'Silk Road' Gold Demand

Gold is flowing from West to East.

New Silk Road Physical Gold Demand Since 2005

Gold is flowing from West to East.

The Trend Change In Central Bank Gold Reserves in 2008 That Few Have Noticed And Fewer Acted Upon

This excerpt below is from a blog which I published in 2013.   It is a theme that I have been striking since 2009 specifically.

The turn in central bank gold buying came in 2008, although the bullish case for gold for other reasons became pretty obvious in 2002.

The bottom in the gold price was marked when England sold its remaining physical gold, in the notorious 'Brown's Bottom.'

By 2009 the data made it completely clear that the world's central banks had turned from net sellers of gold bullion in order to control its price and had become net purchasers of physical gold for their own reserves. 

Demand has been led by 'the New Silk Road.'

I suspect this change was a reaction to the currency crisis in the emerging markets in the 1990s.   It was referred to as 'the Currency Wars' popularized in China and given little coverage here.

And of course there was the failure of the Washington Agreement, struck in 1999 to manage the gold price through planned central bank sales in order to support what some called Bretton Woods II and the exorbitant advantage of the perodollar.

Hardly anyone outside of a small community of analysts had noticed, and even fewer understood what it meant.

I include the older charts, and a recent tweet by analyst Luke Gromen that shows where the central banks are in their purchasing today.

Hint, they are still buying gold, physical gold, and in steady to increasing amounts such that the 'free float' of available physical gold for delivery is strikingly low compared to demand.

I suspect that silver will have a role to play, judging by the enormous silver hoard that JP Morgan has established, for customers unknown.

Nothing to see here. Just a bunch of conspiracy theories.  And dirty little secrets that we prefer to keep hidden.  Move along.

"Few people realize that around 2008 central banks turned from being net sellers of gold to net buyers, and began to accumulate gold reserves in a big way for the first time since the 1970's, when Nixon slammed shut the gold window.

This is based on what they report officially to the IMF. There is strong anecdotal evidence that the actual turn in buying occurred quite a few years earlier, and more in line with the rapid appreciation in price as selling declined.

First the selling slowed and the stealth buying began, particularly in Asia and the Mideast.

There was a sea change in the gold market as central banks scaled back on their strategy of supplying official gold to the bullion banks in order to keep the price down.

The bottom in the gold price occurred when Gordon Brown threw England's gold with a pre-announcement into the market in order to bail out any bullion banks that were caught flatfooted 'in the turn' in May of 1999. This was the first clear sign that change was in the wind.

The Big Turn occurred in 2007 when the western central banks capitulated, and realized that they must allow the price of gold to rise, or exhaust their own gold reserves in the process. The central bank change did not cause this, although it certainly reinforces the trend. It is a symptom of the great change and the first unmistakable manifestation of the currency war. Although astute observers could see this coming in the aftermath of the Asian currency crisis in the 1990's and the Russian default on the rouble.

Gold commentators who do not realize this significant dimension of what has occurred and account for it in their thinking have been simply left behind, lost in an outdated frame of reference. They do not see the forest for the trees."

"Gold is unique among assets, in that it is not issued by any government or central bank, which means that its value is not influenced by political decisions or the solvency of one institution or another."

Salvatore Rossi, Chief of the Central Bank of Italy, 30 Sept 2013

Shanghai Gold Withdrawals Remain Brisk - Silk Road Demand

Shanghai gold withdrawals remain brisk.

On its own, Shanghai is taking a big chunk of total world gold production by itself as shown in the third chart.

Gold continues to move from West to East.

I could not happen to notice this evening when someone mentioned the US' current issues with Russia, Turkey, and China, that all of these countries have been major accumulators of physical gold.

The other big major is India, the government of which has been engaging in all sorts of gimmicks to attempt to dampen the private gold demand  driven by the people who use gold jewelry as a means of savings.

Got to serve and protect that petrodollar, right?

Physical Gold Is Moving Steadily From West to East

Physical gold is moving from West to East.

New York has become a highly leveraged, largely 'paper trading' market, whereas 'the New Silk Road' is the center of physical gold accumulation.

This may resolve via a major short squeeze on paper claims unable to be fulfilled by physical gold at anywhere near today's prices.

China Understands the Gold Bullion Game - Lars Schall and Koos Jansen

Here is a new interview from Zurich's Lars Schall with Koos Jansen, discussing the Chinese gold market and the patterns of People's Bank of China purchasing for their reserves, both disclosed and otherwise.

You may find a complete transcript of this interview from Lars Schall's site at China Playing the Gold Game Carefully.

The gold bullion game is much broader and more politically charged than most commodity markets, since it cuts into the push and pull between nations and groups of nations and very powerful private groups that seek to use money for their own purposes of power.

Contrary to the very clumsy public relations campaign, gold is hardly a 'pet rock' or something about which the central banks never think.

Related:
Silk Road Gold Demand Taking All New Mine Production and More - A Game of Consquences
Koos Jansen: Renminbi Internationalization and China's Gold Strategy

'Silk Road' Countries' Gold Reserves and Demand Accumulation Has Grown 450% Since 2008

Silk road total demand, including the growth of official reserves and commercial imports, has risen from 1,493 tonnes in the year 2000 to over 27,087 tonnes in 2015.

The greatest increase has been since the global financial crisis in 2008 with an astonishing increase of 450% over the total amounts accumulated until then.

As you may recall, gold was ending its long bear market with a price bottom and a long climb higher shortly after the currency crises of Asia and Russia in the 1990's.

Silk Road demand has easily exceeded total global mine production for the last two years. And quite  Therefore, in addition to mining, other sources of gold have had to be found.  This may include scrap, and gold held by other entities.

Has this surge in gold demand been an uniquely Chinese government phenomenon?  Hardly.

In the second chart I show all the gold reserve increases for China AND Russia from the year 2000. They account for only about 11.4% of the growth in gold demand from the 'Silk Road' countries.

It is interesting to match this with the steady declines in Western gold vaults and the increased leverage in gold trading, what some call 'synthetic gold,' that became apparent in 2013.

I show that in the third chart vis a vis the Comex, and the fourth chart for the London Vaults.

The fifth chart compares the relative physical deliveries on the Shanghai Exchange and the NY Comex.

I am not trying to persuade or convince anyone, or argue with anyone, and certainly not sell anything.
Here are the facts as I have been able to discover them, and I cannot control what people may choose to think or not to think about them.

The data suggests that the volume of gold increased dramatically in 2013, when measures seem to have been taken to dampen the large increase in price up to the $1900 level, through rather clumsily determined selling programs in quiet hours.

This increased flow of bullion may be the result of Gresham's Law, which states that 'when a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.'

The data suggests that gold is very underpriced in US dollars because of an effort to make the dollar appear to be strong and gold to be disreputable as an alternative store of wealth.  Why should gold be more favored than cash money in their own currencies, which central bankers would also like to eliminate to smooth the way for further policy blundering and experimentation.

They are hardly without better alternatives to this.  Except of course for their pride, and insular group thinking, and of course the credibility trap that does not allow for frank discussions of what the problems really are and how we might move along.  But alas, that is not favored by The Banks and the moneyed interests.  And so the very serious people are loathe to even raise the subject of genuine reform in a serious conversation, except in some mockery of a charade.

And the Congress is no better.  The Congress may not know when it is talking nonsense about the economic situation, but the financiers, the Banks, and their hired hands do, but don't care.

Whatever else someone may say about this, it is apparent by any examination of the figures that gold bullion is flowing from West to East, and in some fairly consequential and increasing volumes.

The Silk Road has added over 25,000 tonnes of gold in the last fifteen years.  The gold miners are hardly in a position to increase production and search for new supply.  A gold mine takes four or more years to bring into production.

According to Nick Laird's figures, monthly global mining production is about 260 tonnes, and monthly demand is about 357 tonnes.  I have included a list of the top gold producing countries  in chart six.

Where will the supply for the Silk Road demand come from over the next five years, as it continues to grow faster than mining and even scrap production?

These two charts are from Nick Laird at goldchartsrus.com, with my annotations.