Two Estimations of Chinese Gold Demand

I found it interesting that these two estimations of Chinese gold demand arrive at similar answers from two different methods and assuming two different start dates.

 

Before anyone asks, Koos Jansen has addressed the notion of 'round trips' of gold on the Shanghai Exchange in some detail.   It is not the same sort of bullion game that is the hall mark of the Comex.

 

The first chart is from the data wrangler Nick Laird at Sharelynx.

 

The second chart is from GoldSilver.com.

 

I don't think anyone knows the exact amount of physical gold that China and the BRICS are absorbing.   And how much unencumbered gold remains in many of the Western vaults either.

 

One has to chuckle at 'analysts' who just ignore what of the more significant trend changes in the international money markets.   The BRICS are buying tonnes of gold and adding them to their reserves?  Nothing to see here.  Just the usual hijinks of the uninformed and unsophisticated.

But no matter how one looks at it, there was a profound change in the metals markets around 2006, and that it is somehow involved with what has been called a 'currency war.'  As it has done in the past, the nature of the global reserve currency system is changing.

Gold is flowing from West to East.

 

 

Russia Adds Another 300,000 Ounces of Gold To Its Reserves In August

 

 

Notice something that might be called a 'policy change' around 2007?

That is when we saw the sea change in the central banks, when they turned from net sellers to net buyers overall of gold bullion. 

The Comex moves its paper and relatively thin reserves around the around the plate. 

 

 Bill Holter thinks that China and the East are starting to take away the pricing mechanism from the CME and London.    Let's see how that works out.  I notice quite a few of the usual suspects on the SGE.

But by all accounts, Russia and China just keep quietly stacking.

 

At least based on the numbers that we know about.  They may be taking in quite a bit more from domestic sources.  I suspect that this is the case with China.

 

This chart is courtesy of the data wrangler, Nick Laird at Sharelynx.com

 

China Claims To Already Have the Third Largest Gold Reserves in the World

It should be noted that this report is sourced from 'ScrapMonster.' I have found it on the webpage for the Shanghai Metals Market. The numbers in this article do not agree with the latest reported number for China from the World Gold Council, which by the way is hopelessly out of date. 

More importantly, there is no IMF report that I have been independently been able to find that discloses this information.   If this story below is true, then it is quite the news piece, since details on China's gold holdings are of great interest to many. The number in the story below is credible, which first sparked my interest in it.

Let's see if the Chinese confirm or deny this, or more likely, continue to say nothing and buy.

Here is a recent news item about this controversy from Bloomberg:

"After adjusting for net imports from Hong Kong and domestic output, the figure is closer to 5,086 metric tons [central bank holdings plus private gold holdings]. When taking away gold uses for jewelry, industrial and other categories and adding implied bar demand to central bank holdings, the figure is likely closer to 2,710 mt.

"China would need 10 years for its gold holdings to catch up to the U.S., based on adjusted Chinese consumption for jewelry, industrial and other uses and using implied bar demand as the primary driver of incremental central bank additions. Based on run rates during 2013, China may have added 622 metric tons of bars to its central bank holdings, after adding 380 mt in 2012."

This news item below is purportedly what China is willing to 'officially report,'` that they have expanded their official gold reserves by 76%, to 2,710 tonnes.   If this is accurate then China is now just behind the US and Germany, which say that they hold 8,133.5 and 3,391.3 tonness respectively.  China has already surpassed Italy and France. 

Given the 2,710 tonne figure I have to wonder if the author of the Scrapmonster piece picked it up from Bloomberg and then ran with it.  It would make some sense, although Bloomberg does not mention anything about the IMF.

There is some controversy regarding the disposition of Germany's gold, much of which is held outside that country, as you would know if you frequent this café.  More on that later.

 Privately there is a great deal of speculation that the heavy flows of gold through Shanghai are not merely going to the public market in China, but are also helping to fill their central bank reserve vaults even further than they will admit. 

As you may recall, China is encouraging its people to place some portion of their personal wealth in precious metals.

It is easy to sneer at goldbugs, those who find a refuge from abusive monetary policy in the traditional safe haven of precious metals, but it quite another thing to tell the 800 pound gorillas in the global market, China and Russia among them, that they do not understand anything about risk and money. 

Agree with them or not, they are making their case for what they think will happen in the future of global money, and are putting some of their own sizable wealth down on the table to back it up.  And if the models of a few academic economists do not agree with them, they really do not care.  They have their own economists, and their own interpretations of history, and their own needs and agendas.

And there are other countries who are now desperately seeking to bring their gold home from the custodial storage in New York, which is an artifact of World War II and the Cold War.  And some of them, like Germany are finding that it is not so easy to persuade the New York Fed to return it.  We can only wonder why.

These are central banks, who seem to be managing their national affairs with quite an informed and determined outlook towards the future. To completely ignore the implications of this, which to me seem quite clear, is nothing short of willful blindness.  If we just shut our eyes and say no, then the change will not affect us.  Except that the smart money is already on the move behind the scenes.

There is an ongoing debate happening now among the nations' bankers about the suitable replacement for the de facto Bretton Woods II arrangement which bases global trade settlements on the fiat dollar, no longer tied to gold since Nixon made a unilateral decision to shut the gold window.   They have made public statements about what they would prefer to see adopted, and Russia made this discussion a formal topic during its G20 chairmanship last year.

It has been a long time coming. But change is going to come. It always does.  And it may wash over those who stubbornly refuse to even admit that it is happening.

Shanghai Metals Market
China Expands Gold Reserves, Surged Past Italy & France in Ranking
By Paul Ploumis
Jan 15, 2014 08:36 GMT

BEIJING (Scrap Monster) : Claiming to have vaulted France and Italy in terms of gold reserves, China has announced that they have expanded their gold reserves by 76 %, thus becoming 3rd largest gold reserves in the world. According to the voluntary reporting system of IMF which monitors international gold reserves, China’s gold reserve have increased from the last reported holdings of 1,054 Tons in 2009, April to 2,710 metric tons currently.

China claims to have surged past Italy which has current holdings of 2,451.8 tons of gold reserves followed by France having 2,435.4 tons. The accurate reports released by the World Gold Council Data has placed US at the first position of world ranking for holding largest gold reserves which is 8,133.5 tons. The percentage of foreign reserve in gold in US is 75.1 %. Germany holds the second position with 3,391.3 tons of gold reserves.

In order to acquire the position, the Central Bank of China had added 622 tons of gold last year which was a massive boosting from the 380 tons of 2012 estimate. China had surged several nations to become the largest producer of gold. It has boosted its gold reserve without purchasing gold from global bullion market. While most of the major gold producing nations are reporting the decline of production, China remains to increase the production.

Central Bank of Italy: Gold Is a Key Asset For Central Banks Because It Has No Counterparty Risk

"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

Bam!  Grazie mille, signore.

And that is why gold is the king of assets, Bernanke you great prune.

And thanks to Gordon Brown, the Brits have bugger all.  At least the Germans have a receipt from the Fed in die keksdose.

The other major European Central Banks (France and Germany) say in the second story below that "they will not sell their gold reserves, as they can provide a level of confidence, an element of diversification and can absorb some volatility from the central bank's balance sheet."

This implies that they are not going to account for their gold at an artificially low fixed price on their Balance Sheet, as the Federal Reserve does at the ludicrously out of date price of $45 per ounce.

But it is ironic that France confirms their gold leasing activities. If gold is an item on the balance sheet, one might expect a full disclosure of encumbrances and commitments for any variable balance sheet asset to be disclosed, ne c'est-pas? You know, any counterparty risks you may have accrued for a pittance of a yield on your premiere riskless asset.

And they will get that gold bullion back once it has been melted down and shipped to China how?

"Oh what a tangled web we weave,
When first we practise to deceive."

Sir Walter Scott, Marmion

Theory founders on the rocky shoals of reality once again. This may get even more interesting than I thought, once gold breaks and run higher again.  All those shorts to cover, and lease obligations to fulfill, and no one with bullion in size wishing to sell.  Quel dommage!

Have a pleasant evening.

Banca d'Italia-Les réserves d'or: un élément clé d'indépendance

30/09/13 à 22:00  

 

ROME, Sept. 30  (Reuters) - Gold reserves are a key element of central bank independence, said an official of Banca d'Italia in a conference on Monday, undermining rumors of the sale of part of its bullion assets.

The crisis in the euro zone has triggered speculation that the central bank may have to sell some of its huge gold reserves to support its economy. Banca d'Italia has the fourth largest gold reserves among central banks in the world.

Central bank regulations prohibited this use of gold reserves [for retiring debt], but the concerns rose after a document from the European Commission claimed in April that Nicosia planned to raise about 400 million euros by sale of its gold surplus. (And see)

In a speech at the annual conference of the London Bullion Market Association, Salvatore Rossi, CEO of the Italian central bank, said that gold had a specific role in the central bank's reserves.

"Not only does it have essential characteristics that allow for diversification, particularly in financial markets that have been largely globalized, but it is also unique among assets because it is not issued by a government or central bank, which means that its value can not be influenced by political decisions or the solvency of an institution or another," he said.

"These features, combined with historical factors and psychological stress the importance of gold as part of the reserves of central banks," he said. "Gold supports the independence of central banks in their ability to (act) as the ultimate guarantor of national financial stability."

Read the entire article (in French) here

Banca d'Italia says gold reserves key to cenbank independence
Mon, Sep 30 13:23 PM EDT
By Jan Harvey and Clara Denina

ROME, Sept 30 (Reuters) - Keeping gold reserves is a key support to central banks' independence, an official from Banca d'Italia told a bullion industry conference on Monday, dampening talk that it might sell some of its holdings.

Speculation has emerged since the financial crisis hit the euro zone that Banca d'Italia might be pressured to leverage or even sell some of its huge gold reserves - the fourth largest among the world's central banks - to help prop up its economy.

Regulations covering central bank independence restrict them from using bullion reserves this way, but concerns grew after an assessment of Cypriot financing needs prepared by the European Commission showed Cyprus under pressure to sell gold to raise around 400 million euros (341.1 million pounds) to help finance its bailout.

In a keynote address to the London Bullion Market Association's annual conference, Salvatore Rossi, director general of the Italian central bank, told delegates that gold plays a special role in central banks' official reserves.

"Not only does it have the vital characteristic of allowing diversification, in particular when financial markets are highly integrated, in addition it is unique among assets in that it is not issued by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution," he said.

"These features, coupled with historic... and psychological reasons, stand in favour of gold's importance as a component of central bank reserves," he said. "Gold underpins the independence of central banks in their ability to (act) as the ultimate bearer of domestic financial stability."

Italy holds 2,451.8 tonnes of gold in its reserves. A slim majority of Italians polled by the World Gold Council in March believed their government should use the country's gold holdings to offset high public borrowing costs, although they did not believe they should sell them.

Italy used gold to collateralise bonds in 1974, when it received a $2 billion bailout from Germany's Bundesbank and put up 500 tonnes of metal as a collateral.

EUROPEAN BANKS WON'T SELL

Other European central banks including the Bank of France and the Bundesbank said at the conference that they will not sell their gold reserves, as they can provide a level of confidence, an element of diversification and can absorb some volatility from the central bank's balance sheet.

"We have no plan to sell gold," Bank of France Alexandre Gautier, director of market operations department, told delegates in a presentation. "We are still active in the lending market, but not retail loans. We can see some yields that are attractive, but we realise that we can't lend gold without collateral."

Number two holder Germany also said at the meeting that it will keep its 3,390 tonnes of gold. (This presumes they can find it, for now they are holding a bag of receipts for some of it - Jesse)

PRICE ACTION IMPACTS CENTRAL BANKS DECISION

Gold price volatility this year has impacted the buying decisions of emerging countries' central banks like Argentina, Juan Ignacio Basco, deputy general manager at the Central Bank of Argentina, said.

Bullion fell by $200 an ounce in two days in its sharpest slide in 30 years in April before hitting a three-year low in June and then regaining 13 percent from that level.

"It's very difficult to decide when to enter the market as we don't follow trends ... (but) the recent volatility in prices has changed the way we have look at gold," Basco said.

"That's why we have started with the product options because volatility in the market is not good for us."

Argentina slowly re-started to rebuild its gold reserves in 2000s after selling them at the bottom of the market in December 1997 to buy U.S. Treasuries. (Q. What do Argentina and England have in common?  Jess)  It currently holds 61.7 tonnes of the metal, representing seven percent of its assets.

"We are accumulating slowly ... and we have to move slowly," Basco said. "We must remember that we are like elephants." (And some are like dinosaurs. - Jess)

Read the entire story here

One of the Most Important Gold Charts That You Should Remember

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it."

Sir Eddie George, Bank of England, in private conversation, September 1999

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.

This is about much more than gold and silver. This is about a major, an historic change, in the composition of the world's global currencies and trading system. The dollar regime that has been in place since the end of World War II is undergoing a major evolution.

If there is anything that shocks me, it is how few economists understand it, or even realize it. I suppose that is how it is when the big things occur. Most of the operational people are left staring at the old paradigms, and wondering why their models are malfunctioning.

Rather than accept the change and understand it, they get busy trying to prove that it is not happening, since they have such a vested interest in the past. And so we see the occasional hysterical outburst from the status quo, that what is indeed happening does not make sense, and is irrational. 

Their reasoning begins to take on the shrill character of propaganda as they do their duty for their powerful patrons.  And they further discredit and isolate themselves from things as they are, and from people who have eyes to see.

The Anglo-Americans will be the last to let this folly go.  And I hear there is quite a bit of official irritation with those bullion banks who do not wish to go along with them.  They prefer to get out of this while they can with their balance sheets intact, even to the extent of getting out of the business, and enduring subtle retaliation for their recalcitrance.

I cannot foresee exactly where we are going, no one can, because there are simply too many exogenous variables.  But I doubt that it will be back to where we have been.