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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turd [at] tfmetalsreport [dot] com ()

  541 Comments

Orange
Jun 14, 2013 - 1:17pm

Chinese gold demand

Stunning Images From China: Ten Thousand People Waiting In Line To Buy Gold

https://www.zerohedge.com/news/2013-06-14/stunning-images-china-ten-thou...

Edit: sorry Jedi, I didn't mean to make you out as inaccurate.

Meanwhile, the Chinese peasants and workers are standing 100's deep in the major cities to convert fiat to gold while the US "average woman" buys everything on plastic and thinks its money.

Cononish1314
Jun 14, 2013 - 1:21pm

The Fab Silver Ants

These geeks are really our friends. You always wondered who would help drive demand...

[And I can't help but think that the flaming of Monedas by Xty might create a funny smell and release pheremones that would attract posters by the bucket-load.]

Urban Roman
Jun 14, 2013 - 1:24pm

RE: Chinese space program

@Strongsidejedi,

Thanks for filling in the details. Of course the hydrazine/nitrogen tetroxide combination would also burn clear, as there isn't any crap in it to color the flame. Chemically, it's hydrogen/oxygen with the addition of some nitrogen. Which is also a gas, and also provides environmentally friendly clean thrust.

I have been in the shuttle at the space museum in Clear Lake, and know its scale. You're right, they should have gotten more people up close to it back in the day. It's enormous -- they probably could have chucked that Chinese orbital vehicle in the cargo hold, which could have held four or five Mercury capsules.

Space is too big to be 'privatized'. Elon Musk and Branson and the others with their toy 'space missions' are not going to amount to much of anything, because even with their fortunes, they couldn't manage a thing on the scale of the shuttle.

PM Stackin' Fool
Jun 14, 2013 - 1:27pm

MBS Purchases

When I read of the Fed purchasing huge amounts of MBS (Mortgage Backed Securities) it makes me think of a much more sinister reason for them doing so. Essentially the Fed is purchasing mortgages from the banks to "help" the banks out- when in reality the Fed is assuming the potential title/deed should the property go into default. WHEN the SHTF and millions of US home owners are unable to keep up with the debt obligation on their homes; the Fed now has authority to do what they wish with the property. Being the landlord all they have to do is give sufficient advance written notice to legally enter your house at that point as well.

Something to think about....Could the new monetary system be backed by Real Estate or Land that the Fed has been aggressively purchasing (MBS) from the beginning of QE?

dziprick
Jun 14, 2013 - 1:35pm

Excellent post Turd

Makes you think about when a small amount of gold is bought by a fraction of a HUGE poplulation the end result is VERY significant. And how about this this Turd, consider another Asian country with a population almost as big that loves gold even more. Where is India's gold coming from and going to??

PM Believer
Jun 14, 2013 - 1:36pm

COT Analysis --Smart Money versus Spec

I brought this issue up a few days ago on the different calls between Turd's and Dan's ideas on what is going on with the COT and the Commercials going long so fast. I asked the question and got some great responses from a few members of this community which I really appreciated. I am no expert but I am trying to learn and have been thinking about this for some time given how heavy I am invested in PMs

I am starting to think they both may be right. Dan has made it clear that the market will not move until the Specs buy in and that will take some major event. Turd is saying the Banks (Smart Money) are moving long and that has to mean an upward change in pricing is coming

Maybe the Smart Money knows that the event is coming??? That event would then cause the Specs to buy

Just saying????

I am not aware of any falling out between Turd and Dan but I read both and respect both

Bohemianmurphy
Jun 14, 2013 - 1:43pm

@murphy :-)))

You wrote --

"So which is it Keith? Can you produce the US-based, US-sited and US-prosecuted terrorists? Or were you lying through your teeth, exactly as we now have every reasons to believe Clapper did?"

And here is the answer:

A Few Good Man "You Can't Handle the Truth"
Willy
Jun 14, 2013 - 2:00pm

Today's action

Looks very contained don't you think? Very little movement?

awaecha
Jun 14, 2013 - 2:03pm

Reply to PM Believer

Yes, you are correct. Mr Sinclair has made it clear that the bullion banks will correctly be positioned when the gold market explodes. Trader Dan is a trader to earn money, but there can be a very expensive void between the two, just like what has happened for the past 6 months. Quote from Trader DAN

Again, forget all the claptrap analysis about Commitment of Traders report, hedge fund short positions, big banks long positions in gold, etc. NOTHING MATTERS right now except liquidity. If the Yen finally stops moving higher, you will see a calming effect in the markets but as long as this volatility in the currency markets continues, either scale back your trading positions or get to the sidelines and let others chew and spit each other out. Why be a casualty if you do not need to be one? The markets are not going anywhere - they will be there tomorrow, next week, next month, etc. You can always come back and put your foot into the water when you are ready to wade in. Do not try to be a hero or a bottom picker or a top picker. Leave that to the fools and narcissists who are legends in their own minds.

Cononish1314
Jun 14, 2013 - 2:03pm

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