Sunday, March 09, 2014

Koos Jansen: Chinese Gold Demand 418 Tonnes YTD, West Confused TNR.v MUX GLD GDX ABX


  Koos Jansen reports another set of numbers indicating that the unprecedented demand for Gold from China continues well into 2014 and even gathering pace. We can see China's state-level military plan to accumulate Gold in action. Withdrawals from the Shanghai Gold Exchange Vaults account for 418 mt of Gold year to date. China alone is taking out annualised Gold world-wide production now! 

Peter Schiff and GATA's Bill Murthy: The Real Value of Gold

"It is time to listen and remind ourselves about the real value of Gold and what is coming next with all geopolitical games unfolding at the crucial levels for US Dollar and Gold markets. China is the major subject of conversation here again and Russia is already talking about the asymmetrical retaliation to the imposed by the West sanctions around the Ukraine situation. Gold manipulation can not go foreverwith China buying the record amount of Gold officially and who knows what are the real numbers in its state-level military plan to accumulate Gold for the De-Dollarisation reset?
  Peter Schiff's question about China buying more Gold companies could be answered very soon if the rumours about CITIC being involved in talks with Barrick Gold about Pascua Lama will be confirmed. This huge mine is located on the border of Argentina and Chile, it is in the very advance development stage and China  will be just the right partner for Barrick over there.
  China has mastered "The Art Of War" to the perfection in its long-term strategic plans to secure the critical materials and metals. China's control of the crucial REE market for the high end technological applications is well known already and its participation in establishing of the world class Lithium Industry and accumulation Lithium assets around the world deserves the attention of the market as well."

Rumour Mill: "CITIC Buying Into Pascua Lama" - Can Argentina Mining Really Make Its Come Back? TNR.v MUX ABX LCC.v

Koos Jansen: China’s Road To Secret Gold Accumulation TNR.v MUX GLD GDX ABX RGLD

  "Koos Jansen research provides more confirmation of the state-level military plan implemented by China in order to accumulate Gold under the radar screen of the market observers. Explosive situation around Ukraine will ignite further catalyst for De-Dollarisation and China and Russia maybe already much better prepared for it than a lot of Western policy makers really understand. The Financial War could have been already won long time ago. We are due for a lot of surprises in the Gold and Currency markets coming out in the next few weeks."

In Gold We Trust:

Chinese Gold Demand 418 Tonnes YTD, West Confused

Another week (24-02-2014/28-02-2014), another 49 mt of Chinese gold demand in the form of withdrawals from the Shanghai Gold Exchange vaults. Withdrawals year to date account for 418 mt. This brings February Chinese gold demand to 172 mt, down 30 % from an all-time 246 mt record in January. Let’s not talk about the COMEX.

SGE vs COMEX ™ Feb 2014

In the West there is still confusion about Chinese gold demand. News outlets and banks are trying to figure out how in 2013 China net imported 1158 mt through Hong Kong, plus a few hundred metric tonnes through other ports, mined 428 mt domestically, while demand according to the World Gold Council was just 1066 tons. TheFinancial Times and the Telegraph couldn’t explain it. February 27 Citibank came out with a report named “Chinese Gold Demand: Unraveling the Case of the Missing Gold”.

Citi Chinese gold demand 2013

Slide Citibank

In my opinion this analysis is actually a step in the right direction; Citi acknowledges Chinese supply and demand was 2200. In 2013 SGE withdrawals accounted for 2197 mt, these numbers are clearly related. The formula for the Chinese gold market is: total supply = mine + import + scrap = SGE withdrawals = total (wholesale) demand. Simply because of the structure of the Chinese gold market. However, this where Citi and I split up. I called Citi and I spoke directly with the analyst from the report. What surprised me was that this gentleman had never heard of SGE withdrawals! Hence our dispute.

First let’s get their numbers straight. They don’t disclose all the numbers on the supply side, but I zoomed in on the chart and calculated the amounts by measuring how many pixels each bar counted, compared it to the scale etc..

Citi Chinese gold supply and demand

The outcome on the supply side is roughly: scrap 240 mt, gross import 1480 mt, mine 420 mt.

The demand side: consumption 1176 mt, gross export 373 mt, residual 640 mt.

1) Export is not demand

In the chart above gross import is in fact net import. Very little of the gold exported from the mainland to Hong Kong was bullion withdrawn from the SGE vaults.

A very long and complicated story short: In the mainland there are two types of trade, general trade andprocessing trade. General trade can be considered as normal trade. If gold is imported in general trade this is required to be sold through the Shanghai Gold Exchange. Only 11 banks have general trade licenses from the PBOC, though for every shipment they need anew approval. It’s not likely the PBOC would approve gold export in general trade.

Processing trade is something else. In this trade form raw materials from overseas are imported, processed into products and then these products are exported again. This processing can only be done in Customs Specially Supervised Area’sor CSSA’s. Processing trade doesn’t require a permit from the PBOC, as the gold that is imported will be exported after being processed. An example for a processing trade would be; gold is imported in Shenzhen, fabricated into jewelry and then exported to Hong Kong. The trade would show up in Hong Kong’s customs report.

Pocessing trade

Why am I telling you this? Because the gold that in 2013 was exported from the mainland to Hong Kong was all processing trade and did never go through the SGE. Concluding 1480 mt was net imported and that residual demand was much more than 640 tons in 2013. This chart I published on February 19 (the “Difference” is actual residual, WGC demand is more or less the same as CGA consumption demand):

SGE withdrawals vs WGC

2) Residual demand is not jewelry stockpiling

According to Citi this is what residual demand is:

…This includes stockpiling (by commercial banks,jewelers, etc.) as well as direct investment consumption…

I asked the analyst from Citi about residual demand, he said they don’t really know so they came up with this explanation. As we can see in the chart above residual has been 2000 mt in the last seven years. Was this mostly commercial banks and jewelers stockpiling? Of course not. I can understand some jewelers added some gold to their inventory when prices dropped significantly, for example in April 2013, but this stockpiling analyses is untenable. Citi continues:

In 2014… the result should be another large increase in Chinese imports and another large “gap” in supply and demand data.

Another large gap in supply and demand? Really? When I called the SGE in November 2013 they told me this gap(some call it residual, some net investment) is just individual account holders at the SGE withdrawing physical gold from the vaults. So residual demand is just direct investment and we shouldn’t treat it as a demand category that is insignificant.

Overview Shanghai Gold Exchange data 2014 week 9

- 49 metric tonnes withdrawn in week 9  (24-02-2014/28-02-2014)
- w/w
- 418 metric tonnes withdrawn year to date

My research indicates that SGE withdrawals equal total Chinese gold demand. For more information read thisthisthis and this.

SGE withdrawals 2014 week 9

This is a screen shot from the weekly Chinese SGE trade report; the second number from the left (blue – 本周交割量) is weekly gold withdrawn from the vaults in Kg, the second number from the right (green – 累计交割量) is the total YTD.

SGE withdrawals week 9 2014

This chart shows SGE gold premiums based on data from the SGE weekly reports (it’s the difference between the SGE gold price in yuan and the international gold price in yuan).

SGE premiums

Below is a screen shot of the premium section of the SGE weekly report; the first column is the date, the third is the international gold price in yuan, the fourth is the SGE price in yuan, and the last is the difference.

Schermafbeelding 2014-03-07 om 23.22.55

In Gold We Trust"
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