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

Hammer
Jun 16, 2013 - 2:27am
Hammer
Jun 16, 2013 - 2:47am

SECRECY FOR SALE: INSIDE THE

SECRECY FOR SALE: INSIDE THE GLOBAL OFFSHORE MONEY MAZE

90 ICIJ Releases Offshore Leaks Database Revealing Names Behind Secret Companies, Trusts By Marina Walker Guevara June 14, 2013, 10:00 pm Photo: Shutterstock.

KEY FINDINGS

  • Government officials and their families and associates in Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Mongolia and other countries have embraced the use of covert companies and bank accounts.
  • The mega-rich use complex offshore structures to own mansions, yachts, art masterpieces and other assets, gaining tax advantages and anonymity not available to average people.

Readers can search information about the ownership of more than 100,000 offshore entities in tax havens and discover the networks around them.

When Bernard Madoff built his $65 billion house of cards; when food distributors passed off horsemeat as beef lasagna in Europe; and when Apple, Google and other American companies set up structures to channel their profits through Ireland — they all used tax havens.

They bought secrecy, minimal or zero taxes and legal insulation, the distinctive products that tax havens market and that allow companies to operate in a fiscal and regulatory vacuum. Using the offshore economy is akin to acquiring your own island where the rules that most citizens follow don’t apply.

The International Consortium of Investigative Journalistspublishes today a database that, for the first time in history, will help begin to strip away this secrecy across 10 offshore jurisdictions.

The Offshore Leaks Database allows users to search through more than 100,000 secret companies, trusts and funds created in offshore locales such as the British Virgin Islands, Cayman Islands, Cook Islands and Singapore. The Offshore Leaks web app, developed by La Nación newspaper in Costa Rica for ICIJ, displays graphic visualizations of offshore entities and the networks around them, including, when possible, the company’s true owners.

Attacking Apathy

The data are part of a cache of 2.5 million leaked offshore files ICIJ analyzed with 112 journalists in 58 countries. Since April, stories based on the data — the largest stockpile of inside information about the offshore system ever obtained by a media organization — have been published by more than 40 media organizations worldwide, including The Guardian in the U.K., Le Monde in France, Süddeutsche Zeitung and Norddeutscher Rundfunk in Germany,The Washington Post and the Canadian Broadcasting Corporation (CBC).

https://www.icij.org/offshore/icij-releases-offshore-leaks-database-revealing-names-behind-secret-companies-trusts

Hammer
Jun 16, 2013 - 2:49am

(No subject)

ICIJ Releases Offshore Leaks Database to Public
Silver Alert
Jun 16, 2013 - 2:54am

Mr. Fix

Russian reporters do have those constraints - just not with U.S. news.

Hammer
Jun 16, 2013 - 3:00am

UK specific

The poorest and most vulnerable people in society are being hit by cuts to the legal system while the government bankrolls the wealthiest, a senior QC said today.

The taxpayer is forced to foot a bill mounting up to hundreds of millions to deal with bank fraud cases each year while the Ministry of Justice is pushing through a £220 million annual cut to the criminal legal aid bill, said Michael Turner QC, chairman of the Criminal Bar Association.

Barristers and solicitors have joined forces in recent months to protest vehemently against the proposed cuts, which they describe as a "devastating" attack on the justice system.

The Ministry of Justice recently closed its consultation period on proposals that will see defendants deprived of the right to choose their lawyer, criminal legal aid contracts awarded through price competitive tendering and the number of firms reduced from 1,400 to 400. The reforms, the legal profession has said, will hit society's most vulnerable, deprived and socially excluded, creating a system more focused on profit than quality.

Speaking before MPs on the justice select committee today, Mr Turner said there were better ways of making savings to the legal budget, one of them being to ensure that banks were obliged to insure themselves against fraud and the cost of prosecutions.

Speaking to The Independent, he said: "About 45 per cent of the criminal legal aid budget of £1.1 billion is spent on these fraud cases."

"The state pays for the investigation by the police and the state prosecutes at the expense of the tax payer," said Mr Turner, pointing out that the higher burden of proof required in a criminal court then made it simpler for a bank to prove a civil case.

"If they never recover that money, the banks are entitled to write off the fraud loss against tax.

"That is why banks have absolutely no interest in putting in systems which prevent fraud taking place. They should have to carry insurance to protect the public from paying out if they get defrauded," he added.

https://www.independent.co.uk/news/uk/home-news/hundreds-of-millions-fro...
Hammer
Jun 16, 2013 - 3:27am
RaRaRasputin
Jun 16, 2013 - 4:02am

Piece in Indy today

I find this article interesting and it's timing once again curious. Collective indifference - just history being reported or something else?

Newly published diary hailed as remarkable documentary evidence of how millions of Germans relied on collective indifference to endure the horrors of war

Her neighbourhood was bombed by the allies, the Jews around the corner were being sent to Auschwitz and the Red Army had launched its final assault on Berlin. But Brigitte Eicke, a teenaged German, was unconcerned. She was far more interested in going to the cinema, dancing to gramophone records and trying to cope with a "disastrous" perm.

The 15-year-old Berlin schoolgirl, nicknamed "Gitti", started keeping a diary in December 1942, when the German capital was being bombed nightly and the Nazi Holocaust was killing thousands. As a trainee secretary, she recorded her daily experiences to improve her stenography skills.

Now, some 70 years on, her diary has been published for the first time in Germany and is being hailed as remarkable documentary evidence of how millions of Germans relied on collective indifference to endure the horrors of war and ignore the brutality of the Nazi rule.

Read more here: https://www.independent.co.uk/news/world/europe/diary-of-second-world-wa...

philipat
Jun 16, 2013 - 4:05am

@Syria

But, on the amusing side, the Establishment, the scumbags in Congress and the MSM have already established damage control WRT NSA (Examples: "He was originally declared a hero, but now is seen as a lying traitor", "He is just a High school drop-out", "He has defected to China" etc. etc.). SO no more discussion about what the NSA is actually DOING. This despite the fact that ALL the NSA defectors are saying the same thing: They are taking and storing EVERYTHING from every American in direct contravention of the Constitution and The Bill of Rights.

https://www.zerohedge.com/news/2013-06-15/you-now-have-assume-everything...

Nothing to see here, move along..

Fortunately, I suppose, the majority of Americans are too stupid to understand or care.

So with the convenient (Coincidental?) distraction of Syria, the MSM no longer needs to bother with the inconvenience of covering the above, Benghazi, the AP Warrants, The IRS intrusions, Hilary's Belgian Ambassador cover-up etc. etc.

You can't make this stuff up. If this weren't so tragic, it would be truly hilarious to behold......

Michael222
Jun 16, 2013 - 4:07am

Physical Buying

With all that strong physical buying the price of the metals can barely go up. Image what happens if the buying temporary slows down or stops for a moment? .... Exactly .... That hurts

philipat
Jun 16, 2013 - 4:21am

Fox.......

........Coverage of NSA/Snowden is particularly amusing because, on the one hand, they want to portray this as an Obama/Democrat scandal (Despite the fact that it all started under Bush with the Patriot Act), but on the other hand, they need to support their Corporate and PTB masters with the damage control over NSA/Snowden/Fourth Amendment etc.. It's difficult to have it both ways, so some of their coverage is absolutely hilarious.

philipat
Jun 16, 2013 - 4:24am

@Micael222

They will NOT surrender because they have won the paper game. The CB's (And their Agents the BB's) and BIS are in control. IMHO, it will take a crisis to re-focus their attention away from PM manipulation such that they have greater priorities, such as a collapsing Equity and/or Treasury market to prop up.

Michael222
Jun 16, 2013 - 4:28am

@philipat

Still makes me sad

philipat
Jun 16, 2013 - 4:29am

@Hammer

Seems like you are talking to yourself again (The first sign) if only via Hat-Tipping your own posts. ;-)

Didn't your teacher ever teach you?

philipat
Jun 16, 2013 - 4:31am

M2

Agreed, it is very sad. It's called Central Planning. Who woulda thunk it?

Spartacus Rex
Jun 16, 2013 - 4:55am

@ philipat re Hammer

He was actually talking to Me, & I did the Hat-Tipping. Any problem w/ that?

Excalibur
Jun 16, 2013 - 5:13am

Good Morning

Well, it is for me at GMT+1.

Good to read the overnight posts though it would be nice if I could stroll down to the local cafe and converse in person with some of you guys.

Actually if I am fantasizing, I would choose a Taverna on a Greek Island looking out onto a sparkling Aegean.

Spartacus Rex
Jun 16, 2013 - 5:34am

@ Good Morning

Re: "Actually if I am fantasizing, I would choose a Taverna on a Greek Island looking out onto a sparkling Aegean." Looking out on a sparkling Aegean? That means you would first have to get your eyes past the beach. Right Excalibur?

wouldyoubelieve...
Jun 16, 2013 - 5:46am

the Aegean

is a sea? who knew?

alan2102 Mr. Fix
Jun 16, 2013 - 6:24am

phatasmagoric, over-the-top paranoia

mr fix: "every single decision Obama has ever made has been carefully designed to have the worst possible outcome for the United States"

I mean, even mr fix himself cannot possibly truly believe that, I don't think.

Hammer
Jun 16, 2013 - 6:59am

phillipat wrote Seems like

phillipat wrote

Seems like you are talking to yourself again (The first sign) if only via Hat-Tipping your own posts. ;-)

Didn't your teacher ever teach you?

Could you please stop harassing me phillipat. These comments are not appropriate and you are starting to target me I feel. Please stop.

Hammer
Jun 16, 2013 - 7:01am

Hmmmmmmm Washington’s

Hmmmmmmm

Washington’s decision to arm Syria’s Sunni Muslim rebels has plunged America into the great Sunni-Shia conflict of the Islamic Middle East, entering a struggle that now dwarfs the Arab revolutions which overthrew dictatorships across the region.

For the first time, all of America’s ‘friends’ in the region are Sunni Muslims and all of its enemies are Shiites. Breaking all President Barack Obama’s rules of disengagement, the US is now fully engaged on the side of armed groups which include the most extreme Sunni Islamist movements in the Middle East.

The Independent on Sunday has learned that a military decision has been taken in Iran – even before last week’s presidential election – to send a first contingent of 4,000 Iranian Revolutionary Guards to Syria to support President Bashar al-Assad’s forces against the largely Sunni rebellion that has cost almost 100,000 lives in just over two years. Iran is now fully committed to preserving Assad’s regime, according to pro-Iranian sources which have been deeply involved in the Islamic Republic’s security, even to the extent of proposing to open up a new ‘Syrian’ front on the Golan Heights against Israel.

In years to come, historians will ask how America – after its defeat in Iraq and its humiliating withdrawal from Afghanistan scheduled for 2014 – could have so blithely aligned itself with one side in a titanic Islamic struggle stretching back to the seventh century death of the Prophet Mohamed. The profound effects of this great schism, between Sunnis who believe that the father of Mohamed’s wife was the new caliph of the Muslim world and Shias who regard his son in law Ali as his rightful successor – a seventh century battle swamped in blood around the present-day Iraqi cities of Najaf and Kerbala – continue across the region to this day. A 17th century Archbishop of Canterbury, George Abbott, compared this Muslim conflict to that between “Papists and Protestants”.

https://www.independent.co.uk/news/world/middle-east/iran-will-send-4000...
ag1969
Jun 16, 2013 - 7:41am

Alan2012

I think Mr. Fix could only be considered paranoid if his accusations were baseless. So let's see:

NDAA

Extension of Patriot Act

Obamacare

Benghazi

IRS

Prism

Personal Kill List

Killed American Citizens with no due process (Murder)

Libya, Syria, Yemen, Pakistan, Egypt, Afghanistan, Iraq all unconstitutional wars. Iran coming soon.

Solyndra

I could go on but I am sure you get the point.

I can't think of anything Obama had done that actually benefits the people of the United States and actually strengthens our republic. I am certainly not saying Obama is the only one to blame, but how can you call Mr. Fix paranoid when Obama's actions support the theory that he is trying to destroy our country. I think by definition, Mr. Fix could only be considered paranoid if the facts did not support his theory.

For me, I don't know how one could take and honest look at what Obama is doing and arrive at any other conclusion. If a man has the barrel of a gun in my mouth, am I paranoid to think he might be trying to kill me?

Excalibur
Jun 16, 2013 - 7:55am

Spartacus, I can look and

Spartacus, I can look and listen at the same time!

C'm, Philipat and Hammer I'll get you an ouzo or three and maybe you'll be mates.

https://i823.photobucket.com/albums/zz160/kyoto_dream/Greek%20Riff%20%20...


Jun 16, 2013 - 7:57am

Spartacus - a colonoscopy? How unpleasant.

Hammer what a heart-warming post that was that included this:

Attacking Apathy

The data are part of a cache of 2.5 million leaked offshore files ICIJ analyzed with 112 journalists in 58 countries. Since April, stories based on the data — the largest stockpile of inside information about the offshore system ever obtained by a media organization — have been published by more than 40 media organizations worldwide, including The Guardian in the U.K., Le Monde in France, Süddeutsche Zeitung and Norddeutscher Rundfunk in Germany,The Washington Post and the Canadian Broadcasting Corporation (CBC).

https://www.icij.org/offshore/icij-releases-offshore-leaks-database-revealing-names-behind-secret-companies-trusts

There really is immense power in the internet and there really is an immense sense of outrage over loss of freedom and the financial havoc that has been unleashed on the unsuspecting middle-class and poor. The idea of freedom is hard to extinguish and without sound money there is no escape from the tyranny of coercion. People do see what is happening and there is an awakening, and it can go viral these days, which it never could before.

And Excalibur I am with you on the shindig on an island somewhere, butt I will remember to bring the bottom half of my bikini.


Jun 16, 2013 - 8:01am

I agree

leave Hammer alone - it is as silly as calling me a man or transvestite. He is in a different time zone and his posts are great. Spartacus has been posting rather a lot, but I don't see you going after him.

And Alan - I had copied that exact quote ... you beat me to it. Over the top hyperbole . Surrender to whom? was my next question. Maybe us, but we don't want you.

Excalibur
Jun 16, 2013 - 8:08am

Xty

And Excalibur I am with you on the shindig on an island somewhere, butt I will remember to bring the bottom half of my bikini.

Like the extra t in your 'butt' , wanna be my caddy?

Tabberto
Jun 16, 2013 - 8:32am

Hammer

Some out there just lack basic civility/manners, they know who they are although they don't know how to behave....!


Jun 16, 2013 - 8:41am

"every single decision Obama has ever made

has been carefully designed to have the worst possible outcome ..."

every, ever, worst ... nonsense

"My nine iron or my wedge, what do you think, Tiger?"

Mr Fix would make his point much better if he laid off the superlatives. Remember, there were meant to be Russian troops on US streets back in May. It seems rather paranoid, not to mention self-aggrandizing. It isn't actually all about America - this is an international problem of immense size and scope, with tentacles everywhere and probably about 20 heads and many pseudo-heads.

Cononish1314
Jun 16, 2013 - 8:45am

Scots-Canadian tycoon on gold

https://www.heraldscotland.com/business/company-news/shale-gas-is-a-game-changer-says-scots-miner-life-times.21331293

https://www.heraldscotland.com/news/home-news/tiresome-independence-fight.21352380

Don't agree with the new Chancellor of Heriot-Watt Uni's view on independence -- rather insulting to those of us who cared enough to stay. As for his ideas on shale, I say lock him in a room with SRSRocco.

Nevertheless, here he is fighting the good fight and getting stuck into Roubini:

Buchan also challenged a strongly prevailing market view expounded by the influential US economist Nouriel Roubini earlier this month that the "gold boom" – the long rally which peaked at $1921.15 per ounce in 2011 – was over. Buchan said that he "seriously doubted that the price would decline much more" than its current price of $1379 an ounce, "and I seriously doubt it won't go up".

He added: "The prognosis has to be for higher prices simply because the value of the dollar against hard assets is going down, anything of hard value is going to increase. There has also been a dramatic change in the cost of producing gold.

"All the high-grade deposit has been mined out, and we have been forced into lower-grade deposits and the net result is the cost of producing gold has been going up sharply up. If you start shutting mines down it will have a big effect, so I don't see a big downside from here.

"I'd doubt we are going to see gold prices go down much below $1100 as a targeted low."

Roubini, by contrast, predicts gold prices moving "much lower, towards $1000 by 2015".

Buchan added: "The starting point for me is that the price of gold doesn't change, it's how many pieces of paper you have to spend to get it that changes. If you take this simplistic view, you have to ask if the value of the US dollar is going up or down and I believe it's going down.

"We have a world in which constructive devaluation is going on, everyone is taking part in a rush to the bottom, who's going to have the lowest value currency, and I don't see that changing, so in the short-term gold is as volatile as I've ever seen it."


Jun 16, 2013 - 8:49am

I took these pictures a long time ago in the Bahamas

Resting:

Provoked:

I am sure there is a lesson in there. It was thinking about the multi-headed hydra we are faced with that reminded me of these. Things can look so benign.

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