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

About the Author

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  541 Comments

donnojackshit
Jun 13, 2013 - 11:37pm

..

..

kingboo
Jun 13, 2013 - 11:41pm

yes...tradition.

kind of like owning gold

Spartacus Rex
Jun 13, 2013 - 11:41pm

Remember: Tomorrow is Friday!

Just in case TPTB insist that Gold take a Dump, Be Prepared!

donnojackshit
Jun 13, 2013 - 11:41pm

How long can this demand keep up?

If this is the demand by the public, how much is the Chinlee Goobment getting?

dgstage
Jun 13, 2013 - 11:43pm

My Thoughts

Au and Ag can go lower, premiums will go higher. I just say buy, buy and buy some more. The end game is coming soon!

Spartacus Rex
Jun 13, 2013 - 11:51pm

I.O.U.S.A.’s Leadership Deficit 5 Yrs On

T

reasury Secretary Paul O’’Neill refused to compromise with then Vice President Dick Cheney when it came to making decisions that he knew would affect not only Americans today, but also future generations.

David Walker and the Fiscal Wake-Up Tour participants had a similar goal. By warning Americans about what was ahead for their country if action wasn’t taken, and educating them on the fiscal problems the United States has, they hoped to empower the average citizen to become involved in insisting that changes are made. And from what we saw, the attendees at the town hall meetings they were hosting were ready for a change.

By the time we joined them at a town hall meeting in Los Angeles, after 18 months of intermittent filming, the Fiscal Wake-Up Tour had visited 23 cities.

“It’s a lot of fun being able to get out and meet people,” said David Walker. “It gives you a lot of energy and it gives you a lot of hope. When you state the facts and speak the truth to the American people, they get it and they’re ahead of their elected officials. We can’t borrow our way out of this problem. Anyone who tells you we can does not study economic history and is probably not very good at math.”

“Here’s the thing about the future,” chimed in Robert Bixby, editorial director of the Concord Coalition. “If you knew that a levee was unsound and you knew people were moving into the area and you knew they were at risk, would you stand by and do nothing and say nothing about it? Of course not — that would be irresponsible.

“Yet that’s what we’re doing as a nation to the future. We know we have this problem, we know that the fiscal/federal levees are unsound, we know that the structure’s not sound for the long term. And yet we’re ushering future generations in and saying nothing about it, doing nothing about it, and that’s the immoral part of it.”

Indeed, Washington is “badly broken,” as David often says in his presentations at the town hall meetings and in interviews. Americans can’t continue to rely on their government to make the tough choices that are needed to restore the U.S. economy.

When many Americans think of debt and deficits, their knee-jerk reaction is to blame it on the war in Iraq or on defense spending. Some people think that we can solve the country’s financial problems by stopping fraud, waste and abuse or by canceling the Bush tax cuts. The truth is, the United States could do all of these things and still would not come close to solving the nation’s fiscal challenges.

The United States already has $11 trillion in fiscal liabilities, including public debt. To this amount, add the current unfunded obligations for Social Security benefits of about $7 trillion. Then add Medicare’s unfunded promise: $34 trillion, of which about $26 trillion relates to Medicare parts A and B, and about $8 trillion relates to Medicare D, the new prescription drug benefit which some claimed would save money in overall Medicare costs. Add another trillion in miscellaneous items and you get $53 trillion. The United States would need $53 trillion invested today, which is about $175,000 per person, to deliver on the government’s obligations and promises. How much of this $53 trillion do we have? Nada.

[Ed Note. Update on Unfunded Liabilities: Since the release of I.O.U.S.A. back in 2008, that $53 trillion figure has ballooned to roughly $87 trillion... although even that may be a conservative estimate. Laurence Kotlikoff, a well-respected professor of economics at Boston University, looked at the fiscal gap versus the official debt and came up with a slightly different number: $222 trillion. And he’s not alone. Niall Ferguson calculates U.S. unfunded liabilities are even larger, at roughly $238 trillion. Bottom line is it’s a massive amount. And unfortunately, “nada” is still the amount of it we actually have.]

“By the time today’s college graduates are ready to retire 40 years from now,” says David Walker, “the only things our government will be able to pay for are interest on the federal debt and some of the Social Security, Medicare and Medicaid benefits. All other parts of the federal government will be closed and out of business!”

As far as taxes go, the United States would have to raise income tax rates across the board by about 2.5 times today’s levels to close the financing gap — and some politicians complain when there is any talk of tax increases. Americans are facing a 150% increase in federal taxes if they continue down this road. By the year 2048, the United States’ debt-to-GDP ratio will be over 400%, more than two times the debt levels we hit at the height of World War II. Good luck trying to get any country to lend the United States money then. No matter which way you slice it, whether you are a Democrat or Republican, the magnitude of this fiscal challenge is much larger than most realize.


For example, let’s assume that the Bush tax cuts expire at the end of 2010. That would only solve about 10% of the country’s federal financial hole. And what about Iraq? Even if the Iraq War ended in 2009, the ultimate estimated cost over time is less than 3% of our total financial problem.[Again. Update on Closing the Gap: If you assume the Kotlikoff’s $222 trillion figure, you would need an immediate and permanent tax increase of 64% -- or a cut of projected government outlays across the board by 35%. If the government waited a decade to take these steps...those numbers would become 70% and 38%, respectively.]

[Ugh, tedious. Update On Bush Tax Cuts: Raising the rates on those over $400,000 will net $617 billion over 10 years...pretty insignificant]

America’s budget, savings, trade and leadership deficits individually are bad enough, but in combination they create a toxic mix that threatens the country’s and each American family’s futures.

“”And yet,”” says David, “”there is little talk about making these tough choices today. The longer we wait, the harder the choices become. As the baby boomers begin retiring, this tidal wave of spending is about to reach our shores, and we are not prepared for it. And trust me, it could swamp our ship of state.

“”Unlike many other problems facing our country, this one is ours alone. We can and we must solve this one.””

The question is: When will we?

Indeed,

Addison Wiggin
for The Daily Reckoning https://dailyreckoning.com/americas-leadership-deficit/

by Addison Wiggin.

Posted Jun 13, 2013
Swift Boat Vet dgstage
Jun 13, 2013 - 11:53pm

What a fine day to .......

...'liberate' a tube of ASEs . Always brings a smile to my face and a spring in my step.

Swifty

Spartacus Rex
Jun 13, 2013 - 11:56pm

From Jesse's

13 JUNE 2013

Gold Daily and Silver Weekly Charts - Watch for Price Shoving After Europe Goes to Bed Tomorrow


FOMC next week.

A late day rally in the metals and stocks was caused by a Fed mouthpiece implying that they would not be ending QE anytime soon, taper or not.

Until the FOMC meeting confirms this, or not, then it will largely be a technical trade.

Lately the wiseguys have been hitting the metals on the Comex after Europe goes to bed.

Let's see if that still works, or if it has become a crowded trade.

I see where John Hathaway says that Gold Will Shock World With $1,000 Rapid Advance. Shut up!

It would certainly be a topic of conversation to say the least. Stranger things have happened. Bill Clinton was just named 'Father of the Year.' You can't make this stuff up.




POSTED BY JESSE AT 4:08 PM

https://jessescrossroadscafe.blogspot.com/

Hammer
Jun 13, 2013 - 11:59pm

http://www.boj.or.jp/en/mopo/

https://www.boj.or.jp/en/mopo/mpmsche_minu/minu_2013/g130522.pdf

Not to be released until 8:50 a.m. Japan Standard Time on Friday, June 14, 2013.

June 14, 2013 Bank of Japan

Minutes released a couple of hours ago.

In a nutshell

members agreed economy has started to pick up

reaching 2% in 2 years is hard, could lead to speculation BOJ will ease for a long time

Timeline may be upsetting bond market expectations

One member should limit QE to 2 years as could cause financial imbalances

One member said limiting QE could help stabilise JGB market

Massive JGB buys restraining upwards yield pressure

Several members said need to monitor impact of the Fed’s tapering debate

Spartacus Rex
Jun 14, 2013 - 12:01am

Middle Class Jobs, Income Quickly Disappearing (INFOGRAPHIC)

As President Obama continues his “Middle Class Jobs and Opportunities Tour" in Mooresville, N.C., on Thursday, middle-class Americans continue to experience historic losses of jobs and opportunities. The recession eliminated many mid-wage jobs, leaving moderately educated workers to take low-wage jobs if they can find work at all.

While the Obama administration has trumpeted job growth in recent months, the middle class is taking home a shrinking portion of the country's income. Deep job losses in occupations such as construction, information technology, manufacturing and insurance are not likely to recover. Middle-class families also saw nearly 30 percent of their wealth disappear over the past decade, while the cost of goods and services they rely upon steadily climbed.

The swift contraction of the middle class has left most Americans fearful they may be unable to maintain their standard of living.

https://www.huffingtonpost.com/2013/06/06/middle-class-jobs-income-_n_3386157.html?ir=Politics&ncid=edlinkusaolp00000009

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