While the mainstream would have you believe otherwise, Chinese (wholesale) gold demand is still trending upward.
The SGE chairman, Xu Luode, confirmed this last week at the LBMA forum in Singapore.
According to the latest numbers figures by the Hong Kong Census and Statistics Department, China has imported less gold in May.
Gold futures in Shanghai are currently being traded at a discount to the international London gold price.
This development suggests Chinese demand has cooled down somewhat from the 2013 high.
Last year Chinese bank imported a total of 1.158,15 tonnes of gold through Hong Kong, when the price of the yellow metal dropped the most in more than three decades.
The answer is, we don’t know. And we don’t know because we can’t know. Reuters ran a story this morning which asserted that China’s gold imports had dropped to a 16-month low in May. But the truth is, we don’t know what China’s total imports in May were.
There have been several reports and commentaries which suggest that China’s demand for gold is declining this year.
The conclusion is that the gold is headed for another down-leg.
Seemingly, the current action in the gold market is contradicting the premise that gold is headed lower…
If I were U.S. policy-makers, I would be worried about the reasons China has decided to go “cloak and dagger” on their gold imports…
At this moment there are 12 banks that can import gold into China.
These banks have a PBOC license to import gold, though for every shipment they need a new approval.
Before approval the gold is “parked out of China…and only transferred and shipped into China when needed”, – which should be interpreted as only shipped into China when PBOC approval is granted.
In the past years most gold that entered China mainland came in through Hong Kong. Why? Because Hong Kong was the parking spot for gold outside of China before it was allowed to be imported.
This will soon change as the Shanghai FTZ will take over this role.
China National Gold Group Corporation or China Gold, China’s largest gold conglomerate with primary interests in mining and also refining, is on the hunt for global acquisitions and partnerships, the company’s president said yesterday.
Mr. Song said that his company is searching for opportunities in the gold and silver markets. “The growing strategy is very clear: We are going out looking at things globally,” he said through an interpreter. “We have a few opportunities, at different stages.”
For 53 years the Chinese people were banned from owning gold.
But that all changed in 2003, and now the enormous demand by 1.3 billion Chinese over the last ten years is causing an important paradigm shift, as gold and silver moves from the West to the East.
The ramifications of that paradigm shift have yet to be appreciated.
Chinese gold demand in the past few weeks is not as strong as in the beginning of 2014 or as in 2013 after the price of gold crashed in April, though the levels are slightly higher as they were throughout 2011 and 2012.
On the Shanghai Futures Exchange (SHFE) all silver futures contracts came out of backwardation this past week (week 24), and on June 13, most Shanghai silver premiums over international price closed under 6 %.
The prior week they all closed above 6 %.
The scarcity of silver in Shanghai appears to be easing.
Silver remains scarce in Shanghai, premiums for spot silver this week have been above 6 percent over the international price and some contracts on the Shanghai Futures Exchange (SHFE) are still trading in backwardation.
On June 6, when the SHFE closed, the bid price for the first delivery month silver contract, which expires on June 16, was ¥ 4058 yuan. The ask price for the December contract was ¥ 4053 yuan.
This means that when you own physical silver, or can get your hands on any, you can sell it in June and at the same time buy it back in December for less money.
Silver delivered in June trades over a premium to silver delivered in December, which emphasizes spot demand.
Normally precious metals trade in contango; future prices being higher than spot.
Most people on this planet who have an interest in gold simply copy the demand numbers from the WGC. The consequences of the world being misinformed on this subject is hard to comprehend.
The WGC mentions SGE deliveries and withdrawals in two separate reports. If they watch SGE withdrawals why not publish these numbers and inform the world on the significance of these numbers?
This is essential information regarding the Chinese gold market.
Why is the WGC reluctant to cover these essentials?
They sell…we buy.
Ancient Chinese secret…
As we can see power shifting from West to East on a daily basis at the current time of writing, in the fourth quarter of this year the Shanghai Gold Exchange (SGE) will launch an international board in the Shanghai Free Trade Zone (FTZ) for investors worldwide to trade gold spot contracts denominated in renminbi.
The purpose is not only becoming the world’s primary physical gold market but also to increase pricing power and internationalize the renminbi.
The SGE international board will be another blow to the US dollar hegemony, as more people around the world will hold and use the renminbi for trading gold.
In the beginning of May I wrote an extensive post on why round tripping, also referred to as a Chinese Commodity Financing Deal, does not influence the amount of gold withdrawn from the vaults of the Shanghai Gold Exchange, which equals Chinese wholesale demand.
Round tripping merely inflates the import and export of gold between a Customs Specially Supervised Area in the mainland, usually Shenzhen, and foreign countries, usually Hong Kong.
What I didn’t cover in that post was the amount of physical gold tied up in round tripping. Though this does not have anything to do with domestic Chinese gold demand, it can be important because when these financing deals are unwound the gold is released as physical supply.
So how much gold is there tied up in round tripping?
The Chinese central bank has granted approval to the Shanghai Gold Exchange (SGE) to launch a global gold trading platform.
Jiang Shu’s words that China’s strong gold demand is currently “only a number, not a power” make it clear that the new platform will be designed to put upwards pressure on the gold price.
Gold is entering a new era, centred on gold jewelry demand in China and India.
The physical silver shortage in Shanghai continues…