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

gold slut
Jun 14, 2013 - 5:16am

Fareast gold.

Ragandbone, yes, China are just part of the big picture. Far eastern peoples have always been very smart when it comes to money. It worries me that governments like China, to a slightly lesser extent Russia and others in the east are gathering as much gold as they can and as pointed out, some eastern peoples are being actively encouraged by their governments to stack. Here in the west, the exact opposite is the case. Western gold goes east and governments print fiat debt vouchers (paper money) by the trillion and actively encourage their populace to put their wealth into that. I may not be the sharpest knife in the drawer, but even I can see that when the enevitable happens to fiat, there is going to be a massive power shift around the globe and it does not look good for anyone holding paper or living in the west. Deep joy.

gold slut
Jun 14, 2013 - 5:41am

Howler monkeys

Such fun, it looks like the London monkeys have started the Friday gold stomp-down

Hammer
Jun 14, 2013 - 6:52am

We interrupt this programme

We interrupt this programme to bring you news on the upcoming summer of love............

US says it will give military aid to Syria rebels

As David Willis reports from Washington, President Obama had previously said proof of chemical weapons would be a "game-changer" in Syria

Syria conflict

The US is to supply direct military aid to the Syrian opposition for the first time, the White House has announced.

President Obama made the decision after his administration concluded Syrian forces under Bashar al-Assad were using chemical weapons, a spokesman said.

https://www.bbc.co.uk/news/world-us-canada-22899289

Excalibur
Jun 14, 2013 - 7:19am
s1lverbullet
Jun 14, 2013 - 7:58am

Colorado Fire

Is making me nervous. It's getting closer to my place.... Grabbing the stack and heading out. Too bad I have all this heavy silver and not enough gold.

Chef
Jun 14, 2013 - 8:06am

The Question is demand at what price?

Interesting Data Turd . Our conundrum is what price is too high for Chinese and Indian buyers? It appears that the market in the east chases price lower because they plan to hold long term. The best scenario for gold would be moving precious into the hands of the average Indian and Chinese citizens and that their economies continue to grow and those folks hold onto their precious for the long term.

The alternative is less attractive large holdings by Central Banks who can use the hoard to play the hokey pokey with the price. It is much harder to drain the junk gold out of the system imo than the concentrated holdings of a central banker to threaten swaps or sales of tones of the metal.

So at what price does the accumulation end ? The talk of 5k gold or 50k gold would destroy price who in Asia would buy? Better to drain the pool by disgorging the GLD and amping up the demand perhaps a panic dip and rise would create a more frenetic demand a feeling that those who are missing out from getting their rocks off the market before they are left in the dust is just what the gold market needs to get to a much higher price.

Higher price would then be chased again in the futures market in the west. Our Eastern brothers and sisters feeling wealthier and more secure and could be encouraged to spend and borrow against their hoard.

Chef
Jun 14, 2013 - 8:06am

The Question is demand at what price?

Interesting Data Turd . Our conundrum is what price is too high for Chinese and Indian buyers? It appears that the market in the east chases price lower because they plan to hold long term. The best scenario for gold would be moving precious into the hands of the average Indian and Chinese citizens and that their economies continue to grow and those folks hold onto their precious for the long term.

The alternative is less attractive large holdings by Central Banks who can use the hoard to play the hokey pokey with the price. It is much harder to drain the junk gold out of the system imo than the concentrated holdings of a central banker to threaten swaps or sales of tones of the metal.

So at what price does the accumulation end ? The talk of 5k gold or 50k gold would destroy price who in Asia would buy? Better to drain the pool by disgorging the GLD and amping up the demand perhaps a panic dip and rise would create a more frenetic demand a feeling that those who are missing out from getting their rocks off the market before they are left in the dust is just what the gold market needs to get to a much higher price.

Higher price would then be chased again in the futures market in the west. Our Eastern brothers and sisters feeling wealthier and more secure and could be encouraged to spend and borrow against their hoard.

Jun 14, 2013 - 8:08am

They hope and mope in Vietnam to control the price of gold

[boy do reporters say the weirdest things about money ... so I have added my editorial comments [starting with this one]]

[Record] Gold premium seen dropping on central bank sales [to manipulate price down]

Last Updated: Friday, June 14, 2013 11:00:00

The premium paid by [very smart] gold buyers in Vietnam, the largest user in Southeast Asia after Thailand [who knew?], will extend declines from a record after banks complete the [surprising] return of bullion deposits to [savvy] investors this month.

The gap between domestic [physical gold] and global prices [paper gold] for immediate delivery [I want it now, and I would have preferred it yesterday] will probably drop to VND4 million a tael (US$159 an ounce) by the end of July, according to Nguyen Thanh Truc, vice chairman of the Vietnam Gold Traders Association. The premium reached an all-time high [well then!] of more than VND6 million in April, when bullion tumbled into a bear market, spurring physical demand across Asia, according to Truc. [All that buying clearly indicating a bear market.]

Vietnam’s central bank has tightened rules on gold trading [but why, Santa Claus, why?], including making itself the sole importer [oh, that's why, never mind], in a bid to limit the impact of gold prices [by squashing them] on the exchange rate [please hold our paper] and redirect financial resources toward economic development [by building condos while borrowing fiat so the bankers get rich while bribing the politicians]. As part of the drive, banks must return all gold deposits to investors by June 30, while the State Bank of Vietnam is selling metal to lenders and trading companies to boost domestic supplies. [There does seem to be a theme of putting actual gold in the hands of the people, so perhaps it is preparation for a gold-backed currency and thus they must become the sole importer, and need to distribute metal to their peeps.]

“Demand for gold in Vietnam will drop significantly after the deadline [pretty please] because there will essentially be no more demand from banks and the auctions are set to continue [just in case we have failed in our monster schemes],” Truc said in an interview last week from Hanoi. “The gap will likely fall, but probably not as much as we hope” [because it is a deliberate price manipulation, you know, but there really is a physical floor to price] as there will still be retail buying, he said. The spread should be less than VND1 million, he said. When deposit owners get the gold, they may sell or keep it [how nice], depending on the price, according to Truc.

...

“The stricter regulatory measures implemented by the State Bank of Vietnam [to gain control of the entire gold import market] and the fear [MOPE] of a steep decline in gold’s price may affect gold demand temporarily [if the effects of global propaganda have worked as planned],” Albert Cheng, Far East managing director at the council, said in an e-mail. “In the long run, for the majority of Vietnamese [and we curse them for this], particularly those who have lived through the war years and the ensuing economic regression, gold is still considered as the favorite tool for saving and investment.” [We hope word doesn't leak out to the West, he added, rubbing his hands together in glee.]

... https://www.thanhniennews.com/index/pages/20130614-vietnam-gold-premium-...
DeaconBenjamin
Jun 14, 2013 - 8:33am

Obamacare? We were just leaving … [Congress]

By: Anna Palmer and Jake Sherman
June 13, 2013 05:13 AM EDT

Dozens of lawmakers and aides are so afraid that their health insurance premiums will skyrocket next year thanks to Obamacare that they are thinking about retiring early or just quitting.

The fear: Government-subsidized premiums will disappear at the end of the year under a provision in the health care law that nudges aides and lawmakers onto the government health care exchanges, which could make their benefits exorbitantly expensive.

Democratic and Republican leaders are taking the issue seriously, but first they need more specifics from the Office of Personnel Management on how the new rule should take effect — a decision that Capitol Hill sources expect by fall, at the latest. The administration has clammed up in advance of a ruling, sources on both sides of the aisle said.

If the issue isn’t resolved, and massive numbers of lawmakers and aides bolt, many on Capitol Hill fear it could lead to a brain drain just as Congress tackles a slew of weighty issues — like fights over the Tax Code and immigration reform.

The problem is far more acute in the House, where lawmakers and aides are generally younger and less wealthy. Sources said several aides have already given lawmakers notice that they’ll be leaving over concerns about Obamacare. Republican and Democratic lawmakers said the chatter about retiring now, to remain on the current health care plan, is constant.

Rep. John Larson, a Connecticut Democrat in leadership when the law passed, said he thinks the problem will be resolved.

“If not, I think we should begin an immediate amicus brief to say, ‘Listen this is simply not fair to these employees,’” Larson told POLITICO. “They are federal employees.”

Republicans, never a fan of Democratic health care reform, are more vocal about the potential adverse effects of the provision.

“It’s a reality,” said Rep. Pete Sessions (R-Texas). “This is the law. … It’s going to hinder our ability with retention of members, it’s going to hinder our ability for members to take care of their families.” He said his fellow lawmakers are having “quiet conversations” about the threat.

Alabama Rep. Jo Bonner said the threat is already real, especially for veteran lawmakers and staff. If they leave this year, they think they can continue to be covered under the current health care plan.

“I’ve lost one staffer who told me in confidence that he had been here for a number of years and the thought of losing the opportunity to keep his health insurance on Dec. 31 [forced him to leave]. He could keep what he had and on Jan. 1 he would go into that big black hole,” said Bonner, who had already planned his resignation from Congress. “And then I’ve got another staff member that I think it will be a factor as she’s contemplating her future.”

Lawmakers and aides on both sides of the aisle are acutely aware of the problems with the provision. Speaker John Boehner (R-Ohio) and Senate Majority Leader Harry Reid (D-Nev.) have discussed fixes to the provision. Boehner, according to House GOP sources, believes that Reid must take the lead on crafting a solution. Since Republicans opposed the bill, Boehner does not feel responsible to lead the effort to make changes.

The Affordable Care Act — signed into law in 2010 — contained a provision known as the Grassley Amendment, which said the government can only offer members of Congress and their staff plans that are “created” in the bill or “offered through an exchange” — unless the bill is amended.

Currently, aides and lawmakers receive their health care under the generous Federal Employee Health Benefits Program. The government subsidizes upward of 75 percent of the premiums for the health insurance plans. In 2014, most Capitol Hill aides and lawmakers are expected to be put onto the exchanges, and there has been no guidance whether the government will subsidize those premiums. This is expected to cause a steep spike in health insurance costs.

There have been many options for fixing the problem discussed throughout the year, including administrative fixes and legislative tweaks. One scenario seen as likely on Capitol Hill would have OPM simply decide that the government could still subsidize insurance on the exchanges.

House Democratic leadership says the issue must be resolved.

“The leadership has assured members that fixing this issue is a top priority,” said one Democratic leadership aide. “This issue must be fixed by administrative action in order that the flawed Grassley Amendment’s spirit is honored and all staff and members are treated the same.”

It could be politically difficult to change this provision. The provision was put in the bill in the first place on the theory that if Congress was going to make the country live under the provisions of Obamacare, the members and staff should have to as well.

The uncertainty has created a growing furor on Capitol Hill with aides young and old worried about skyrocketing health care premiums cutting deeply into their already small paychecks. Some longtime aides and members of Congress, who previously had government subsidized health care for life, are concerned that their premiums will now come out of their pension.

If their fears are borne out, the results could be twofold. Some junior staff will head for the private sector early while more seasoned aides and lawmakers could leave before the end of the year so they can continue under the old plan.

Several lawmakers said departures could run the gamut from low-level staff to legislative aides, to senior aides and lawmakers. Capitol Hill is an attractive workplace for politically ambitious college graduates, but a core of Capitol Hill aides stick around for decades, serving as institutional knowledge, and earning prized retirement packages.

OPM, which administers benefits for federal employees, is expected to rule in the coming months on how congressional health care is to be administered.

OPM did not respond to a request for comment.

More than a dozen senior aides interviewed by POLITICO about the issue declined to be named out of fear for future job prospects. The problem is most acutely felt at the staff level, where aides make between $35,000 and roughly $170,000 and budgetary problems have all but stopped pay increases and bonuses. Lawmakers have questioned leadership aides about the future of their health care.

“Between the constant uncertainty surrounding sequestration, and the likelihood aides will soon be paying for the subsidy portion of their health care coverage, congressional office budgets are being squeezed once again, and it’s causing a lot of concern amongst chiefs of staff regarding how to best handle the situation,” said one chief of staff to a senior Democratic member of the House. “Do we give raises to junior level aides so they can afford to pay for their higher health care costs, and if so, where do we find the funds to do so? Additionally, leadership has been relatively silent in terms of providing guidance to offices, which is frustrating.”

There are other ways that aides can fully avoid this problem. If they’re married, they can join their spouse’s health care plan. If they are 65, they can go on Medicare.

But the focus right now is centered on lawmakers trying to figure out how to offset potential increases in premiums.

“I know other members are doing the same thing in terms of what we can do to offset [premiums],” Rep. Tom Cole (R-Okla.) said. “You are particularly limited now because of course we’ve had the cuts in the [member office allowances] on top of this. You just don’t have a lot of options.”

Cole added, “A lot of the staff stays on largely because of the benefit levels and particularly if you’ve got people with families and it’s extraordinarily important to them … it’s just not right.”

Bollocks
Jun 14, 2013 - 8:33am

Fair enough ...

Man calls Solihull police to complain about prostitute's looks

A man has been warned after he dialled 999 to complain about a prostitute's looks after meeting her.

West Midlands Police said they were contacted by the caller who said he "wished to report her for breaching the Sale of Goods Act".

The force said the call was received at about 19:30 BST on Tuesday complaining that the woman was not as attractive as she had claimed.

Officers have now sent the man a letter warning him about wasting police time.

West Midlands Police said the man had claimed he met the woman in a hotel car park.

"The caller claimed that the woman had made out she was better looking than she actually was and he wished to report her for breaching the Sale of Goods Act," a spokesperson for the force said.

https://www.bbc.co.uk/news/uk-england-birmingham-22887138

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