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How The World Is Being Fooled About Chinese Gold Demand

March 11, 2015

This is a great post from our friends over at BullionStar.com. Click here to read some of their other great articles.

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Kindly note the pattern

There is a story being told to the masses about Chinese gold demand that is grossly incorrect. The huge discrepancy between numbers from the World Gold Council (WGC) and actual gold demand is so wide yet cunningly hidden I must conclude there is essential information about physical gold demand deliberately kept privy.

Let’s go back to April 2013; the price of gold made a nosedive, which spawned an unprecedented physical buying spree across the globe, most notably in China. Withdrawals from the vaults of the Shanghai Gold Exchange (SGE), that equal Chinese wholesale demand, closed at 2,197 metric tonnes December 31, 2013, up 93 % y/y.

However, the WGC (the global authority on gold) initially stated Chinese consumer gold demand had reached 1,066 tonnes in 2013, an astonishing 1,131 tonnes less than wholesale demand. In the China Gold Association (CGA) Gold Yearbook 2013 it was disclosed China had net imported 1,524 tonnes and domestically mined 428 tonnes. Without counting scrap supply this adds up to 1,952 tonnes; adding scrap total supply has been well over 2,000 tonnes. It’s impossible consumer demand was only 1,066 tonnes.

Finally the WGC admitted their initial estimate of 1,066 tonnes of Chinese gold demand was grossly understated. By email they wrote me on February 12, 2015:

Dear Mr Jansen,

Thank you for emailing the World Gold Council, we apologize that your previous enquiry was missed.

Our figure for Chinese consumer demand in 2013 has since been revised upwards to 1,311.8 tonnes from the original figure of 1,066 tonnes published in the full year 2013 Gold Demand Trends report.  

That’s an increase of 23 % by the largest physical buyer on the planet. Although still far from actual demand, 23 % is quite a revision. Was there an official press release from the WGC to inform the world on this revision? No (I’ve asked the WGC, but I got no reply). Did the mainstream media properly cover the 23 % revision? Not that I’m aware of.

Actual Chinese gold demand 2013 has been knavishly hidden from the masses (99 % of the financial industry copies WGC numbers).

In 2014 the WGC again grossly understated Chinese gold demand. SGE withdrawals accounted for 2,102 tonnes, though the WGC stated Chinese consumer demand was only 814 tonnes. Again, a gap of more than 1,100 tonnes. All arguments the WGC has brought up to explain the surplus in the Chinese gold market can only make up about 15 % of the gap (gold-for-gold supply and stock movement change).

For 2014 grossly understating Chinese gold demand wasn’t enough for the Council to distract the world’s eye from China’s gold hunger; more was needed. By a few tonnes the WGC put India’s consumer gold demand ahead of China. In their Gold Demand Trends Full Year 2014 Indian demand is disclosed at 843 tonnes, transcending Chinese demand (814 tonnes) by 29 tonnes, just enough. Most media simply copied these numbers and are stating India is now the world’s largest gold consumer – no critical thoughts added. In my opinion this is the biggest fallacy in finance of our time.

WGC demand vs SGE withdrawals 2

In 2014 China imported at least 1,250 tonnes and domestically mined 452 tonnes. According to GFMS scrap supply was 182 tonnes, adding up to total supply at 1,884 tonnes. But, we’re supposed to believe India is the largest gold consumer on earth at 843 tonnes? Yes.

I’m open minded towards the possibility there is an agenda that is allowing China to buy as much gold for as little fiat as possible to make them accumulate whatever necessary before a monetary reset. I see no other explanation for the events unfolding in front of our eyes.

Can you imagine what would have happened to global gold sentiment if the WGC had disclosed 2013 Chinese demand at 2,100 tonnes and 2014 Chinese gold demand at 1,850 tonnes? Sentiment would have been influenced to say the least.

As I wrote in my first post on why SGE withdrawals equal Chines wholesale demand September 18, 2013:

If you think about it, the redistribution of gold is the only logical thing to happen given the state the world economy is in. … gold has to go to China in order to equalize the chips.

More Awareness About Chinese Gold Demand

Luckily my camp is growing. More and more analysts are using SGE withdrawals as a proxy for Chinese wholesale demand instead of inaccurate WGC data. CNC Asset Management wrote in a newsletter September 25, 2014:

To understand China’s real physical gold demand, investors should simply look at the weekly withdrawals from Shanghai Gold Exchange vaults. We visited the Shanghai Gold Exchange (SGE) in May and talked to the senior executives of the exchange. After reviewing the exchange’s trading mechanism, we are of the view that the weekly withdrawal figures provide a much more accurate data series that reflects China’s aggregate wholesale demand in a timely way.

More recently MarketWatch published SGE withdrawals and its significance, and Dr. Martin Murenbeeld, Chief Economist at Dundee Capital Markets, wrote in his newsletter on February 2015:

It follows from this opaque picture of Chinese supply and demand that some observers, including ourselves, have decided Shanghai Gold Exchange (SGE) deliveries data provides the best window on what might be happening on the demand side in China. (There are a number of observers who have noted the widely circulated estimates of gold demand are woefully inaccurate, precisely because these data are so significantly lower than SGE deliveries data.)

Latest data from the SGE shows withdrawals in the last five days around Lunar Year (February 16, 17 and 25, 26, 27) accounted for 38 tonnes. Total SGE withdrawals in the first two months of 2015 surpassed 410 tonnes. SGE withdrawals Q1 can reach 550 tonnes or more. However, don’t expect Chinese gold demand published by the WGC on Q1 to be anywhere near these figures.

Koos Jansen
E-mail Koos Jansen on: koos.jansen@bullionstar.com

Discussion
31 Comments
    Mar 11, 2015 11:07 AM

    Allowing the Chinese central bank to print as much currency as they want and load up on gold will have the same effect as it had on the Ruble, a devaluation, but also the breaking of the peg.

      Mar 11, 2015 11:36 PM

      China has a huge trade surplus. January was all time high. How can a country to have weak currency and huge trade surplus at same time. The purpose of the peg is to lower the value of RMB not raise it. It is like Switzerland pegs to the Euro. Since most people hate China, they always think China is weak. If de-peg weakens yen, they would not peg it at the first place. They want a weak Yuan to promote export. I heard a economist predict that Yuan will go to 15:1 if China de-peg, if it is the case, china would not build huge reserve since pegging the currency up needs to consume foreign reserves.

        Mar 11, 2015 11:56 PM

        I don’t hate China Lawrence. Nor Chinese people either. I have a problem with racists though of which there are a few who come to this site and should be fought.

    Mar 11, 2015 11:29 AM

    But I’m not so sure ‘allow’ is the correct term. There is a massive effort by bullion banks to wipe out gold traders, who merely know to sit on the sidelines, and wait out the results of gold price fixing events, no matter how long and how deep. The speculators are the aircraft carrier and the bullion banks are the kamikazes. They just push the flaming wreckage off the decks and get on with the war.

    Mar 11, 2015 11:44 AM

    I think the suckers are those who followed the idiot promoters into buying gold and not stocks. Fools like Peter Grandich who suggested Canadian dollars, mining stocks and gold to “protect your wealth” or guys like Al Korelin who pumps garbage mining stocks all the way down, or Eric Sprott who made a billion dollars but every fund he has underperformed a buy and hold strategy of S&P index funds even if you bought at the top.

    Wake up people! These losers have lost you money and never admit they are wrong, they cry manipulation.

    Mar 11, 2015 11:51 PM

    HSBC is closing all seven of its “retail” gold vaults in London (it is keeping the GLD vault open), the new London gold fix, the curious “RMB, New World Currency” billboard that went up to next to China’s busiest airport and the Shanghai Cooperation Organization:
    https://www.youtube.com/watch?v=C2v3RNkTjZk

    Mar 11, 2015 11:54 PM

    Interesting that HSBC closed NYC safe deposit @$1170/oz on way up 5 years ago (before a monster run higher) & now UK customers at same price …

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6646753/HSBC-starts-gold-rush-out-of-its-vaults.html

    Mar 11, 2015 11:09 PM

    How much gold is China acquiring?
    The question makes me think of a Latin phrase, to wit “res ipsa loquitor”.
    Translated to “the thing speaks for itself.”
    Although certain knowledge of a thing may not be known instantly the mere
    act will make itself known fully in due time.
    If China is in fact hoarding gold the fact that it is doing so will reveal itself.

    Mar 12, 2015 12:21 AM

    Here in Asia tonight the Singapore english news channel was running with ‘China in negotiations with IMF for reserve currency inclusion’. Those are SDR’s and apparently China is attempting to be one of the five major world currencies in the IMF ‘basket’.
    16,000 tonnes of gold should help back the yuan in their efforts.

      Mar 12, 2015 12:25 AM

      Do you have any link Matt ?

        Mar 12, 2015 12:46 AM

        Story from last December. This has been in works for some years already.

        Dec. 11 (Bloomberg) — For the first time, China has a real shot at getting the International Monetary Fund to endorse the yuan as a global reserve currency alongside the dollar and euro.

        In late 2015, the IMF will conduct its next twice-a-decade review of the basket of currencies its members can count toward their official reserves. Including the yuan in this so-called Special Drawing Rights system would allow the IMF to recognize the ascent of the world’s second-biggest economy while aiding China’s attempts to diminish the dollar’s dominance in global trade and finance.

        China would need to satisfy the Washington-based lender’s economic benchmarks and get the support of most of the other 187 member countries. The Asian nation is likely to pass both tests, said Eswar Prasad, who until 2006 worked at the IMF, including spells as heads of its financial studies and China divisions.

        “It will certainly help China’s objective of making the renminbi a more widely-used currency,” said Prasad, a professor of trade policy at Cornell University in Ithaca, New York, and senior fellow at the Brookings Institution in Washington. Renminbi is China’s official name for the yuan.

        Reserve-currency status for the yuan would make central banks, particularly those in developing economies, more eager to hold yuan assets and “diversify at the margin away from dollars,” as well as euros, yen and Swiss francs, Prasad said.

        Mar 12, 2015 12:51 AM

        And now you know why they need all that gold!

    Mar 12, 2015 12:34 AM

    Saw it on ‘Channel News Asia’ out of Singapore a few hours ago.
    I googled it and it is on line,as well:

    http://www.businessspectator.com.au/news/2015/3/12/china/china-wants-yuan-imfs-sdr-list-soon

    China wants yuan on IMF’s SDR list soon
    Dow Jones newswires
    12 Mar, 9:06 PM

    Industries
    Financial Services
    Economy
    China
    Markets
    Currency

    China hopes that its currency can be included in the Special Drawing Rights created by the International Monetary Fund in the near future, Yi Gang, vice governor of the People’s Bank of China said on Thursday.

    “We are actively talking with the IMF and hope it can fully consider the progress China has made in internationalising the yuan,” Mr Yi told reporters at a news conference.

    Mar 12, 2015 12:37 AM

    Thanks

    Mar 12, 2015 12:40 AM

    Here is another link with finer details. China has been negotiating for at least a decade for IMF SDR inclusion. It is actually a known story with a foregone conclusion. The Chinese are ready to play the game,it seems:
    http://www.business-standard.com/article/pti-stories/china-seeking-yuan-role-in-imf-reserve-currency-115031200987_1.html

      Mar 12, 2015 12:46 AM

      I think China has been demanding the role proportional to the economy. I think Japan also wants IMF to include China. However US and Europe has been wanting China to pay more money to IMF but do not want to give China the voting right proportional to the contribution. It is more a power issue than anything else.

        Mar 12, 2015 12:47 AM

        US has the rights of a veto as well. Maybe part of the hangup.

    Mar 12, 2015 12:48 AM

    I was going to ask you this one.
    It seems there is two options.
    What Jim Rickards is saying (and the link you just send me):
    http://www.businessspectator.com.au/news/2015/3/12/china/china-wants-yuan-imfs-sdr-list-soon
    or the option of the RMB as the World Reserve Currency with the BRICS and the CIPS replacing the SWIFT system?
    http://www.zerohedge.com/news/2015-03-09/de-dollarization-encircles-globe-china-completes-swift-alternative-may-launch-soon-s

    Mar 12, 2015 12:49 AM

    Is China’s 1929 moment coming? — Washington Post — March 5 2015
    http://www.washingtonpost.com/blogs/wonkblog/wp/2015/03/05/is-chinas-1929-moment-coming/

    Mar 12, 2015 12:11 AM

    Japan,America,Greece and Italy amongst the leaders.
    Iran,China and Russia amongst the least indebted:

    http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

    Mar 12, 2015 12:13 AM

    Incorrect link but same story as link above:
    http://www.tradingeconomics.com/country-list/government-debt-to-gdp

    Mar 12, 2015 12:22 AM

    Despite the fact that these countries purportedly have gold (they have leased it out so while they have gold on their balance sheets it may not be actual gold
    in their vaults but rather gold receivables) they are also working towards perpetuating the fiat money system whereby money is borrowed into existence and handed
    to governments so that they can perpetually increase their debt loads.
    Gold restricts this, and while these countries all purportedly own gold they want to downplay its monetary role so they can continue to spend beyond their means.
    If gold isn’t rising then there is less evidence of the inflation and everything seems normal.
    They also want to keep interest rates down and there is a very strong correlation between a falling gold price and falling interest rates.
    Note that despite the fact that the US holds this gold that it downplays its significance.
    For instance it doesn’t mark the gold to market but rather to the $42/oz. level of 1971.
    When Ron Paul asks Ben Bernake why the Fed holds gold he said “tradition.” This is complete nonsense but it works to convince people that gold isn’t
    important to the economic system and that fiat currency–despite the fact that it can be easily created ad infinitum,
    holds value beyond the paper that it is printed on.

    Mar 12, 2015 12:28 AM

    Ye

    Mar 12, 2015 12:37 AM

    The Fed says that total public debt outstanding is now $17.8 trillion, but don’t believe it. It’s actually incalculably higher.

    In our discussion over lunch, I noted how many analysts erroneously exclude Federal debt held by the government itself, since we “owe it to ourselves” and can simply forgive the debt.

    I thought Dr. Greenspan was going to take off on how inflationary this would be, but he stunned me and everyone else by taking a very different tack.

    He asked us if we thought the Fed would allow, for example, J.P. Morgan to fail. Of course they wouldn’t, we agreed. So, he noted, the U.S. government has essentially guaranteed the debts of J.P. Morgan.

    Thus, “no one has any idea what the Federal liability truly is, because they’ve essentially guaranteed the liabilities of all the too-big-to-fail entities.”

    So unless you were somehow able to derive and total all of the liabilities of every banking, insurance or other financial institution, domestic and foreign, that the Fed is guaranteeing, you have no concept of how large the Federal debt/liability is.

    That was a truly amazing — and frightening — admission by Dr. Greenspan. As was his admission that the Fed really isn’t independent…his thoughts on how he managed to work within the political system without compromising his core principles…his views on gold as currency…and his prediction that China is converting its foreign exchange from dollars into gold.
    http://news.goldseek.com/GoldSeek/1414951057.php

    Mar 12, 2015 12:42 AM

    This is all headed toward WW3 anyway

    Mar 12, 2015 12:55 AM

    Yeah,time to wipe out the US and her debts and start the new currency as this one has served it’s purpose.
    Still like to see the US take on all those bankster debts and have to declare gold at $50k to remain in the game until the war is over.
    Canada is likely toast under this scenario. Large tracts of prairie land to conduct the next purge.

    Mar 13, 2015 13:54 AM

    I am suspicious abut the withdrawals from the Shanghai Gold Exchange. Who deposits the gold there to be withdrawn. It is like a well that never dries up.

    No-one however says who deposits gold at that exchange. It is not a one way street, not a while hole that spews matter.

    How do you know that the gold withdrawn from there is not deposited again and then re-withdrawn sometime later and is therefore double counted?

    Forget these withdrawals. Just take the import figures and be content with them. It’s not helping; gold is not going up anyway so what does it matter? Get a life.

    Mar 13, 2015 13:55 AM

    white hole.

    Mar 13, 2015 13:31 AM

    Speaking of having to get another life:
    Late yesterday, the government of the United Kingdom announced that they would be applying to join the Chinese-led Asian Infrastructure Investment Bank… as a founding member.
    Britain might be too polite to tell the US straight up– “Look, you have $18.1 trillion in official debt, you have $42 trillion in unfunded liabilities, and you’re kind of a dick. I’m dumping you.”
    Simon Black -Sovereign Ma