China’s Secret Gold Supplier Is Singapore

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by Koos Jansen, BullionStar:

Since 2013 China continues to absorb physical gold from the rest of the world at a staggering pace. Worth noting is that gold imported into the Chinese domestic market is not allowed to be returned in the foreseeable future. Because ownership and the disposition of these volumes of gold likely will be of great importance next time around the international monetary system is under stress, it’s well worth tracking China’s progress of imports – especially because the mainstream media and most consultancy firms are in denial of these events.

Click on this link for an in-depth analysis of the structure of the Chinese gold market.

Below we’ll discuss what countries supplied gold to China in 2017, Singapore’s role not only in 2017 but in the past few years, and physical flows through the vaults of the Shanghai Gold Exchange International Board in the Shanghai Free Trade Zone (SFTZ). We’ll see that Singapore has been a major gold supplier to China since 2013, which was previously not publicly known. In addition, my theory is that physical flows through the SFTZ have recently increased, signaling the slow birth of an international gold trading hub in Shanghai.

Most readers will be aware that the easiest way to gauge Chinese wholesale gold demand is by the amount of metal withdrawn from the vaults of Shanghai Gold Exchange (SGE). The problem is that withdrawals from the SGE Main Board in the domestic market and withdrawals from SGE International Board (SGEI) in the SFTZ are published as a single figure: SGE(I) withdrawals. Accordingly, SGE(I) withdrawals are a handsome indicator for physical turnover in China, but don’t inform us on the details of what unfolds in the domestic market separately from the SFTZ. Any metal in the SFTZ is allowed to be exported and thus part of the world’s floating supply. To get the best understanding of physical flows in and through China we have to study international merchandise trade statistics, and add a few other data points, before we can put all pieces together.

SGE(I) withdrawals in 2017 accounted for 2,030 tonnes, which was up 6 % from 2016; my (provisional) estimate of Chinese net gold import for 2017 is 1,082 tonnes, down 19 % from 2016; the China Gold Association has disclosed domestic mine production at 426 tonnes, which was 6 % less than the year before. Effectively, in 2017 SGE(I) withdrawals increased while imports and mine supply declined. Either there was an increase in recycled gold flowing through the Main Board, or more metal was withdrawn and exported from the International Board. Let’s have a closer look at Chinese imports and exports.

Chinese cross-border gold trade is notoriously difficult to measure as these numbers are omitted from China’s customs data. The best approach is to sum up all the flows of the countries that trade gold with China. Traditionally, Hong Kong has been the main conduit to the mainland. Not many years ago most analysts simply used Hong Kong net exports to China as a proxy for total Chinese imports. Since 2013, however, Hong Kong’s market share has steadily declined. In 2017 Hong Kong net exported 628 tonnes to China, which was about 58 % of what the mainland net absorbed.

The second largest net exporter to China in 2017 was Switzerland. The Swiss delivered (29 % of the cake at) 316 tonnes, nearly 30 % less than in 2016. Needless to say, Switzerland is one the largest gold trading hubs globally and gold moving from the Swiss refineries directly to the mainland is supplied from a host of other sources.

Direct gold export from Australia has been released up until June by free data provider COMTRADE. Though provisional, Australia’s shipments account for 20 tonnes (which is 40 tonnes annualized).

This is the first time that I report on Singapore’s gold trade data, despite Singapore’s significant growth in market share in recent years. When BullionStar first purchased trade statistics from Statlink Singapore in 2015, the data contained mismatches between the value and the weight reported, which made us unsure about the accuracy of the numbers. And hence we refrained from publishing them. However, these figures have now been revised and we can finally analyze what happened all the way back to 2013.

I’ll start by showing the previous mismatches and then explain what has changed. The numbers we got in 2015 disclosed that Singapore exported gold worth 108 million Singapore dollars (SGD) and weighing 101 tonnes to China in 2014. 108 million SGD translates into 85 million US dollars, which can be computed into 2 metric tonnes when divided by the annual average USD gold price. The mismatch between the value and weight reported was thus 99 tonnes (101 – 2 = 99).

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