Caption Contest 1The Shanghai Gold Exchange (SGE) is back on schedule publishing their trade reports on that cover the previous trading week. Last Friday’s report covered the trading week February 17 – 21. For me the most important numbers is always the amount of physical gold withdrawn from the vaults as this equals Chinese wholesale demandWithdrawals in week 8 (February 17 – 21) accounted for 49 tonnes, year to date there have already been 369 tonnes withdrawn from the vaults. If we divide the later by the number of days of the corresponding period (52) we come up with an average demand of 7.09 tonnes per day – this includes weekends and the one week holiday at Lunar year when the SGE was closed.
One would think that in coming months the price of gold and Chinese demand will get in conflict; the situation simply can’t go on like this forever.


Submitted by Koos Jansen, In Gold We Trust:

 

I got a few request regarding demand compared to last year and daily moving averages. Great ideas which I have carried out (request are always welcome, we’re doing this together). Compared to last year demand is up 51 % over the same period. Of course we had the shocker in April 2013 when withdrawals exploded to 117 tonnes in week 17. I don’t expect any spikes that big this year so probably this year’s growth compared to 2013 in percentages will be decreasing when we’ll pass April. Nevertheless, the daily average of 2013 was (2197/365) 6.02 tonnes, while this year we’re up to 7.09 tonnes. China is on schedule to establish a new record, if the world can supply any more gold.

 

Although I’m not much of a technical guy, I made the following calculation for the 200 DMA. Because the withdraw numbers are weekly disclosed I divided 200 by 7 (days in a week) which equals 28.57. The 200 DMA in the chart below is the trend line of 28.57 red columns (weeks), which boils down to 200 days. The hight of the trend line still corresponds to the (weekly) withdrawal numbers on both axes. (200 DMA = 28.57 WMA)

 

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SGE withdrawals 2014 week 8

 

 

We can see the the 200 DMA rising in 2013 to nearly 50 tonnes a week in June, then it fell slightly at the end of the year. Before the new year wholesale demand picked up again prior to an unprecedented buying spree on retail level and moved the trend line up at currently just under 50 tonnes a week.

 

The longer this insatiable demand continues the more I start to ask myself where this gold is coming from.We know from Swiss refineries they’re having a very hard time to source this much gold for China.

 

According to the World Gold Council all above ground gold accounts for 170,000 tons, in my opinion it’s impossible to know this amount. It’s a rather Keynesian thought that an institution can know how much grains of gold every single human being across the globe extracted from the earths crust in the history of humanity, and how all these grains were allocated or maybe lost throughout history. I think the total amount of above ground gold is as invisible as the hand that regulates the free market. Every economic agent can only be positive about it’s own gold holdings and decide to exchange these against goods or services, depending on the exchange rates set by the free market. Although all exchange rates are currently set by Keynes’ descendants, that doesn’t mean any institution knows the total amount of above ground gold.

 

 

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It’s just a matter of strong and weak hands now. Most goldbugs are strong hands – because they not only hold gold for investment purposes, they also hold it because of their view on economic theory – while a random US citizen on food stamps that owns a golden earring is a weaker hand. Anyway, based on certain parameters (import, demand, mining) one would think that in coming months the price of gold and Chinese demand wil get in conflict; the situation simply can’t go on like this forever.

 

Meanwhile the mainstream media is slowly waking up to the possibility the price of gold has been manipulated for decades through the London fix, which in my opinion is just one aspect of the manipulation process. Although I’m sure this aspect will unravel the rest of the process as well. All in all lots of stress in the gold market, reflected by long periods of negative GOFO. I hope to write an article about the details of GOFO in the near future.

 

 

GOFO 2013 -2014

 

 

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Overview Shanghai Gold Exchange data 2014 week 8

 

 

- 49 metric tonnes withdrawn in week 8  (17-02-2014/21-02-2014)

- w/w  - 23.86 %

- 369 metric tonnes withdrawn year to date

 

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

 

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.
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SGE withdrawals

 

 

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

 

 

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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.

 

 

SGE premiums

 

 

In Gold We Trust


  1. David Morgan confessed in a recent interview, that though he still favors silver most, he now rather believes that gold will be the decisive factor to break the bullion banks and their manipulation game. He could be correct. With his long, admirable experience, I’m no one to say otherwise.

    Nevertheless, if either China or India (or both) grab hold of the little silver ‘market’, Mr. Morgan may have to eat crow for this shadow cast over his allegiance to Queen Silver, because they have the populations to very quickly and unexpectedly swamp both New York and London simultaneously.

    If, as I suspect, China’s ‘Plan B’, is to switch to a 100% metallic currency (they’ve got the gold and copper now), supplemented with paper instruments only for finance engineering, silver is the one missing piece from their bullion inventory needed to fill as ‘The Fulcrum’.

    • Well Pat, on the surface, we continue to see headline after headline, like the one above–it doesn’t seem to make ‘a hill of beans difference’ how many tons of Gold the Chinese take off the market.
      The laws of supply and demand appear as ineffective & irrelevant as Congress.
      Call it what anyone will– the term in Deutschland—has to be default.
      Even the word Manipulation has seeped into the MSM.
       
      I hate this Tulving business.
      With many of the LSC in my area having little in the display case outside of expensive collectibles and numismatics–the last thing we need are rumors & reports to begin of online dealers not delivering–buyers dealing with delays and/or more product rationing. Been a tad fearful that the day would come when PM availability would become an issue, with the inevitable jump in premium  following right behind.
      It is still vivid in my mind paying a premium of $7.50 per ASE in April 2011.
       
      Still… there’s a very foul odor in the air.

  2. FYI from NE china regarding supply.  Retailers have unlimited supply of 10g – 1kg bars (99.99%).  Current price when COMEX gold was $1350/oz, was $1,430/oz.  Pretty steep 6% premium.  The banks sell about 1% cheaper.  I have never seen lines or lack of supply.  Once or twice I saw a lot of jewlery interest, but generally that is quiet too.  If your perception is that Chinese citizens are loading up on gold, I have never seen it.  For sure they have amounts they enjoy, but there is no rotation into gold going on that I can see.  If that is yet to happen, it can add to imports.

    • @ART005
      I’m not quite sure what your intention is here; I’d like to think it sincere, however when making statements like “Retailers have an unlimited supply of 10g-1kg bars (99.99%)” it is clearly hyperbole in the opposite direction. There isn’t an infinite supply of anything in this world, not even oxygen, nevermind gold.

      If you are indeed in China I appreciate the anecdotal evidence, and personal observations you are able to provide here, but please try to be more cognizant of the way you are describing what you are seeing/hearing. 

  3.  
    shouldn’t it be a non-linear event that cause the collapse of the system? (i.e. exponential expansion)
     
    it’s like a crack in a dam, it is substantial, though not apparent to the naked eye. but when it brakes, people say: “jeez i didn’t see that one!” though, construction experts could’ve told you six months ago the dam was already bust, and in need of serious repair.
     
    the writing is on the wall for sure, though, the final collapse might have the characteristics of a non-linear event.
     

    • @BobbyBazooka
       
      It might be but the general consensus in the alternative media is that the system is so sick that it doesn’t have to be a non-linear event to do incredible damage to it.  If you’re young, strong, healthy, and well-braced it is hard for someone to push you over.  They need to use a trick of some kind or a lot of leverage to do it.  But if you are older, not in good health, and not nearly as strong as you once were, it becomes MUCH easier to unbalance you.  Same with the US economy.  I would not discount a non-linear event from the list of possible events but to say that one is required before a system collapse occurs could be stretching it.
       

  4. How the average Chinese citizen can afford gold on near slave wages is beyond me. Just goes to show what a billion + people doing the same thing can accomplish I guess. Don’t leap at work, do it at home after you leave the jewelry store!

    • Rockets  Another SD regular did an analysis of the average wage in China  It’s not as low as you might think  there are some very wealthy people who would be buying. But the middle class makes on average about $10,000 a year   They may only buy 2 oz of gold, $2,600 but they are capable of buying   Those of lesser means buy gold in grams.  1,300,000,000 people buying makes for a decent buying population. Unlike the people in the US.

    • One also has to look t the cost of living in China, which is significantly lower than in the West so one cannot use our metrics in judging their free cash available to invest. Combining that with Chinese fear of their banking system make the published demand logical.

    • RocketsRedGlare … “How the average Chinese citizen can afford gold on near slave wages is beyond me.”

      Rockets, you can’t be saying that you don’t get disparities in cost of living and cultural frugality, reflecting high savings rates, can you? I’m tempted to think you’re being facetious to get a rise from us here. ‘Slave’ wages in New York or Washington City are highly comfortable in ‘Tinytown, Elsewhere’.

      I recently read that Chinese savings rates were as high as 40%. I tried VERY hard to get past 28% and found I’d have to literally starve myself into excessive weakness and nagging deprivation to get past the goal. The difference is only explained by local cost of living conditions.

    • @rockets: You can’t imagine the material wealth in China.  It is a totally different game that allows savings like PatFields described.  There are Audi A6, BMW5, Porches, top line VW, and more at nearly every intersection.  And they are parked in condo complexes you wouldn’t think people have any savings.  Chinese buy things and sometimes keep them for ever.  Only young people are learning western disposable lifestyle.  Multiple generations live in one home, they think it is normal.  Difficult to explain the US “problem” of 30 somethings living in their parent’s basement.  Self employed chinese people pay almost no income taxes.  Property taxes are paid at purchase and then never again.  West propoganda is about big chinese gov. economy.  The other part of the economy is a hustling low tax entreperneurial business.  So many laws the USA has to make things “fair” if not slow and difficult, don’t exist in China.  Racism, descrimination, favoritism, inside trading….. in China it’s called: national pride, confidence building, business relations.  If you don’t have it your business won’t survive.
      So long story short…..there are piles of money looking for secure, impressive places to be parked.  I haven’t seen a lot of gold interest but the gov. encourages it considerably.  The gov. even ran a short News documentary with cameras in one of their Treasury buildings showing 1kg bars of gold in plastic bags stacked everywhere.  The staff was eager to demonstrate security aspects and discuss how great it was China had all of this gold, with a hint of everyone should have their own little stash.  10g – 1kg 99.99% bars are available for purchase everywhere, cash and carry no questions, but the premium to COMEX is 6%.

    • @AGXIIK: @RT005: @Wendy: and @PattFields: The only point I was making was how so many factory workers are so financially stressed in China that they jump from their factories roofs. The wages must be low by their standards not ours, it doesn’t matter where you live or what the currency is. The pic shows that they really do. If things are that hard for people, it must be really hard to afford gold? They do it anyway, they find a way. SO DO A LOT OF US, “Mary B for example”. So it just goes to show you what a billion plus people all doing the same thing can achieve. Things like that are sad, sometimes I try to lighten it up a bit with humor but, I guess that one didn’t come out right!

    • @AGXIIK
       
      Shanghai and I believe a few other provinces began an annual property tax in 2011.  I also seem to remember reading somewhere that after a certain period of time ownershi. of a property reverts back to the government so that one never really owns anything.  However i tried like the dickens to find this but can’t find it anywhere so i am remembering the wrong key words or making it up!

    • mikeyj80 … “never really own it to begin with, just have a lease”
       
      No wonder Chinese folks are accumulating PMs. I should think they’re hoping to eventually escape that prison.

      Still, to what end? All governments devise their own particular Prison Plantations. On final analysis, I’m left recognizing that the only real Revolution ever staged through history was America’s 1776 Campaign and its tenets ought yet be pressed to as great a degree as possible.

    • @mikeyj80 it’s getting late after the initial post but maybe you’ll see this.  You are refering to old chinese laws made by prior prime ministers.  Everything is subject to change with new leadership.  Current interpretation of that law is not very dire.  The idea is a little self fullfilling though based on maintenance of property.  You can’t ask for a current example of how a desireable 70 year old building is treated because it doesn’t exist.  20 year old buildings here look like USA public housing, but the people are content to live there.  Renovation doesn’t really exisit here.  Old complexes are leveled and beautiful complexes take their place.  We could have pages of discussion just on that topic.  Cultural differences are huge and basic laws are constantly changing.  Ever increasing access to “western” achievements creates an ongoing sense of destabilization + opportunity at the same time.  Last week I met a guy that claims to know the first auto driver in this beautiful city of over 2 million people.  He said she is in her late 70s.  That’s a little older than my parents, they had their 3rd car by the time I got to highschool.  Use your links to learn what you can, but realize you are trying to understand something that is not necessarily open to understanding, a sense of misinformation from east and west is deliberate.  Similarly, consider the Eukraine storylines.

  5. http://www.ynetnews.com/articles/0,7340,L-4495487,00.html

    http://www.ynetnews.com/articles/0,7340,L-4495547,00.html

    Memo to Jim Willie:
    Iran is nice, they smile a lot and are allies of the friendly Russians.
    The evil Zionist regime just intercepted Iranian humanitarian aid for poor Muslims, in revenge for Iran teaching greedy Western bankers a lesson by hoarding gold and selling oil for Yuans. Now Muslim children will die because of the Zionist banker elite, who will poison this intercepted food shipment and sell it cheap to Palestinian children.
    :( *tear* I cry, I cry much much for poor Muslims who just want a fair financial reset to shake off evil Zionist/American imperialists.

  6. Pat Fields
     An interesting stat came out yesterday that showed India bought 197,000,000 ounces of silver in 2013   It is a virtual certainty that China bought at least as much.  Given 400,000,000 oz as a rough estimate of China and India silver buying, just over 50% of the entire world production of silver, we may see gold as the bright light of precious metals but silver’s significance should never be sold short
    (Sorry, I could not help that play on words)
     When two countries corner half the market for a metal that is significant  And they do not plan to stop buying silver, both for strategic and investment purposes. Right along with gold and copper.
    Silver may not drag gold upward but if gold does to $2,000, silver will move upwards faster but  still trail the gold price rise, as is it’s habit, like a recalcitrant little brother.  Gold $2,000 is only a 32%  rise from here.  Silver at $50 is much more but entirely within the realm of possibilities. Silver will play catch-up once gold rises.
    While another poster said the equities are the place to be and the primary market manipulated via FIAT and QE, equities are not real money.
    I disagree that one should reflexively dismiss precious metals in favor of stocks and bonds. Equities are ground zero in the middle of the red circle of asset seizure, wealth taxes, wealth confiscation.  It is very difficult to hide one’s holding in paper valued stocks and bonds just as it is possible to hide bank accounts in the US now that we’ve been ring fenced by FACTA and FBAR.  Precious metals are easy to hide and easy to buy.  Just ask the average Chinese or Indian person.  
    Yes, paper trading has been very profitable over the last 3 years and while I do not regret going clean and sober from stock and paper trading for over 2 years, it is undeniable that the stock market was a decent place to make some serious coin.
    That will end when some set of events, probably evolving in some small corner of the planet, move into the main markets and crush equities.  The DOW seems unable to break to 17,000. This leads me to believe that the market has topped and the only direction is down, with equities just waiting for the right signal to drop.
    The fact that for the last 3 years China and India have been on a tear, buying close to 50% of annual production of silver and over 100% of gold, I suspect that silver is a important part of their precious metal currency restructuring that looms in the future.  We stay long and strong in precious metals and will be vindicated.
    It might take another year, with slow appreciation of precious metals to get to some tipping point of rapid price appreciation.

    I commentted some time ago when I made up the phrase, “Gresham’s Law meets the Minsky Moment”
    PMs are subject to that in spades. Bad money meets its Waterloo.
    As 4 oz notes, Tulving has fallen apart, apparently turning into a PM Ponzi scheme.  Maybe that failing will be like Mt Gox, a much needed reset to that BTC paradigm. BTC jumped in value over 20-25% since that event. We’ve seen one BTC banker take her life since Mt Gox expired.
     With Tulving coming apart, maybe we will get a dose of reality with silver, a valued commodity, being subjected to the alleged illegalities of Tulving.  
    It seems to me that once something is smeared with corruption people begin to see those assaults for what they are:  attempts to manipulate prices and access to a commodity.   This has traditionally helped these besmirched items that have real value regain their value as the public becomes aware of the facts.

    • AGXIIK … “Yes, paper trading has been very profitable over the last 3 years”

      Copy that, Craig. Like a line of seeds leading to a hunter’s turkey or pheasant-blind, I say.

    • @AGXIIK
       
      “The DOW seems unable to break to 17,000. This leads me to believe that the market has topped and the only direction is down, with equities just waiting for the right signal to drop.”
       
      The Dow topped out around 16,550 some time back.  Since then, we have had a substantial drop followed by most of that drop being recovered.  But not all of it.  This is supposedly the same pattern that occurred in 1929 right before the HUGE crash.  Will that repeat in 2014?  No one really knows but it is possible.  As John Williams stated in another thread, all signs in the US market point towards a deepening recession.  I agree with John on this and would add that the market has also has some froth to it with substantial price moves on thin volume.  It seems to be searching for direction and not finding it.  This is like walking on a frozen lake and having the ice start to crack here and there.  Yes, the ice is still supporting us but… who knows what the next step will bring?
       

    • mikeyj80 … “Always with the demand, but never the supply?”

      As I recall (if you’re referring to PMs) the historic recovery rate has averaged about two percent increase on existing stores at any given time (probably smoothed out due to technical advances in mining) so, that’s the maximum rate of increase the market can bear in a strictly accumulative mode.

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