CGA figures equate Chinese domestic gold demand to SGE withdrawals

My latest article on sharpspixley.com.

It seems to take an awful long time for the publication to appear, but now the Chinese Gold Association (CGA) has published, in Chinese, its 2014 Gold Yearbook and its figures for China’s gold demand that year, and for China’s gold imports, differ strongly from those put out by major precious metals consultancies such as GFMS (which also provided data to the World Gold Council that year), Metals Focus (which is current data provider for the WGC), and CPM Group – the most prominent U.S. based precious metals consultancy.  The report on the latest CGA figures to be published came from who else but precious metals chart guru, Nick Laird of www.Sharelynx.com, who monitors China figures extremely closely, and who also published an image from the yearbook showing the actual table from the report

For 2014 for example, the WGC (whose figures seem to be taken as gospel by the world’s major media outlets) reported mainland Chinese gold consumption that year at 813.6 tonnes.  The CGA yearbook stated the total Chinese gold demand figure at 2,106 tonnes – which is actually extremely close to the Shanghai Gold Exchange (SGE) withdrawals figure for the same year at 2,102 tonnes.  (For 2013 CGA total demand figures were also almost identical to SGE withdrawal figures for that year.)   Now while the categorisation of what should actually be included in the WGC consumer demand figure may differ somewhat from what is included in the CGA total demand figure, the 2014 difference of 1,292 tonnes between the two sources stretches belief.  Either the WGC (using GFMS figures) got it hugely wrong, or the China Gold Association is including all kinds of things which the WGC isn’t in its calculations…….

To read the full article, which goes into more detail on Chinese gold data, click here

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UPDATED: Latest Gold Reserve figures from the World Gold Council

A computer glitch had recorded the % of reserves for all countries at 18.8%.  This has now been corrected.

The World Gold Council (WGC) has today announced its regular statistical update on gold reserves in the official sector.  This monthly release includes (1) World Official Gold Holdings ranking gold holdings by country, (2) a spreadsheet with the latest changes in official sector gold holdings.  As noted these are not completely up to date – except for the Chinese reserve figure where we have added in the 19.8 tonne change in our table.  We are also only showing the Top 20 national plus IMF holdings in our table below – a full table for all countries as reported to the IMF is available on the WGC website (www.gold.org/statistics ).

Table 1.  Top 20 Gold Reserves as reported to the IMF

Tonnes % of reserves**
1 United States 8,133.5 73.4%
2 Germany 3,381.0 67.7%
3 IMF 2,814.0
4 Italy 2,451.8 65.6%
5 France 2,435.5 65.6%
6 China 1,722.5 1.8%
7 Russia 1,370.6 13.6%
8 Switzerland 1,040.0 6.4%
9 Japan 765.2 2.3%
10 Netherlands 612.5 56.5%
11 India 557.7 5.8%
12 ECB 504.8 25.8%
13 Turkey 500.9 15.3%
14 Taiwan 423.6 3.5%
15 Portugal 382.5 72.9%
16 Venezuela 361.0 67.4%
17 Saudi Arabia 322.9 1.8%
18 United Kingdom 310.3 8.6%
19 Lebanon 286.8 20.9%
20 Spain 281.6 18.8%

* This table was updated in December 2015 and reports data available at that time.  Data are taken from the International Monetary Fund’s International Financial Statistics (IFS), December 2015 edition, and other sources where applicable. IFS data are two months in arrears, so holdings are as of October 2015 for most countries, September 2015 or earlier for late reporters

What analysts primarily look out for are for any month by month changes in the official holdings figures.  As can be seen below the only significant regular additions to gold reserves in the second half of the year are By Russia (95.6 tonnes in the four months to end October), China (83.9 tonnes in the five months to end November) and Kazakhstan (11.7 tonnes in the 4 months to end-October).  Our assumption is that going forward we would expect these countries, which seem intent on building their gold reserves, will continue to buy at a similar pace.  For the record. According to the IMF figures Kazakhstan is 23rd on the list of national gold holders with 216.3 tonnes which accounts for 27.8% of its total official reserves.

The IMF figures should be taken as a guide as they relate to holdings as reported by the various countries and do not take account of gold holdings which may be temporarily reduced due to gold swaps and leasing (as the countries do not need to report these figures under the IMF guidance), or countries which may be under-reporting their gold holdings as many believe China to be.

Table 2  Changes to official reserves since July*

Country Comments Jul Aug Sept Oct Nov Dec
Belarus Purchases and swaps +2.5  -3.0  -2.5
Brunei Darussalam +0.2  -0.3
China +19.0 +16.2 +14.9 +14.0 +19.8
Colombia  -6.6  -0.3
Czech Republic  -0.2
France +0.1
Jordan +7.5  -0.6
Kazakhstan Purchases and swaps +2.5 +2.1 +3.2 +2.9
Malaysia +0.6
Mexico Additions to reserves and trading  -0.1  -0.2  -0.2  -0.1
Mongolia Trading activity +1.0  -0.9  -0.6  -0.2
Mozambique +0.6  -0.9
Philippines Buys locally produced gold; may sell or retain in reserves +0.1
Russia Mainly purchases of gold in the domestic market & other changes +13.1 +29.6 +34.5 +18.4
Serbia +0.1 +0.1
Sri Lanka Trading activity  -0.2
Turkey3 +17.2 +0.6  -13.2  -3.6
Ukraine +2.2 +0.9 +0.3
United Arab Emirates +2.4 +0.1 +0.1
Uruguay  -0.2
 

*As in Table 1, IFS data are two months in arrears, so holdings are as of October 2015 for most countries, September 2015 or earlier for late reporters.  We have added in China’s latest Reserve upgrade for November.

3Gold has been added to Turkey’s balance sheet as a result of the policy accepting gold in its reserve requirements from commercial banks

 

 

Co-operation, positives and negatives at major gold event

The first full day of this year’s Denver Gold Forum opened with an announcement of a co-operative agreement between the Denver Gold Group (DGG) and the World Gold Council (WGC), followed by some extremely interesting presentations and a fascinating and informative panel discussion on paper gold, but which still left some key questions unanswered, or unclear.

Regarding the co-operation – in a joint announcement the DGG and WGC noted that between them the two groups represent almost all the world’s top gold miners in terms of production, mineral reserves and market value. Through closer co-ordination and collaboration they aim to ensure that miners are better informed on demand drivers, market trends and key developments.  While both parties may have differing outlooks on the industry, arguably their purposes do coincide.

The DGG’s Executive Director, Tim Wood commenting on the agreement noted: ““For some time the interests of our members have been aligned, so it makes strategic sense to work more closely. After nearly three decades of service to the industry, the Denver Gold Group has evolved as a significant platform for sharing ideas, information and experience. The World Gold Council produces the highest quality market data and insights, informed by its direct experience of the consumer markets. We believe this knowledge and perspective is important for our members, particularly to counter-balance the short-term, sentiment-driven commentary that often crowds the gold space.”

But back to the conference, the day opened early with two parallel keynote addresses and the writer attended the one on exploration trends and their likely impact on the industry looking ahead from David Cox of SNL Financial – which has recently been acquired by McGraw Hill.  While the overall mood of the conference may indeed be more positive than the past three years’ precious metals price performance might suggest – well the mining companies wouldn’t be in it if they didn’t think there was great excellent upside potential ahead – Cox and SNL’s analysis showed what has been in effect a pretty disastrous experience within the gold exploration space, with the majors initiating some big cutbacks, while the juniors, which had hitherto provided the largest part of exploration activity, struggling with lack of funding available to maintain a decent level of exploration activity.

What this is that global gold production is likely to move into long term decline with the mining companies no longer having the new gold resources available to them to replace aging assets due for closure or where grades are falling off.  Coupled with the huge lead times in moving a potential project from exploration through to production it could be many years, if ever, that miners get back to the gold output levels seen over the past couple of years.

Interestingly, Cox noted that SNL research suggests that global new mined gold output this year will see a small decline.  This runs counter to the forecasts from the major mainstream precious metals analysts who are all predicting a small increase.  Indeed Jeff Christian of CPM group sees production rising until 2017 before falling back sharply in 2018.  When questioned on the SNL projection Cox commented that the SNL figures are perhaps more up to date than those of the analysts which will have been calculated early in the year.

Peak gold – or crest gold as another delegate put it – may thus already have passed if SNL is correct.  The same delegate who works for one of the big mid-tier gold producers also expressed the view that although gold output may be beginning to fall it will have little impact on the metal’s price performance as this was more affected by gold trading and sentiment – although interestingly the paper gold panellists, who participated later in the day, held the opposite view and saw declining mine production of gold being key to the longer term performance of the metal price. More on this panel discussion later on.

Corporate presentations followed and the international nature of the Denver Gold Group’s membership was demonstrated here with talks from companies headquartered in the USA, Canada, China, Russia, the UK, Peru, Mexico and Australia and many of these with their operations in a number of other countries too.  With parallel sessions and various other meeting commitments one can only give a brief snapshot of the various corporate talks.

Presentations from gold, silver and other precious metals producers were almost unanimous in seeing costs still on the downwards path as they have sought to get to grips with the lower prevailing metals prices.  Those with operations in non-dollar area countries are also seeing some substantial benefits from local currency depreciation.

Of the bigger gold miners to present on the first full conference day, Gold Fields in particular has seen big benefits from the fall in the Australian dollar against its U.S. counterpart, while Russian-owned Nordgold, which will probably mine 1 million gold ounces this year at low costs and producing strong cashflows, sees the current gold price as opening up some great opportunities for acquisitions leading to further growth.

Ivanhoe’s presentation was limited to its Platreef wide reef platinum find on the northern limb of South Africa’s Bushveld Igneous Complex which could be something of a game-changer for South Africa’s beleaguered pgm sector.  Here it was good to hear a presentation by Ivanhoe’s David Broughton – free of much of the hype which normally surrounds presentations on the project by the company’s founder Robert Friedland.

Silver miner Coeur saw this as being a transformational year, while Hecla, already a low cost producer, was looking to its revitalised San Sebastian mine as the catalyst for further growth with a very low capital cost to production of a newly exposed high grade vein system suggesting a phenomenal project IRR of 444%!

Yamana’s Peter Marrone reported a much improved business model for the company with a focus on core assets and the monetization of non-core properties.  The second half of the year would see a substantial improvement over H1 with Q3 being better than Q2 and Q4 better than Q3.  There are high hopes for the developing Cerro Moro high grade gold/silver project in Argentina which is being brought to production.

A complete session was devoted to Royalty companies which have been among the best performers in what has been a difficult metal price climate.

The lunchtime panel presentation on paper gold was very well attended – with the fact that it is paper gold which appears to have been setting the price – and also responsible for some of the downward spikes seen by many gold bulls as proof of market manipulation.  None of the trading element on the panel saw manipulation as being in evidence putting these pricing anomalies down to being part of the vagaries of algorithmic high frequency trading which can hugely exaggerate market movements, although none were really able to give a convincing explanation in these terms for the big July 19 downward spike which took place almost simultaneously on COMEX and the SGE  when Western markets were closed and activity was extremely thin.  Someone had to have made the initial trades after which the algos took over and took the price down vertically before generating some partial recovery.

Interestingly even the traders on the panel all professed to be strongly bullish longer term on gold, but also all felt the price could yet fall to new lows before a strong recovery.

Nonetheless some of the explanations of how the markets actually worked were enlightening – but perhaps not so much so as to convince the out and out gold bulls that markets were not being manipulated so as to depress gold and silver prices.  There was also an explanation on  how the COMEX approved warehouse stock position worked, but not sufficiently so to clear up what proportion of eligible gold stocks is actually available to be converted to the registered category to prevent a possible default given the huge recent decline in the registered stock position.  The principal comment seemed to be that so little of COMEX trade is actually in physical metal, that the low registered stock position was largely irrelevant.

The afternoon saw presentations from a number of other gold and silver producers, including Pretium Resources developing the big high grade Brucejack gold/silver project to production over the next two years.  Pretium has just closed a $540 million financing – a probably unique feat for a junior in the current metal price and financial climate, demonstrating that there is still money available for a top of the class new mine project development.

All in all another very interesting day.  Again it is fair to say the mood was far more upbeat than the past few years’ precious metals price performance would seem to justify.  But as we have pointed out before, to be in mining at all one has to be something of an optimist – or perhaps a masochist as one Filipino mining executive once told the writer in the distant past.  But the DGG organisers should be congratulated in generating such a strong financial audience in what could at the best be described as an extremely difficult investment climate.  There’s still life in precious metals mining yet!

 

 

 

 

Global gold demand down 12% Q2 2015

The latest run of statistics from the World Gold Council has been released in the form of its Q2 Gold Demand Trends analysis with data nowadays being provided by London-based precious metals consultancy – Metals Focus.  While it finds that global demand is down 12% year on year it notes that there is a good likelihood that demand will pick up well in the second half – indeed the latest gold price moves and figures for Indian imports and SGE withdrawals suggest that this may already be happening.  On the Fundamentals front it also noted that supply was down 5% with an increase in mine supply being more than countered by a fall in gold scrap supplies. Central bank purchases were down year on year but still remained strong with the Q2 figure up on that for Q1.

The World Gold Council’s own release on the latest figures, with links to the full report, follows:

The World Gold Council’s Gold Demand Trends report for Q2 2015 shows total demand was 915 tonnes (t), a fall of 12% compared to the same period last year, due mainly to a decline in demand from consumers in India and China. However, demand in Europe and the US grew, driven by a mixture of increasingly confident jewellery buyers and strong demand for bars and coins. Looking ahead, there are encouraging signs moving into what are traditionally the busiest quarters for gold buying in India and China.

Overall jewellery demand was down 14% to 513t, from 595t in 2014 due to falls in consumer spending in Asia. In China, slowing economic growth and a rallying stock market led to a 5% fall in demand to 174t. In India, the heavy unseasonal rains in Q1 and drought in Q2 impacted rural incomes and affected gold demand. In addition, a dearth of auspicious days for marriages in Q3 meant that wedding-related demand was unusually slow, leading to a fall in jewellery demand of 23% to 118t. Overall, if we look at the picture for the first half of this year in India, jewellery was down 3% to 268.8t from 276.1t (H1 2014). The US remained steady, with jewellery demand up for the sixth consecutive quarter by 2% (26t). In Europe demand was also up, with Germany up 7% and the UK and Spain both growing by 6%.

Global investment demand was down 11% to 179t from 200t in Q2 2014. India was the main driver of the fall, down 30% to 37t, due to uncertain price expectations and a buoyant stock market. This was countered by a rise in Chinese bar and coin demand, up 6% to 42t. In Europe, fears of a potential Greek exit from the eurozone saw retail investment in gold reach 47t, a rise of 19% compared to last year. The US also saw strong demand, with retail investment increasing by 7%. Of particular note was the huge burst of activity in June, when bullion coin sales by the US Mint hit a 17-month high.

Elsewhere, central banks continued to be strong buyers of gold. Net official sector purchases totalled 137t, with Russia and Kazakhstan the biggest purchasers. Although a year-on-year fall of 13%, buying increased by 11% when compared with the first quarter of this year. It is the 18th consecutive quarter where central banks were net purchasers of gold.

Total supply was down 5% to 1,033t, as an increase in mine production of 3% to 787t in Q2 2015 was offset by declining recycling levels – down 8% to 251t. The indication for H2 2015 is that mine production will slow as the gold mining industry continues to manage their costs and optimise operations in the face of challenging markets.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said:

“It’s been a challenging market for gold this quarter, particularly in Asia, on the back of falls in India and China. The reverse is true for western jewellery markets, as increased economic confidence led to continued growth in consumer demand. It is  fair to say that investment demand for the quarter remained muted given the continuing recovery in the US economy and booming stock markets in India and China during the quarter. 

Jewellery market prospects look healthier for the remainder of the year with the upcoming wedding and festival season in India. In addition, falls in the gold price have historically triggered buying in price sensitive markets and we are already seeing early indications of this across Asia and the Middle East. Conversely, sharp falls in Chinese stock markets have shaken the largely consumer investment base and we are seeing early indications of interest in buying gold again – all illustrating the unique self balancing nature of gold demand and the diverse drivers which underpin it.” 

Gold demand and supply statistics for Q2 2015

  • Overall demand was down 12% in Q2 2015 to 915t compared to 1,038t in Q2 2014.
  • Total consumer demand – made up of jewellery demand and coin and bar demand – totalled 715t, down 14% compared to Q2 2014.
  • Global jewellery demand was 513t, down 14% compared to the same period last year, due to falls in China, down 5% to 174t, as well as India, down 23% to 118t.  The US and Europe saw continued growth with the US up 2% to 26t, and Europe up 1% to 15t.
  • Total investment demand was down 11% to 179t, compared to 200t in the same quarter the previous year. Demand for bars and coins saw a 15% drop to 201t from 238t  the previous year, as the sector was affected by an expected increase in US interest rates and a continued shift towards other asset classes, notably equities. ETFs saw outflows totalling 23t, lower than the outflows of 38t seen in the same quarter last year.
  • Central banks continued to be strong buyers of gold, accounting for 137t in Q2 2015, slightly down on the equivalent quarter last year, but up 11% compared to the previous quarter. It was the 18th consecutive quarter where central banks were net purchasers.
  • Year-on-year quarterly mine production increased 3% to 787t in Q2 2015, against 763t in Q2 2014. Recycling levels were down 8% year-on-year to 251t compared to 273t in Q2 2014, resulting in total supply falling 5% to 1,033t.

The Q2 2015 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed athttp://www.gold.org/supply-and-demand/gold-demand-trendsand on our iOS and Android apps..

You can follow the World Gold Council on Twitter at @goldcouncil and Like on Facebook

Gold mining’s enormous positive impact on global economy – WGC

A report issued today by the World Gold Council (WGC) demonstrates the massive economic impact of gold mining on the global economy – and with a hugely positive social and economic effect for many otherwise poor host nations which have seen tremendous benefits from the production of the yellow metal.  Overall, the report, looked at large scale commercial operations in 47 countries accounting for around 90% of global gold output.  It showed that gold mining contributed US$171.6 billion to the global economy in 2013 in direct and indirect values.  The WGC’s release on this is set out below with links for those interested to be able to view the full report.

A new report released today from the World Gold Council, produced in association with Maxwell Stamp, a leading international economics consultancy, reveals that the gold mining industry directly contributed around US$83.1 billion to the global economy in 2013. Once the indirect economic impact is taken into account, this figure increases to US$171.6 billion. The social and economic impacts of gold mining report builds on previous research, including studies by the World Gold Council, to provide an understanding of the socio-economic impacts of the commercial gold mining industry at both a global, national and host community level.

The report’s analysis of the impacts of large-scale commercial gold mining in 47 gold producing countries (accounting for over 90% of the world’s gold production) shows that gold mining companies in total contributed over US$171 billion to the global economy in 2013 when the value created by support services and indirect employment is taken into consideration.

Globally, gold mining companies directly employed over one million people in 2013, with over three million more people employed as a result of the industry’s suppliers and support services.

The report shows that gold mining has made good progress in seeking to develop local human capital and skills. In most gold producing countries, over 90% of the industry’s employees are local workers. Although gold mining jobs are not as numerous as jobs in other industries, they are of high value as they consistently pay above-average wages – significantly above-average in less developed countries where each worker typically supports a high number of dependents.

Commenting on the launch of the report, John Mulligan, Head of Member and Investor Relations at the World Gold Council, said:

“This report shows that the total economic impact of gold mining is significant and substantial – at US$171.6 billion, it is greater than the GDP of over 150 different countries and considerably larger than the total value of global overseas aid in recent years. Our findings highlight that commercial gold mining is a major source of income and driver of economic growth, playing an important role in supporting the sustainable socio-economic development of host nations and communities.”

Over 60% of the countries covered in the report are low or lower-middle income with substantial socio-economic development needs. However, the report indicates that growth in the economic contribution of gold mining often coincides with a marked improvement in income status of host nations.

70% of the value that gold mining companies distribute within an economy relates to payments to local suppliers and employees.  Interestingly, the majority of government revenues from gold mining are derived from sources, such as corporate and income tax rather than from money relating to permits and royalties.

The social and economic impacts of gold mining also shows that gold mining’s direct economic contribution to the global economy has increased seven-fold from 2000 to 2013 – greater than the rise in value of gold over the same period.

Andrew Britton, of Maxwell Stamp, who authored the report, commented: “While there has been major progress in recent years in attempting to measure gold mining’s economic impacts, this has often been piecemeal or confined to a specific country. The lack of information has held back constructive debate on how to make the most of the shared value that a responsible gold mining industry can create for host nations and communities. By building on previous research and identifying industry-wide thematic trends, this work has made substantial progress in bridging the information gap. We hope it will help foster productive engagement between gold mining companies and the industry’s wider stakeholders.

The social and economic impacts of gold mining report can be viewed at http://www.gold.org/gold-mining/economic-contribution/social-economic-impact and on iOS and Android apps.

The WGC has also produced a video which can be seen here: http://www.gold.org/research/social-and-economic-impacts-gold-mining-video.

WGC latest gold demand trends report – China back at no.1 consumer

The World Gold Council has released its latest quarterly Gold Demand Trends publication today, this time with data provided by Metals Focus – GFMS has been the principal information provider in the past for these reports.  Here follows the WGC’s Press Release ahead of any attempt to delve into the report in more detail.  Mineweb has now also published a more detailed article from me on some of the report’s findings – see WGC resurrects China as world’s No.1 gold consumer.  There is also an article on Seeking Alpha: Which Nation Is Really World’s No.1 Gold Consumer?

Global gold market remains steady in Q1 2015 demonstrating the unique diversity of gold demand

The first three months of 2015 saw stable gold demand, according to the latest Gold Demands Trends report from the World Gold Council. Total demand for Q1 2015 was 1,079 tonnes (t), down just 1% on the same period last year.

Conditions differed from market to market, but at an aggregate level, these differences broadly balanced each other out. Once again, consumers in Eastern countries dominated the market with China and India alone accounting for 54% of total global consumer demand in the quarter.

Global demand for jewellery, still the most significant component of overall demand, totalled 601t in Q1 2015, 3% lower than the 620t recorded in the same quarter last year. There were pockets of strength across a number of South East Asian countries – including Malaysia, Indonesia, South Korea, Thailand and Vietnam. In addition, jewellery demand in India was up 22% to 151t whilst the US saw further steady growth, up 4%. This was counterbalanced by declines in Turkey, Russia and the Middle East and in China, jewellery demand dropped 10% to 213t, as a rising stock market diverted money into equities, but it was still up 27% against the five-year average.

Investment demand, the other key driver of the world’s gold market, rose 4% to 279t in Q1 2015, up from 268t in Q1 2014. There were net inflows of 26t into gold-backed Exchange Traded Funds (ETFs) – turning positive for the first time since Q4 2012 as western investor sentiment returned to gold. Investment in bars and coins came under pressure in the face of buoyant stock markets, notably in India and China, and currency fluctuations in Turkey and Japan, but this was offset by strong retail investor demand in the euro zone up 16% to 61t, most notably in Germany and Switzerland.

Central banks continued to be strong buyers, purchasing 119t in the quarter, the same volume as in Q1 2014. This was the 17th consecutive quarter that central banks have been net purchasers of gold as they continue to seek diversification away from the US dollar.

Total supply remained virtually unchanged at 1,089t as a 2% rise in Q1 2015 mine production to 729t was balanced by a 3% fall in recycling to 355t, compared with the same quarter last year.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said:

“The global gold market’s ecosystem functioned healthily during the first three months of 2015 illustrating the unique nature of gold and its ability to rebalance across sectors and geographies. This broadly stable global picture belies regional and sector differences which include: a 10% drop in jewellery demand in China, a 22% uptick in jewellery demand in India and the first net inflows to gold ETFs since 2012, reflecting gold’s resilience and ability to  respond to different cues in different ways. Once again, consumers in Eastern countries dominated the market with China and India alone accounting for 54% of total global consumer demand in the quarter”

In value terms, gold demand in Q1 2015 was US$42bn, down 7% compared to Q1 2014. The average gold price of US$1,218.5/oz was down 6% on the average Q1 2014 price.

The key findings from the report are as follows:

Total global jewellery demand was 601t in the first quarter, a fall of 3% on the same quarter last year. These overall figures mask significantly different local trends: In India, jewellery demand was 151t, 22% higher than the same period last year albeit from a very low base. Demand was also 4% higher in both the US and the UK, at 22.4t and 4t respectively. In China, demand fell 10% to 213t against the same quarter in 2014, as slower economic growth and a buoyant stock market affected consumer purchases, but it exceeded its five-year quarterly average by 27%, lending weight to the view that the longer-term uptrend is comfortably intact

  • Total investment demand was up 4% to 279t, compared to 268t in the same quarter the previous year. Demand for bars and coins fell 10% from the previous year to 253t as retail investors, notably in India, diverted their money into equities in the wake of the country’s strong stock market performance. However ETFs saw their first inflows since Q4 2012, albeit at the modest rate of 26t.
  • Central bank net purchases were 119t in Q1 2015, unchanged on the same period in 2014 and the 17th consecutive quarter in which central banks have been net purchasers as they diversify their assets.
  • Total supply remained virtually unchanged at 1,089t as a 2% rise in Q1 2015 mine production to 729t was balanced by a 3% fall in recycling to 355t, compared with the same quarter last year

Gold demand and supply statistics for Q1 2015

  • Q1 gold demand of 1,079t was 1% lower than the 1,090t seen in Q1 2014
  • Total consumer demand – made up of jewellery demand and coin and bar demand – totalled 854t, a fall of 5% on the 902t seen in the same period last year
  • Consumer demand in India rose 15% to 192t, while in China it declined 7% to 273t. Taken together, consumers in India and China alone now account for 54% of all consumer demand
  • Demand in the technology sector was 80t for the quarter, down 2% compared to the previous year
  • Gold demand in value terms in Q1 2014 was US$42bn, down 7% on last year

The Q1 2015 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed athttp://www.gold.org/ and on our iPad app which can be downloaded from www.itunes.com, and a video can be seen here.

Copper and gold – parallels in massive supply deficit scenarios

Looking at parallels between looming supply shortages for copper and gold, and the likely different patterns the two metals will follow given copper is very much an industrial metal whereas gold largely revolves around financial and investment factors.  But China is perhaps the single key element in both scenarios

Lawrie Williams

I have just written an article for Mineweb covering a prediction that global copper supply is heading for a very large deficit – perhaps as much as 1.5 million tonnes by 2018.  See: Copper heading for 1.5 million tonne deficit by 2018  .  I have also penned an article on what I see as a looming gold supply deficit (indeed it may actually be with us already) on these pages (See: 2015 global gold supply deficit could be substantial).

There are some interesting parallels between the two articles with one particular factor standing out – notably Chinese demand.  In terms of copper the current weak copper price is largely because there has been something of a hiatus in Chinese copper purchases in line with something of a downturn in the Chinese economic growth.  Note this is not a recession in the economy, but a downturn in the levels of growth seen in the recent past.  The Chinese economy still seems to be growing, but at a slower rate.  The analyst bandwagon has seized on the slowdown as showing that the supercycle, primarily generated by Chinese demand for industrial metals of all kinds, has thus ended.  The copper article stems from analysis by senior Bernstein analyst, Paul Gait, that in fact the Chinese generated supercycle is only around one-third into its course and the Asian dragon still has a huge amount of  ground to make up on  all other industrialised nations in terms of per capita metal consumption.

In turn the recent slowdown in Chinese economic growth has seen metal prices fall to production costs only now being just about covered by income from sales, whereas traditionally the copper mining sector operates on the basis of a 50% premium of sales to costs.  As a consequence the big copper miners are cutting back heavily on costs, leading to a drastic fall in exploration expenditures, curtailment and cancellation of big new capital projects and expansions and some closures of now uneconomic existing mining operations to satisfy shareholder and institutional demands for profit maintenance, or at least recovery.

But, at the same time many of the major producing mines are seeing mill head grades running substantially above reserve grades which can only lead to declining output, without major plant expansions to counterbalance the trend.  And finance for such major expansions is becoming more and more difficult to come by.  With exploration curtailed, and nowadays huge lead times in taking a major new mine from discovery to production (figures of 30 years are being quoted) the world is facing a major copper shortage in the years ahead.

Gold is running into a very similar situation on the supply side.  We may well have seen peak gold last year as low gold prices are already leading to new project cancellations and curtailments, closures of uneconomic operations and a big downturn in exploration expenditures.  Coupled with older mines running out of ore and declining grades at other older operations it is beginning to look like this is the year global new mined gold production may be about to start to fall.

In other respects, though,  gold and copper are on somewhat divergent paths.  A big copper supply deficit is at least in part dependent on an uplift in global industrial demand and, in particular a recovery in Chinese imports.  On gold though, we think the deficit is already in place and the reason it doesn’t show in analysts’ statistics is they totally ignore upwards of 1,000 tonnes of gold going into China, but not classified as ‘consumed’.  The latest World Gold Council (WGC) Gold Demand Trends report, with figures from GFMS has a very tight figure for Chinese gold consumption (814 tonnes) which seems to bear little relation either to known imports of gold into mainland China, China’s own production and even less so to the huge Shanghai Gold Exchange withdrawals figures for 2014 which came in at over 2,100 tonnes.  The WGC writes this difference off as mostly gold going into the Chinese banking system to be used in financial transactions and as collateral and thus not classified as ‘consumed’.   I speculated that maybe this was Central Bank gold being hidden from the IMF by being held in the commercial banks (See: Is China hiding its central bank gold in its commercial banks?) China gold watcher Koos Jansen disagrees both with the WGC and with my speculative thoughts and he probably studies this market more than most – See(Koos Jansen vs WGC/GFMS/CPM Update).

But wherever this gold is actually going, it is physical gold and it is being removed from the market and if you add this into the WGC statistics one is starting to see a very large supply deficit if their other figures are correct – and a deficit which has probably been in place now for the past three years or more.

Unlike copper, however, gold is much more subject to potential financial manipulation through the futures markets and thus price trends are probably more difficult to predict, although logic does suggest that at some stage a real shortage of physical gold in the West will be seen and start to have a major positive impact on prices, but it is as yet uncertain when this break point will be reached timewise.  With copper the inflection point will be reached when industrial consumers start running out of metal and that is a far more discernible factor as it can’t be hidden by enormous paper transactions (in relation to size of market) as can gold.

So China is very much the key to both markets, although India again is appearing to be a major player in future gold supply and demand.  Latest figures out of the Shanghai Gold Exchange show another 59 tonnes withdrawn in week 6 making a total of 374 tonnes withdrawn this year already.  This is substantially more than over the same period in 2013, or in 2014.  Thus where is all this gold going – or perhaps more importantly where is it all coming from?  It exceeds global new mined production on its own, and China alone only accounts for around half global gold demand.  The figures just don’t seem to add up without their leading to some kind of price breaking point.  But when?

2015 global gold supply deficit could be substantial

If we take the SGE gold withdrawal figures as being a more representative indicator of physical gold movement from the West to China, rather than the limited assessments by GFMS used in the latest WGC report, and add in Indian and other global demand then gold supply is already in deficit, with shortfalls becoming ever higher.

Lawrie Williams

Returning to the latest World Gold Council (WGC)/GFMS Gold Demand Trends report, which puts mainland Chinese 2014 consumer demand at a mere 814 tonnes  together with the Shanghai Gold Exchange (SGE) overall withdrawal figures (around 2,100 tonnes) – assuming both to be in essence correct, but looking at different parameters – the difference is explained in the Gold Demand Trends report as due to gold purchases by commercial banks, which it doesn’t include in its statistical calculations – see Chinese gold demand discrepancy explained?

In terms of physical gold flows, however, one has to see this apparent flood of gold into the Chinese commercial banks as a significant contributor to total global physical gold offtake and thus in our view should be added into the figure for total gold demand.  The actual figure for this ‘additional demand’ last year will have been around 1,200 to 1,300 tonnes – a huge amount and one wonders if this is actually perhaps a proxy for Chinese central bank offtake, or even an accounting mechanism whereby the Chinese central bank increases its effective gold reserves without having to report it to the IMF.  (This will be the subject of a following article).

What the WGC also noted in its latest report was the big recovery in Indian demand ahead of a widely anticipated relaxation of some of that nation’s gold import controls under the new more gold- and business-friendly Modi government.  This represents something of a change in perception within the huge gold jewellery and trading business in the world’s second largest gold consumer (by our reckoning) and bodes well for total global gold demand this year with China (if one uses the SGE withdrawal figures as being that country’s total offtake) and India alone between them consuming virtually all global gold supply.  This averaged around 82 tonnes per week last year from all sources including scrap supply (falling along with lower gold prices), sales out of gold ETFs (also falling), net hedging (perhaps rising but a small component) and new mined gold (expected to be flat this year).

Thus Chinese and Indian demand alone is probably exceeding total gold supply at the moment as sales out of gold ETFs so far this year are around zero to negative.  Meanwhile, of course, these two Asian nations are not the only global gold consumers as they account between them for around 56% of global total demand according to the WGC statistics (although as we’ve noted above they seem to ignore the gold being taken in by Chinese banks which would make the percentage rather larger, but still leave the rest of world consuming around another 35 tonnes a week!)

That all suggests a substantial total global gold supply deficit.  Indeed on this basis gold supply may have actually been in deficit over the past couple of years too, although this will have been mitigated by the big sales out of the gold ETFs.  If demand continues at current levels throughout the current year (which it most probably won’t) that would suggest a very large global gold supply deficit of somewhere around 1,800 tonnes.  But with the normal fall-off in Chinese and Indian demand through the middle months of the year that kind of deficit is unlikely, but the overall deficit figure would still likely be large – perhaps in the region of 1,000 tonnes of physical gold or more given ETF liquidations will likely be much lower this year unless there is a big further fall in the gold price.

With gold disappearing from the supply chain at this kind of rate one wonders how long the gold price can be held down at current levels, dependent as it is largely on financial dealings on the Western commodity markets.  New such markets are now springing up in the East – notably in Shanghai, Hong Kong and Singapore.  If they eventually succeed in wresting precious metals price control away from the West we could see a sea change occurring in gold and silver market valuations.  This is perhaps an inevitable process over time, but we don’t yet have a handle on how long this will take – but surely by the end of the decade, if not earlier?

Chinese gold demand discrepancy explained?

The huge difference between what  the WGC/GFMS describes as Chinese gold demand and SGE figures, is all a question of statistics and how they are interpreted and what is actually classified as ‘consumption’ or ‘demand’

Lawrie Williams

For some time now there has appeared to be an enormous discrepancy between apparent Chinese estimated demand figures as calculated by bodies like the World Gold Council (WGC) and GFMS and the reality of Chinese gold withdrawals from the Shanghai Gold Exchange (SGE).  And it all seems to be down to the way the statistics are calculated and what is included in the words ‘consumption’ or ‘demand’ by the analysts.  To some extent this has been clarified in part by the latest Gold Demand Trends report from the WGC which comments as follows: “The flow of gold into China has far exceeded the amount needed to meet domestic jewellery and investment demand in recent years. The role of the commercial banks in using this gold for financing purposes has been well documented, including in our report, Understanding China’s gold market, and this activity expanded in 2014. To some extent, this helps explain why Shanghai Gold Exchange delivery figures are significantly higher than consumer demand.”

The apparent difference between what we will describe as Chinese ‘consumption’ and Chinese ‘total demand’ is thus huge.  WGC/GFMS calculates ‘consumption’ as being made up only of jewellery, technology and investment demand and in mainland China’s case this came to around 814 tonnes in 2014, around 38% down from that of 2013.  But with SGE withdrawals coming to a little over 2,100 tonnes in 2014 – which some equate to total Chinese demand – this leaves a tremendous gap of almost 1,300 tonnes in the two different calculations.  The WGC will tell you that there is an element of double counting in the SGE withdrawal figures, but admits this is probably small, only relating to some recycled gold,  and now suggests the balance is held by Chinese banks (which it classifies as stocks and therefore doesn’t include the figures in its demand classification).

So perhaps we should look at ‘gold flows’ rather than various definitions of ‘consumption’ or ‘demand’ and in this respect ‘gold flows’ from West to East – and into China in particular were very large indeed in 2014 – indeed may have been greater than in 2013 given the big recovery in Indian ‘demand’ which doesn’t appear to be distorted by bank inflows. If we use ‘gold flows’ as a measure the amount of gold ‘flowing’ into China hugely exceeds that ‘flowing’ into India, although on WGC ‘demand’ figures India seems to be interpreted by the media as having regained the world No. 1 spot.  In truth it probably hasn’t really been the No. 1 for three or four years already given this additional, but unconsidered, demand from the banks. Indeed even this year if one adds Hong Kong ‘demand’ into that of the mainland, Chinese demand as calculated by the WGC was still a little ahead of India’s.

The WGC is very excited by what it sees as a big turnaround in Indian jewellery demand, particularly in Q3 and Q4 last year.  It puts this very much down to a change in attitude in the Indian jewellery trade following the election of the Modi government which is, on the face of things, much more pro-gold than its predecessor.  There is a definite suggestion that gold import controls will be further reduced and there will have been some ability within the jewellery sector to respond ahead of likely tax changes.  There is also anecdotal evidence that the incidence of gold smuggling to avoid taxes and the prior 80:20 import restriction has fallen back too.

Speaking to the WGC’s Head of Communications, John Mulligan, at the big Cape Town Mining Indaba, and he was quick to point out that in addition to the big gold flows eastwards, an often overlooked statistic is that in Europe, German investment demand has been particularly strong.  He reckoned that, in fact, German gold investors have been buying more than their U.S. counterparts since 2008!

Other points from the latest Gold demand Trends report include comment that Central Bank purchases held up better than anticipated, largely due to buying from Russia and some other CIS states which between them accounted for around half of such purchases last year.

Sales out of gold ETFs were at a fraction of those of 2013 and while new mined gold production grew by a small 2%, the WGC thinks that this may well have now plateaued so perhaps peak gold is at last upon us.  There are few major new gold projects and expansions still in the pipeline, exploration has diminished drastically, while a number of older operations are facing closure through ore depletion, or because they can no longer mine profitably at current gold price levels and in many cases grades are falling.

To access the latest full 28-page Gold Demand Trends report click on www.gold.org