Considering Chinese Demand

541
Thu, Jun 13, 2013 - 1:36pm

It's one of those things. You hear about it every day but never stop to really think about it.

This began as an email discussion with my friend, Ned, yesterday. All of us in Turdville are aware that the Shanghai Gold Exchange has physically delivered something like 1200 metric tonnes of gold, year to date. That's a staggering number and it far exceeds the amount delivered through London and dwarfs the level delivered through the Comex. Prior to yesterday, I looked at that number and thought, "Wow. That's a lot.", but I never stopped to ask the follow-up questions:

  1. To whom is this being delivered? AND
  2. Once it's delivered, where does it go next?

Let's start by looking at this handy chart. Note that, at this current pace of delivery, Shanghai is currently delivering each month the entire global mine supply. No wonder they were temporarily "out of stock" back in May! How long can this continue?

OK, now for some additional background. Recall that, since about 2006, the Chinese government has been aggressively promoting gold buying by its citizens. This campaign really began to pick up steam in 2009 following The Great Western Financial Crisis. A quick Google search returns all sorts of articles which describe this policy. Here are just a few examples: https://www.mineweb.co.za/mineweb/content/en/mineweb- gold-analysis?oid=88452&sn=Detail & https://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=2545:china-urges-citizens-to-buy-gold-silver&catid=48:gold-commentary&Itemid=131 & https://news.goldseek.com/GoldSeek/1267715760.php & https://www.forbes.com/sites/gordonchang/2012/01/29/why-are-the-chinese-buying-record-quantities-of-gold/

We also know that officially reported Chinese imports are soaring. In just the first four months of this year, China has imported through Hong Kong nearly 500 metric tonnes of gold. This adds to the 834 metric tonnes that they imported in calendar year 2012. https://www.bloomberg.com/news/2013-02-05/china-gold-imports-from-hong-kong-gain-to-all-time-high-in-12.html

(Charts courtesy of ZH)

So where is all this gold going? I first wrote about it nearly a year ago. Much of it is being recast into kilo bars that, I believe, will ultimately be used to provide a hard asset backing to a future Yuan. https://www.tfmetalsreport.com/blog/3924/gonefor-good

But that still doesn't explain the almost-daily, 15-25 metric tonnes of physical delivery in Shanghai. This is why Ned and I were so perplexed.

So, next, I did what any sensible person would do, I rang up Andrew Maguire. His decades of experience in working the international wholesale market makes him the best source I have for answers to these questions. The conversation went something like this:

Me: "Andy, where the heck is all this gold going?"

Andy: "It's not going anywhere."

Me: "What do you mean?"

Andy: "I mean exactly that. Shanghai settles all that bullion each day to domestic wholesalers. That metal is then shipped off to Chinese dealers and refiners for domestic consumption."

Me: "So wait a minute. You're telling me that public demand in China is currently soaking up 250 metric tonnes per month or nearly ALL of the publicly-reported global mine supply?"

Andy: "Exactly."

And then I started thinking...Well how hard would that be to do? 250 metric tonnes is about 8,000,000 troy ounces. The current population of China is 1.344 billion. If only 25% of the population is taking their government up on the idea of gold ownership, that's 336,000,000 people or, roughly, an amount equivalent to the entire population of the United States!

So now let's say that these 336,000,000 people buy, on average, 1/40th of an ounce every month. That works out to be about 3/4 of a gram or about $35 worth at $1400/ounce. Working the math backward we get: 336,000,000 people buying .75 grams = 252,000,000 grams and 252,000,000 grams = 252 metric tonnes.

Hmmm. Well how about that? Makes you look at stories like this in a different light, doesn't it? https://usa.chinadaily.com.cn/china/2013-06/12/content_16611576.htm

A crowd of customers waits in front of a gold store to shop during a promotion, in Jinan city, East China’s Shandong province on June 11, 2013.

People crowding around a gold products counter jockey for position to pick up something in a gold store which sold its products at a price of 299 yuan per gram in a promotion – about 50 to 70 yuan lower than the normal level, in Jinan city, East China's Shandong province on June 11, 2013. The promotion attracted nearly 10,000 people who rushed to the store despite restricting each customer's shopping time to 15 minutes. While gold markets in the US and Europe saw panic selling, China has just seen a surge in gold sales in the past few months. Chinese households came under the spotlight with their generous purchase of the gold products amid a global fall of the gold price.

OK, then. So, do you still think that the Spec Shorts are on the right side of the trade, that price is going lower and that the "bull market" in gold is over???

Hmmmm. Chew in that over the weekend and then come back for more on Monday. It's going to be another interesting week.

TF

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Mariposa de Oro
Jun 16, 2013 - 10:43pm

Compact of Free Association

For those SERIOUS about becoming an expat, check this out: https://en.wikipedia.org/wiki/Compact_of_Free_Association

I'm in the RMI for almost six years now.

alan2102
Jun 16, 2013 - 9:53pm

one more thing

"I see our present state as fascist, defined as the complete merger of corporate power with state power. "

Yes, with shades of neo-feudalism.

alan2102Urban Roman
Jun 16, 2013 - 9:52pm

urban roman - excellent!

I could not have improved on this - not a syllable!

Thanks!

Worth a repeat:

"Mr Fix, your last comment looks like it came straight out of the talking points memo for the Rush Limbaugh Institute of Conspiracy Theory Studies.

Barry's a politician. His constituency has been the minorities and poor, but calling him a Communist just makes you look like an idiot.

I don't think he really has an agenda at all, he hasn't shown much of a penchant for managing anything. He has merely continued the policies of Bush. Which does indeed alienate his base. It is essentially a Corporatist agenda.

I think his economic advisers have told him that they can forestall the inevitable correction, which I have seen coming since at least the late '90s. So he is having Ben print, he is protecting the fraudsters and punishing whistleblowers, and trying to paper over the collapse as long as possible. On the 'security' side, of course, you have the various policies we have been commenting on, attempting to disarm the populace, keep them ignorant, and militarize the police while turning the military inward.

All the while whistling past the graveyard of failed empires. It has all the hallmarks of one of those."

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Spartacus Rex
Jun 16, 2013 - 8:34pm

@ Xty / Island Shindig

Although "fanny floss" bikini bottoms are not every lass' cup of tea, doesn't mean that a lady still cannot be fashionable on the beach. You could always show up sporting a pair of these:

QE to infinity
Jun 16, 2013 - 7:43pm

@Urban Roman

communism, defined as complete state control over everything.

There's where we differ. I do not believe communism is defined that way. For what its worth, Noam Chomsky (frequently denigrated as leftist because he is against war) has said that a true Marxist state would not last more than a year in real life, because Marx had so few clues about real human nature. The so-called communist countries of the cold war were essentially cults of personality, with all the evils that entails. They just liked to talk about communism.

I see our present state as fascist, defined as the complete merger of corporate power with state power.

You are right about our present states being fascist, not communist. Communism has never in fact existed, and can't - it's a Utopia. Those so-called communist countries were in fact socialist, not communist, they never called themselves communist - they were only building communism - to be achieved some time in the future (that could never really arrive). They were supposed to re-educate everybody who could be re-educated on how to become a communist, and kill all those who could not be re-educated.

Under socialism, there was complete state ownership, not just control, of the means of production, and of almost everything else, apart from small amount of private property, temporarily permitted until communism would arrive. The present TPTB wouldn't want that, as they want to CONTROL everything while amassing and keeping their private fortunes. So it's fascism, not socialism or communism.

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