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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  541 Comments

hai
Jun 14, 2013 - 3:53pm
Jun 14, 2013 - 3:54pm

Wow! Silver CoT

The commercial net short position now DOWN to just 5,000!!

Cry Me A River
Jun 14, 2013 - 4:03pm

COT WOW!!!!!--Net Short Down To 5000!!!!!!!!!

WHAT DOES IT ALL MEAN?

IS SILVER GOING TO 10,000?

IS THIS BREAKING NEWS?

SHOULD WE READ SILVERDOCTORS TO FIND OUT HOW HYPEY WE CAN GET ABOUT THE METALS PRICES? ----SILVER TO 10,000 TOO?

Deaglán
Jun 14, 2013 - 4:04pm
Cry Me A River
Jun 14, 2013 - 4:05pm

COT ANALYSIS

Are we close to a bottom yet?---Is This It?

ancientmoney TF
Jun 14, 2013 - 4:05pm

@Turd re: Wow!! Silver COT . . .

"The commercial net short position now DOWN to just 5,000!!"

------------------------------------------------------------------

I wonder if commercials ex-JPM are net long 1,000,000 contracts, and JPM net short 1,005,000 contracts?

I got a funny feeling something big happens this weekend . . . in any case, have a Happy Father's Day on Sunday, Turd, and all other dads out there, too . . .

Zoltan
Jun 14, 2013 - 4:07pm

@Xty Thanks for the cake

Will share with all my fellow two year olds for today. Ahhh the "terrible twos". Turd has to look forward to all of us for another whole year.

Did Blythe give the monkeys the long weekend off? Are the beat downs nearing an end. Commercial net shorts being down is bullish isn't it? The miners are still down today even though the PM's are up. Don't know what to expect now. Glad I don't try to trade this market. Buy and hold the real thing friends. Our day will come.

Z

Jun 14, 2013 - 4:12pm

Jake

What is your problem? Can't let it go?

I've appreciated your input here but it's time to knock it off. Move on.

SilverTree
Jun 14, 2013 - 4:15pm

Its ma bifday to!

SilverTree

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Spartacus Rex
Jun 14, 2013 - 4:22pm

No Happy Meal For You!

Woman sues McDonald's franchisee for payroll debit BY BOB KALINOWSKIAND MICHAEL R. SISAK (STAFF WRITERS) Published: June 14, 2013

She spent her days serving up Happy Meals, but when it came time to get paid, Natalie Gunshannon says a local McDonald's franchisee gave her an unhappy deal.

The Shavertown McDonald's forces workers to be paid only one way: with a payroll debit card that burdens workers with hefty fees to obtain their hard-earned cash, according to a lawsuit filed Thursday on behalf of Ms. Gunshannon and other McDonald's workers.

Ms. Gunshannon, 27, Dallas Twp., and an untold number of current and former employees had no option to receive a traditional paycheck or get paid by direct deposit, she and her attorneys said in the class-action against franchise owners Albert and Carol Mueller of Clarks Summit.

Ms. Gunshannon, who worked at the Shavertown McDonald's for a month after being hired April 24, refused to activate the payroll card after reviewing the fee structure, quit the job and reached out to an attorney to see if the practice was legal.

Attorney Michael J. Cefalo of West Pittston and his law firm then drafted a class-action lawsuit against the Muellers, who own 15 other McDonald's locations throughout Northeast Pennsylvania.

Filed in Luzerne County Court, the suit accused the Muellers and their limited partnership of violating the Pennsylvania Wage Payment and Collection Act and unlawfully boosting profits with the payroll card "scheme."

The suit seeks an unspecified amount of monetary damages on behalf of employees and asks a judge to award punitive damages against the company.

Beth Dal Santo, a spokeswoman for an association of McDonald's franchisees in the region, said the Muellers had not been served with the lawsuit Thursday and would not comment.

Ms. Gunshannon said the manager of the Muellers' Shavertown location refused to issue her a paper paycheck or pay via direct deposit, saying, "We only pay on the card."

The J.P. Morgan Chase payroll card carries fees for nearly every type of transaction, according to the lawsuit, including a $1.50 charge for ATM withdrawals, $5 for over-the-counter cash withdrawals, $1 to check the balance, 75 cents per online bill payment and $10 per month if the card is left inactive for more than three months.

A spokeswoman for the McDonald's Corp., which is not named as a defendant in the lawsuit, did not respond to a telephone message and emailed questions Thursday about the company's guidelines for how its franchisees should pay employees.

Mr. Cefalo said they filed the lawsuit on behalf of all current and former employees who were paid with payroll cards without being given the option of receiving their wages in cash or via a check. State law, he said, requires wages be paid in "lawful money" or with a check.

The definition of "lawful money" is unclear, but the state Department of Labor and Industry and state banking regulators have endorsed payroll cards as a legal form of wage payment, according to the American Payroll Association, an industry trade association.

A spokeswoman for the state Department of Labor and Industry said Thursday the department was researching the matter.

Ms. Gunshannon, who estimated the company owes her about $200, said she pursued the lawsuit because she thinks workers should have a choice in how they are paid.

"I tried to work with the company. They refused. I tried the main office in Clarks Summit. They refused," Ms. Gunshannon said. "I never activated the card. I refused the fees. I just want it to be fair." https://thetimes-tribune.com/news/woman-sues-mcdonald-s-franchisee-for-payroll-debit-1.1505137

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