China Gold Import Jan-Sep 777t. Who’s Supplying?

by Koos Jansen, BullionStar:

While the gold price is slowly crawling upward in the shadow of the current cryptocurrency boom, China continues to import huge tonnages of yellow metal. As usual, Chinese investors bought on the price dips in the past quarters, steadfastly accumulating for a rainy day. The Chinese appear to be price sensitive regarding gold, as was mentioned in the most recent World Gold Council Demand Trends report, and can also be observed by Shanghai Gold Exchange (SGE) premiums – going up when the gold price goes down – and by withdrawals from the vaults of the SGE which are often increasing when the price declines. Net inflow into China accounted for an estimated 777 tonnes in the first three quarters of 2017, annualized that’s 1,036 tonnes.

Exhibit 1.

Exhibit 1.

Demonstrated in the chart above Chinese gold imports and known gold demand by the Rest Of the World (ROW) add up to thousands of tonnes more than what the ROW produces from its mines. One might wonder where Chinese gold imports come from, which is why I thought it would be interesting to analyse as detailed as possible who’s supplying China. Is one country, or only the West, supplying China? Although absolute facts are difficult to cement, my conclusion is that China is supplied by a wide variety of countries on several continents this year.

China doesn’t publish its gold import figures so we have to measure exports from other countries to the Middle Kingdom for this exercise. This year the primary hubs that exported to China have been Switzerland and Hong Kong.

The Swiss net exported 18 tonnes to China in September, which brings the year to date total to 221 tonnes, down 4 percent year on year. Because Switzerland is the global refining centre, a storage centre and trading hub I’ve plotted a chart showing its gross imports and exports per region.

Exhibit 2. I’ve included Asian countries with significant mining output that are net exporters at all times, like Uzbekistan, in ROW to get the best perspective of above ground stock movement.

Exhibit 2. I’ve included Asian countries with significant mining output that are net exporters at all times, like Uzbekistan, in ROW to get the best perspective of above ground stock movement.

In the above chart we can see that Switzerland was a net exporter to China in all months, but in most months Switzerland in total was a net importer, displayed by the red line; for each of those months Switzerland itself was not the supplier to China.

Combined with data from Eurostat (on the UK’s total net flow) and USGS (on the US’ total net flow) the Swiss data tells me that gold moving from Switzerland to China had several sources this year. In January, for example, it was the UK that was supplying – being a net exporter in total and a large exporter to Switzerland. I must add that in theory little gold from the UK arrived in China via Switzerland, as the numbers don’t say which bar from whom was sent to who. But we can say “the UK made it possible China bought an X amount of gold in the open market at the prevailing price that month”. The same approach suggests that in June it was the US and Switzerland (Switzerland being a net exporter that month), and in September it was Asia (including the Middle-East) supplying gold to customers of Swiss refineries at the prevailing prices. There was not one source of above ground stock that exported to China (via Switzerland) as far as I can see.

The Hong Kong Census And Statistics Department (HKCSD) has recently published data indicating China absorbed 30 tonnes from the Special Administrative Region in September, down 8 percent relative to August and down 44 percent compared to September last year. A decline was expected because China has stimulated direct gold imports circumventing Hong Kong since 2014. Nevertheless, Hong Kong net exported 515 tonnes to the mainland through the first three quarters of 2017 (down 15 percent year on year).

Exhibit 3.

Exhibit 3.

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