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

jaw777
Jun 14, 2013 - 8:50am

Silver Spike

Silver spikes... and in unrelated news, a recent report on TF Metals about Chinese demand goes viral.

tmosley
Jun 14, 2013 - 8:54am

Silver went up as an

Silver went up as an anniversary gift! Happy anniversary, fellow toilet bowl dwellers!

Hopefully someday soon we'll see each other in a new toilet--ON DA MOON!

Video unavailable
Jun 14, 2013 - 9:01am

Hi ho silver and DeaconBenjamin

you must provide links ... you are violating copyright and plagiarizing and it is illegal for good reason. But it is not you who will get in trouble. Third time asking. Losing niceness.

¤
Jun 14, 2013 - 9:25am

Links to articles

Is a must and only takes a few seconds to C&P and complete your post.

¤
Jun 14, 2013 - 9:31am

Chinese Gold Miners Return Home

1,072 Chinese gold miners return from Ghana

  • Xinhua
  • 2013-06-14
  • 17:49 (GMT+8)

Chinese miners prepare to return from Ghana, June 11. (Photo/Xinhua)

A total of 1,072 Chinese nationals working as gold miners in Ghana have returned to their homes in Shanglin county in south China's Guangxi Zhuang autonomous region, the county government said Thursday night.

The Ghanaian government launched a crackdown on illegal mining in early June, arresting 169 Chinese workers. After consultations between officials of the two countries, the Chinese detainees were released.

A number of Shanglin natives were among those arrested by Ghanian authorities on charges of illegal mining.

A statement from the Shanglin government quoted an unnamed spokesman as saying that the "gold rush" started in 2006. It cited estimates that around 12,000 Shanglin natives have engaged in gold mining in Ghana to date.

"Even if they paid me 50,000 yuan (US$8,150) a month, I would not go there again," said a villager surnamed Yang from Tanglong village, who returned from Ghana on Sunday.

Inspired by stories of fast fortunes, Yang went to Ghana and worked at a Chinese gold mine as an equipment guard. He earned a monthly salary of 4,000 yuan (US$650), far exceeding what he would have made planting rice back home.

Yang heard about the Ghanian government's crackdown and quickly returned home with 24 of his peers. "Ghana is chaotic. I just want to lead a stable life at home," he said.

Though he suffered huge losses in Ghana, a villager from Dafeng township surnamed Wei, 28, said he was grateful to have returned home.

Wei went to Ghana as a hook machine operator and earned more than 10,000 yuan (US$1,630) a month. Hoping make more money, he and a friend invested 500,000 yuan (US$81,000) in a gold mine, but they encountered the Ghanian government's crackdown on illegal mining before turning a profit. He could not find buyers for his machines in time, so he left them in Ghana and caught a flight home.

Wei called on local villagers to be aware of the risks when working overseas. They should take the customs, laws and social security in foreign lands into account.

A Chinese joint work team of personnel from the Chinese ministries of foreign affairs, commerce and public security arrived in Ghana on Tuesday. The team is discussing issues linked to Chinese nationals in the crackdown on illegal gold mining with their Ghanian counterparts.

A work team from Guangxi also arrived in Ghana on Tuesday to assist the embassy in evacuating Chinese nationals.

https://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20130614000120&...

Urban Roman
Jun 14, 2013 - 9:37am

Silver action this morning

Dare I say, with my pathetic noob TA knowledge, that this verifies and validates the long standing floor for silver at 22?

¤
Jun 14, 2013 - 9:38am

Chinese to Build Nicaraguan Canal

Hong Kong company given licence to build Nicaragua canal

  • Staff Reporter
  • 2013-06-14
  • 09:32 (GMT+8)

Waterfowl on a river in southern Nicaragua. (Photo/Xinhua)

Hong Kong-based company HK Nicaragua Canal Development Investment is working with the Nicaraguan government to build a on a canal project to connect the Atlantic and Pacific oceans to rival the Panama Canal. The project could take 11 years to finish, cost US$40 billion and requires digging 200 kilometers of waterway, according to media reports.

Nicaraguan president Daniel Ortega presented a draft law on June 12 to the country's National Assembly that will give the Hong Kong company the contract for the construction and management of the future canal for 50 years, with the possibility of extending it for a further 50.

Wang Jing, the head of the Hong Kong firm, told Shanghai's First Financial Daily that the two sides signed a pact last year under which the company is authorized to plan and execute the canal project as well as handle its financial aspects.

The project, which is expected to take about 11 years to complete, will include building a 200-kilometer canal across Nicaragua, linking the Pacific Ocean and two deep-water ports, two airports and a number of free trade zones.

After the project is approved by the government, a feasibility study will be carried out before May 2015 and following that, work on the project will begin, a Nicaraguan source said....(cont.)

https://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20130614000002&...

¤
Jun 14, 2013 - 9:41am

$22

Hate saying it but we'll likely see it dip below $22 again.

Someone made a ton of money going up and on the way back down.

Wish it was me

agNau
Jun 14, 2013 - 9:42am
Green Lantern
Jun 14, 2013 - 9:47am

Chinese; Space and Military Advancement

Earth 2013, as Chinese, Russian central banks and citizenry continue to consume the worlds metal resources, The chinese military backed space program, launched a manned rocket into space for it's longest manned mission. Space has become the final frontier for man's quest for dominance as private industry develops mining capabilities, and superior military capability.

"The American's look puny" "Give me a tube of that liquid Beef Chow Fun"

Besides much speculation about advanced technologies possessed by the Chinese and Russians, a few months ago Jim Sinclair blogged about a Chinese submarine coming up on a US Destroyer undetected-a real life hunt for red october.

No empire abdicates or relinquishes it's rod of power without a fight. NONE. Germany was broken economically and military after WW1 and the Treaty of Versailles. Not only did we beat and punish them, we humiliated them. It did not turn out as a good strategy as Churchill stated for WW2. And we knew what it took to dominate Japan in WW2.

Accumulation of Gold by russian and Chinese central banks along with their citizenry is an omen of things to come. It is a small part of the overall picture of what is happening geopolitically, militarily and financially. Neverless a sign.

Sidenote: I don't think I ever listened to an entire program of Glenn Beck. So my opinion, which isn't important, is formed based upon all the comments in the last two threads. However, I listened to the video and his assumption that there is a whistleblower that has the goods to take down the entire system is without historical or empirical context. The assumption is without precedent. A whistleblower might screw one or two people, create a thorn in the side of power holders, raise awareness or even tap into the discontent of the public who is already aware of the problem. But for one man to bring down an empire would be without precedent. Wishful thinking and low probability. Institutions only crumble through internal or external forces. Didn't bring down Enron, Worldcom, JP Morgan and it ain't gonna bring down the machine.

Chinese, Russia and BRICS advancing military supremacy and financial supremacy combined is what we have to keep focused on. No empire will allow China to just dump it's currency without a fight to the death. If force makes kings, any force will do.

Science question to you engineers. Why when I watch a NASA launch of the space shuttle, it looks like an atomic bomb just went off? why when I watch this chinese launch it looks like a warm fart? Some residue coming from the side under the launch but almost nothing from the rocket itself except heat?

Video: China launches manned Shenzhou-10 craft to experimental space station

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