buy back into the market and make mega profits on a reversal in the price trend. But this depends on how much of the recent strange activity in the gold futures markets is profit-driven, self-serving, or at the behest of higher anti-gold powers who see a rising gold price as a threat to the global economy. Certainly in the case of the Swiss referendum, the vast and totally unprecedented propaganda levels brought to bear on the population by the Swiss Executive and the Swiss National Bank, suggested that the prospect of a ‘Yes’ vote could just not be allowed to happen.

See: Harsh words on Swiss Gold Referendum from von Greyerz

But if WaveTrack International’s Peter Goodburn is correct in his analysis, a gold price fall back to $1,100 will be rapidly followed by perhaps a two- to three-year recovery taking gold, silver and the other precious metals to new highs, resulting in huge multiples in gains in gold stocks. This is all based on Elliott Wave data, which has been remarkably consistent over the years in matching price patterns for virtually any commodity. Although if this can hold true in the face of the current unprecedented interference in the gold futures markets obviously remains to be seen.

However, even the WaveTrack prediction probably needs something to kick-start the recovery process and we still feel China ultimately holds the key to the gold price. Despite the mainstream media keeping on telling us Chinese gold demand is diving, Chinese demand this year, as represented by withdrawals from the SGE, actually remains on track to reach over 2,000 tonnes. It’s already passed 1,900 tonnes and if the recent 50+ tonne/week average level is maintained until the year end should reach comfortably over 2,000 tonnes.  Indeed as the Chinese New Year approaches this tends to be a very strong time for Chinese gold purchases.

But should China want to make a specific impact on the gold price it has all the ammunition it needs to do so. There is a very strong belief among many analysts that China is building its gold reserves to at least match, or perhaps exceed those of the US, and if it is so doing and should come clean and announce a major increase in its gold reserves – the last time it did so was nearly six years ago – this would give an immediate massive fillip to the gold price and is a scenario those traders short gold must dread.

Or, even if this is not the case, should China wish to see the gold price rise in order to keep its citizens who have purchased gold happy (they were effectively encouraged to do so by the government-owned banks), or to embarrass the West, it has enormous foreign exchange reserves available to intervene in the market and buy physical gold sufficiently to turn the markets around strongly. We have just seen a rather remarkable drop in reported Chinese foreign exchange reserves despite the country maintaining a strong balance of trade surplus.  Could this be yet another sign that China is liquidating dollar holdings and buying, but not reporting, gold?

Gold is actually seen as in short supply anyway in the West, which is why the gold believers cannot understand recent price movements which seem to fly in the face of economic supply/demand logic and a China boost could have a very rapid strong upwards effect. India the other major player has also been reporting a huge surge in gold imports and between Indian and Chinese demand gold is continuing to move from weak hands in the West to much stronger hands in the East.

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

In the case of China Western governments may be wise not to tweak the tail of the dragon as it certainly has the wherewithal to play the gold card and throw global markets into turmoil, and drive the gold price ever higher.