May 21/Ukraine moratorium on its debt basically sends message of a default/EU trying to change Greek governments/4 huge misses on USA data/Poor Chinese PMI sends Chinese stocks lower/

Good evening Ladies and Gentlemen:


 Sorry for being late.  I was out of the loop for most of the day and I had to get my computer fixed.

Everything is fine now.


Here are the following closes for gold and silver today:

Gold:  $1204.40 down $4.80 (comex closing time)

Silver $17.11 up 2 cents (comex closing time)


In the access market 5:15 pm

Gold $1206.20

Silver: $17.16



Gold/Silver trading: see kitco charts on the right side of the commentary

Following is a brief outline on gold and silver comex figures for today:


At the gold comex today, we had a poor delivery day, registering 0 notices serviced for nil oz.  Silver comex filed with 0 notices for nil oz


Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 243.60 tonnes for a loss of 59 tonnes over that period. 


In silver, the open interest fell  by 3 contracts as Wednesday’s silver price was up by 4 cents.   The total silver OI continues to remain extremely high with today’s reading at 174,334 contracts maintaining itself near multi-year highs despite a record low price. This dichotomy has been happening now for quite a while and defies logic. There is no doubt that the silver situation is scaring our bankers to no end.


In silver we had 0 notices served upon for nil oz.


In gold,  the total comex gold OI rests tonight at 427,203 for a loss of 1,394 contracts as gold was up by $2.00 yesterday. We had 0 notices served upon for nil oz.


Today, we had no changes in inventory at the GLD, thus the new inventory rests tonight at 715.26  tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. 


In silver, /we had no change in silver inventory at the SLV/Inventory rests at 317.930 million oz 


We have a few important stories to bring to your attention today…


1. Today we had the open interest in silver fall by 3 contracts as  silver was up in price yesterday by 4 cents.  The OI for gold fell by 1394 contracts down to 427,203 contracts as the price of gold was up  by $2.00 yesterday.

(report Harvey)

2,Today we had 1 major commentary on Greece:

(zero hedge )

3.Koos Jansen reports on the SGE gold calculations

4. Weak Chinese PMI sends Chinese stocks lower

5 The moratorium on the Ukrainian debt: basically a defacto default

(zero hedge)

6. 4 huge USA misses showing the USA economy faltering


Let us now head over to the comex and assess trading over there today.

Here are today’s comex results:

The total gold comex open interest fell by 1394 contracts from 428,597 down to 427,203 as gold was up by $2.00 yesterday (at the comex close).  We are in our next non active delivery month of May and here the OI fell by 15 contracts falling to 124. We had 8 notices filed yesterday.  Thus we lost 7 gold contracts or an additional 700 oz will not stand for delivery in May. The next big active delivery contract month is June and here the OI fell by 12,806 contracts down to 163,115. June is the second biggest delivery month on the comex gold calendar. First day notice is May 29.2015 so we have 6 trading sessions left. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was poor at 105,113. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day) was poor at 154,805 contracts as the bankers continued to use non backed paper against all of that demand as they knocked off a few speculators. Today we had 0 notices filed for nil oz.


And now for the wild silver comex results.  Silver OI fell by 3 contracts from 174,337 down to 174334 as the price of silver was up in price by 4 cents, with respect to Wednesday’s trading. We are into the active delivery month of May where the OI fell by 8 contracts down to 289. We had 1 contract filed upon with respect Wednesday’s trading.  So we lost 7 contracts or an additional 35,000 oz will not stand for delivery in this May delivery month. The estimated volume today was poor at 12,014 contracts (just comex sales during regular business hours. The confirmed volume  yesterday (regular plus access market) came in at 40,369 contracts which is good in volume.  We had 0 notices filed for nil oz today.



May initial standings

May 21.2015



Withdrawals from Dealers Inventory in oz    nil
Withdrawals from Customer Inventory in oz   nil
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz 500.000 oz HSBC, 
No of oz served (contracts) today 0 contracts (nil oz)
No of oz to be served (notices)  124 contracts(12,400) oz
Total monthly oz gold served (contracts) so far this month 15 contracts(1500 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month 164,151.8 oz
Total accumulative withdrawal of gold from the Customer inventory this month  53,054.3 oz


Today, we had 0 dealer transactions



total Dealer withdrawals: nil oz


we had 0 dealer deposit

total dealer deposit: nil oz
we had 0 customer withdrawals

total customer withdrawal: nil  oz


We had 1 customer deposits:

i) Into HSBC: 500.000 oz  ???? (not divisible by 32.15)


Total customer deposit:  500.00 oz


We had 0   adjustments:


Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account

To calculate the total number of gold ounces standing for the May contract month, we take the total number of notices filed so far for the month (15) x 100 oz  or 1500 oz , to which we add the difference between the open interest for the front month of May (124) and the number of notices served upon today (0) x 100 oz equals the number of ounces standing.


Thus the initial standings for gold for the May contract month:


No of notices served so far (15) x 100 oz  or ounces + {OI for the front month 124) – the number of  notices served upon today (0) x 100 oz which equals 13,900 oz standing so far in this month of May. (.4323 tonnes of gold)

we lost 700 oz of gold standing in this May delivery month. 


Total dealer inventory: 372,835.022 or 11.596 tonnes

Total gold inventory (dealer and customer) = 7,832,317.010. (243.60) tonnes)

Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 243.60 tonnes for a loss of 59 tonnes over that period. Lately the removals  have been rising!




And now for silver


May silver initial standings

May 21 2015:



Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 146,602.800(HSBC,Scotia)
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory  nil
No of oz served (contracts) 0 contracts  (nil oz)
No of oz to be served (notices) 289 contracts (1,445,000 oz)
Total monthly oz silver served (contracts) 2673 contracts (13,365,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month  126,359.680 oz
Total accumulative withdrawal  of silver from the Customer inventory this month 3,852,778.7  oz

Today, we had 0 deposits into the dealer account:

total dealer deposit: nil   oz


we had 0 dealer withdrawal:

total dealer withdrawal: nil oz


We had 0 customer deposits:


total customer deposit: nil oz


We had 2 customer withdrawals:

i) Out of HSBC:  95,263.10 oz

ii Out of Scotia:  51,339.700

total withdrawals from customer;  146,602.800 oz


we had 0 adjustments


Total dealer inventory: 60.702 million oz

Total of all silver inventory (dealer and customer) 178.762 million oz


The total number of notices filed today is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in May, we take the total number of notices filed for the month so far at (2673) x 5,000 oz  = 13,365,000 oz to which we add the difference between the open interest for the front month of April (289) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing.

Thus the initial standings for silver for the May contract month:

2673 (notices served so far) + { OI for front month of April (289) -number of notices served upon today (0} x 5000 oz = 14,810,000 oz of silver standing for the May contract month.

We lost 7 contracts or an additional 35,000 oz. will not stand for delivery in this active May delivery month.


for those wishing to see the rest of data today see: or




The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.

There is now evidence that the GLD and SLV are paper settling on the comex.

***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:

i) demand from paper gold shareholders

ii) demand from the bankers who then redeem for gold to send this gold onto China

vs no sellers of GLD paper.


And now the Gold inventory at the GLD:

May 21./no changes in gold inventory at the GLD/Inventory rests at 715.26 tonnes

May 20./we had another withdrawal of 2.98 tonnes of gold leaving the GLD. Inventory rests tonight at 715.26 tonnes

May 19/no changes in gold inventory at the GLD/Inventory at 718.24 tonnes

May 18/we lost another 5.67 tonnes of gold inventory at the GLD/Inventory rests at 718.24 tonnes

May 15./no change in gold inventory at the GLD/Inventory rests at 723.91 tonnes

May 14./ a huge withdrawal of 4.41 tonnes of gold/Inventory rests at 723.91 tonnes

May 13.2015: no change in inventory at the GLD/Inventory rests at 728.32 tonnes

May 12/no change in inventory at the GLD/inventory rests at 728.32 tonnes

May 11/ no changes at the GLD/Inventory rests at 728.32 tonnes

May 8/ they should call in the Serious Fraud squad as the owners of the GLD just saw 13.43 tonnes of gold leave its vaults heading for China:

Inventory tonight:  728.32 tonnes

May 7. no change in gold inventory at the GLD/741.75 tonnes

May 6/no change in gold inventory at the GLD/741.75 tonnes

may 5/no change in gold inventory at the GLD/741.75 tonnes

may 4/no change in gold inventory at the GLD./741.75 tonnes



May 21 GLD : 715.26  tonnes.




And now for silver (SLV)

May changes at the SLV/Inventory rests at 317.93 million oz

May 20/no changes at the SLV. Inventory rests at 317.93 million oz/

May 19.2015: we lost another 1.195 million oz of inventory at the SLV/Inventory rests at 317.93 million oz/

May 18.2015: we lost another 1.625 million oz of inventory at the SLV/Inventory rests tonight at 719.125 million oz

May 15./no change in silver inventory at the SLV/inventory rests tonight at 320.75 million oz

May 14/ a huge withdrawal of 1.912 million oz from the SLV/Inventory at 320.75 million oz.

May 13.2015: no changes at the SLV/Inventory rests at 322.662 million oz

May 12/no changes at the SLV/Inventory rests at 322.662 million oz

May 11/no changes at the SLV/Inventory rest at 322.662 million oz

May 8/ today we lost a huge 2.87 million oz of silver from the SLV/Inventory 322.662

May 7/no change in silver inventory/325.53 million oz

May 6/we had a huge withdrawal of 2.143 million oz of silver from the SLV/325.53 million oz

May 5/no change in silver inventory at the SLV/327.673 million oz

May 21/2015   no change in inventory/SLV inventory 317.930 million oz/




And now for our premiums to NAV for the funds I follow:


Note: Sprott silver fund now for the first time into the negative to NAV

Sprott and Central Fund of Canada.
(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)

1. Central Fund of Canada: traded at Negative 7.9% percent to NAV in usa funds and Negative 7.9% to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 60.5%

Percentage of fund in silver:39.2%

cash .3%

( May 21/2015)


2. Sprott silver fund (PSLV): Premium to NAV falls to-0.42%!!!!! NAV (May 21/2015)

3. Sprott gold fund (PHYS): premium to NAV falls to -20% to NAV(May 21/2015

Note: Sprott silver trust back  into negative territory at -42%.

Sprott physical gold trust is back into negative territory at -.20%

Central fund of Canada’s is still in jail.



Early morning trading from Asia and Europe last night:


Gold and silver trading from Europe overnight/and important physical



(courtesy Mark O’Byrne/Goldcore)

Gold Bullion “Less Sexy” Than Bitcoin … For Now

– “There is a global financial bubble”
– Stock markets and bond markets at all time record highs
– Medium to long term, gold’s “fundamentals look very sound”

Wilfred Frost of CNBC:

Do you think markets are adequately pricing in the risks that are present around the world today, particularly in Europe and the gold price itself?

Mark O’Byrne of GoldCore:

No, I don’t think so. I think in light of the “Grexit”, which you just mentioned, and also the “Brexit” and the overall debt positions globally — we would have a concern that there is a global financial bubble with stock markets at all time record highs, bond markets at all time record highs.

Meanwhile, gold prices have traded sideways, as you said, for a long period of time. We have had a serious correction and we believe there is consolidation. It looks undervalued. At the same time it could go lower before it goes higher. I think technically there is a weakness there and I think there is support at $1140 so short-term there is weakness, quite possibly, but medium to long term the fundamentals look very sound.

Wilfred Frost of CNBC:

Do you think that’s because we have had a breakaway from the idea that gold remains a great hedge towards any risk that’s out there — whether that’s inflation, deflation or just big geopolitical crises or is it just because markets don’t understand that those risks are present and they are ignoring them?

Mark O’Byrne of GoldCore:

I think the latter…for the moment.

I think it’s very like the 2003 to 2006-2007 period. The imbalances were building up in the system – meanwhile stock markets kept gallivanting higher and gold was a very under-owned asset and there wasn’t an appreciation of gold as a safe haven asset.

I think you are right.. I think that perception of gold … it has fallen out of favour. Sentiment towards gold is as bad as we have seen it since the 2003/2004 period.

Bitcoin is the more sexy thing. People want to talk about bitcoin and anything with “bit” in the name seems to be doing very well.

Whereas gold is very much less sexy. It’s less on the radar because it has performed quite badly in the short term. But, I suppose past performance is no guarantee of future returns and you have to look at the long-term store of value characteristics of gold as a proven hedging instrument and safe haven asset… over the long term. Not in the short term, obviously.


Carolin Roth of CNBC:

Mark, there simply is no inflationary pressure… I don’t see why gold should be moving higher at all. We are in a disinflationary or low inflation world. I don’t see why gold should be moving past the $1200 level that we’ve been bumping around over the last couple of months. And then we’ve got a dollar that’s moving higher. It’s a bit of a rough patch for the dollar right now but it’s still moving higher. I don’t see why anything we are seeing in gold is more than a dead cat bounce, essentially…?

Mark O’Byrne of GoldCore:

You’re right — there [are] no inflationary pressures … right now.

The question is “is that inflation building up?” And I think it probably is.

At the same time gold is not just a hedge against inflation — it’s actually not a really a hedge against inflation per se, it’s more of a hedge against serious inflation and stagflation. It’s also a hedge against deflation.

So when you have a Lehman Brothers moment or a potential “Grexit” there is that significant counterparty risk. And gold — because it has no counterparty risk if you own the actually physical asset — it is actually a hedge against deflation as well.

There is a huge body of academic research that shows that.

The CNBC interview, “Is Gold Becoming ‘Less Sexy’?” can be watched on CNBC here and on Yahoo Finance here



Today’s AM LBMA Gold Price was USD 1,209.60, EUR 1,084.36 and GBP 772.60 per ounce.
Yesterday’s AM LBMA Gold Price was USD 1,206.75, EUR 1,085.33 and GBP 777.57 per ounce.

Gold climbed $2.00 or 0.17 percent to $1,210.20 an ounce on yesterday, and silver remained unchanged at $17.12 an ounce. Overnight, gold in Singapore continued to flatline and near the end of day trading was steady at $1,209.60 an ounce.

Gold in EUR - 1 Week

Gold remained firm above $1,200 an ounce as yesterday’s Fed minutes contained no new information and showed that a June rate hike would be premature.

In spite of the news, outflows in the world’s largest gold-backed exchange-traded fund, New York-listed SPDR Gold, showed bearish sentiment. The fund holdings fell 0.41 percent to 715.26 tonnes yesterday its lowest in four months. Holdings fell another 2.98 tonnes yesterday, bringing its total outflow for the month to just over 24 tonnes

Recent dollar strength after some positive U.S. economic data has capped gold’s recent rise. A strong dollar makes gold more expensive for holders of other currencies reducing its role as a hedge.

The government of India has released a discussion paper on the gold monetisation scheme that the finance minister had proposed in his budget. The paper outlines that citizens can benefit from a tax-free interest on gold that is deposited with the banks. It proposes individuals and institutions to deposit gold as low as 30 grams.

In the past gold deposit scheme the government only allowed a minimum quantity of 500g of gold. This allows Indians to use their wedding jewellery or other gifts to finance other business endeavors, family loans etc. However, Indians like to take possession of their gold and wear it and keep it in the house due to a distrust of banks.

The new scheme to relieve the Indians of their gold is unlikely to succeed due to their cultural preference to possess their gold — be that coins, bars and especially jewellery.

On the Comex in New York gold futures for June delivery tacked on $1.50, or 0.12%, to trade at $1,210.20 a troy ounce and futures were in a tight range between $1,207.70 and $1,212.30. Silver futures on the Comex for July delivery climbed 9.9 cents, or 0.58%, to trade at $17.21 a troy ounce.

In mid morning European trading gold is up 0.07 percent at $1,210.83 an ounce. Silver is up 0.53 percent at $17.19 an ounce and platinum is unchanged at $1,155.00 an ounce.



(courtesy GATA)

Ray Dalio Slams Buffett For Being “Wrong On Gold”, Says “Social Disruption” Is Inevitable

Given the recent resurgence of precious metals and the looming ‘endgame’ of Federal Reserve faith, we thought dusting off the following 160 seconds of uncomfortable truth from Bridgewater’s Ray Dalio was worthwhile…

we’re beyond the point of being able to successfully manage this… and I worry about another leg down in the economy causing social disruption… Hitler came to power in 1933 because of the social tension between the factions.


Gold should be a part of everybody’s portfolio to some degree because… it is the alternative money.


Warren Buffett is making a big mistake.”

Dalio explains…


Huge commentary from Koos Jansen:
Posted on 20 May 2015 by

PBOC Gold Purchases: Separating Facts from Speculation

As we are approaching the moment the PBOC unveils they have more physical gold in reserve than what has been disclosed since 2009, 1054 tonnes, we will again analyze everything there is to find about PBOC gold purchases. Grasping the exact size of their current official gold reserves is unfortunately impossible, but if we understand why, “not-knowing” actually forms a piece of the puzzle. The purpose of this post is to get an overview of all data and clues in order to separate the facts from speculation.From there we’ll estimate how much above ground gold is held in China mainland – official (PBOC) and private reserves.

I have been writing for a long time the PBOC does not buy any gold trough the Shanghai Gold Exchange (SGE), therefor PBOC purchases must be seen in addition to the flows of gold going through the famous bourse in Shanghai. However, I deem it necessary to contemplate this assumption one more time. I’ll tell you what I know and what I think.

We have a fairly good view on how much gold is going through the SGE and is net imported into China, after which it’s not allowed to be exported and thus is accumulated in the mainland (read this post for an analysis on Chinese gold trade rules). By adding domestic mine supply we can estimate how much gold is held in reserves by the Chinese. But, are any of these visible gold flows bought by the PBOC? If not, how much does the PBOC buy abroad in addition to the visible flows we see entering China mainland through the SGE? These questions are the springboard for our investigation.

Please make sure you have read this post, about the basic mechanics of the Chinese gold market with the SGE at its core, before you continue.

Why The PBOC Would Not Buy Gold Through The SGE

1) The get a better grip on this subject it helps if we understand why the PBOC would buy gold in the first place, so let’s sum up all possible incentives. The main objectives for the PBOC to accumulate gold are:

  • Supporting the renminbi for its internationalization (adding trust and credibility).
  • Owning hard currency as the cornerstone of capitalism.
  • Owning reserves that protect the Chinese economy from external/internal shocks and inflation.
  • Owning reserves that are not controlled by a foreign nation (the US).
  • Diversifying its excessively large US dollar (USD) reserves.
  • Hedge their USD reserves.
  • Overthrow the USD hegemony.

After reading this list it should be clear the PBOC rather buys gold with their foreign exchange reserves than with renminbi – China’s FX reserves are worth about $3.7 trillion and mostly held in USD. The amount of gold currently on the PBOC’s balance sheet is disproportionate to the amount of USD held. Hence, the PBOC needs to exchange USD for gold (less USD, more gold). All gold on the SGE is quoted in renminbi, meaning the PBOC can’t exchange USD with gold through the SGE. Therefor, they are more likely to buy gold abroad and these purchases should be added to thevisible gold flows we see entering the mainland through the SGE – later on we’ll do some number crunching.

2) It should be said the SGE is a subsidiary of the PBOC. In 2002 China’s central bank created the SGE for the domestic Chinese gold market, for the people to trade gold in renminbi. Gold bar sizes available on the SGE vary from 50 gram to 12.5 Kg, though the volume of 12.5 Kg contracts (Au99.5 and iAu99.5) ever traded is close to nil.Only the 50g, 100g, 1 Kg and 3 Kg bars are traded, which are consumer sizes. This is a sign the PBOC is not likely to be buying gold through the SGE (gold in larger denominations such as 12.5 Kg bars is cheaper and more attractive for buyers such as the PBOC).  

3) The reason we don’t know how much Chinese official gold reserves are is because this is the best kept secret in China. The PBOC buys gold in utmost secret or it would influence the market and geo-politics. If we think from the PBOC’s strategy, why would they leave a single trace when buying gold? Why would the PBOC buy any gold through the SGE for the world to see? I think they wouldn’t.

4) Furthermore, why would any gold we can see being exported by Hong Kong, the UK, Switzerland, Australia or Singapore to China mainland be destined for the PBOC? All gold (bullion) trade on planet earth that is visible  (that shows up in customs reports) is classified as non-monetary (usually HS code 7108.1100, 7108.1200, 7108.1310 or 7108.1380). Monetary gold is not published in customs reports (HS code 7108.2000, which captures data that is not publically disclosed). I don’t see it likely the PBOC would insist exporting countries to disclose the gold as non-monetary trade, for the world to see, while it can easily be hidden as monetary trade. Therefor, all visible gold exports to China are not PBOC purchases in my opinion.

To illustrate the difference between monetary gold and non-monetary gold trade let’s have a look at the UK. Data about all gold traded in and out of the UK – the London Bullion Market – was not publically available a few years ago. UK customs (HMRC) told me in 2014 all gold import and export used to be hidden under HS code 7108.2000 (monetary). They wrote me:

For trade prior to 2014, the UK had a long standing exemption from the International reporting requirements for gold. This means that gold held as a ‘store of wealth’ had not been recorded as trade in goods. It had previously been classified as monetary gold, which is excluded from trade in goods as per international guidelines. 

In order to bring the UK recording of non-monetary gold in line with international standards and legislation, the majority of the UK trade originally classified in the monetary gold commodity code (7108.2000) was reclassified as non-monetary gold. All that Monetary gold re-classified as Non-Monetary gold was put into the comcode [HS] 7108.1310. This was for the period 2005 to 2013 and allows better comparability with the statistics produced by other countries.

Switzerland enjoyed the same long standing exemption from International reporting. Hence, I think in any country gold trade can be disclosed in customs reports under HS code 7108.xxxx if no one is making a fuss, or it can be hidden under HS code 7108.2000.

The PBOC (or its proxies like SAFE and CIC) is likely to buy bullion from places like the UK, US, Switzerland, Hong Kong or Singapore; the big gold hubs. Possibly, gold has at some point been imported into one of these countries, and disclosed in their respective customs reports as such, after which it was exported to China, without being disclosed in any customs reports. Let’s take Hong Kong for example. Since January 2013 Hong Kong has net imported 836 tonnes of gold, illustrated in the charts below.

Hong Kong gold trade March 2015

Hong Kong monthly gold trade January 2013 - March 2015

Some of this gold could have been visibly (non-monetary trade) imported into Hong Kong, and then invisibly (monetary trade) exported to PBOC vaults in the mainland. Resulting in less residual gold present in Hong Kong than data from the local Census Department indicates.

5) The majority of global gold trade (total volume) is done through the London Bullion Market. This is not a central exchange like the COMEX, but an Over The Counter (OTC) market where buyers and sellers connect (electronically) one on one to trade gold without nosy analysts taking notes. Gold traded can be Loco London – located in London – or elsewhere. The London Bullion Market is ideal for the PBOC, as opposed to the SGE. I don’t rule out there is goldinvisibly exported from the UK as well.

6) Another reason for the PBOC to buy abroad would be because it’s cheaper. Gold on the SGE often attracts a premium over London spot. Why pay a premium? (Especially, if one is buying large quantities.)

7) Gold industry expert Jim Rickards has written in The Death Of Money (2014):

A senior manager of G4S, one of the world’s leading secure logistics firms, recently revealed to a gold industry executive that he had personally transported gold into China by land through central Asian mountain passes at the head of a column of People’s Liberation Army tanks and armored transport vehicles. This gold was in the form of the 400- ounce “good delivery” bars favored by central banks rather than the smaller one- kilo bars imported through regular channels and favored by retail investors.

This is very interesting. Not only because it demonstrates the PBOC prefers 400 ounce (12.5 Kg) bars over 1 Kg bars, but more so because it confirms the PBOC does not import gold through visible channels. This strengthens my assumption the PBOC does not buy any gold through the SGE. Note, all visible import (general trade) is required to be sold through the SGE in China.

8) On the LBMA Bullion Market Forum in Singapore on 25 June, 2014, a speech was delivered by Xu Luode, Chairman of the Shanghai Gold Exchange. Let’s have a look at a snippet:

Last year, China imported 1,540 tonnes of gold. Such imports, together with the 430 tonnes of gold we produced ourselves, means that we have, in effect, supplied approximately 2,000 tonnes of gold last year.

The 2,000 tonnes of gold were consumed by consumers in China. Of course, we all know that the Chinese ‘dama’ [middle-aged women] accounts for a significant proportion in purchasing gold. So last year, our gold exchange’s inventory reduced by nearly 2,200 tonnes, of which 200 tonnes was recycled gold.

Xu mentions the amount of gold imported into China mainland in 2013 (1,540 tonnes). Would Xu be allowed to break China’s best kept secret on an LBMA forum? Would any of these imports end up at the PBOC? I don’t think so. Moreover,Xu explicitly says all imports and mine output (and scrap supply) has been sold through the SGE system to consumers, not the PBOC.

Economic person of the year 2011 in China, Sun Zhaoxue, who was also the President of the China Gold Association and General Manager of the China National Gold Group Corporation, wrote in August 2012:

Individual investment demand is an important component of China’s gold reserve system, we should encourage individual investment demand for gold. Practice shows that gold possession by citizens is an effective supplement to national reserves and is very important to national financial security.

Sun makes a clear distinction between consumer purchases (SGE flows) and “national reserves”.

9) When examining SGE gold purchases, by withdrawals from SGE designated vaults, we can depict a seasonal trend of strong demand around New Year (and in April 2013 when the price of gold made its famous nosedive). The Chinese typically buy gold in this period as gifts for each other. Does this trend look like PBOC activity?

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 18 dip

10) Though at first the WGC thought the PBOC would buy gold through the SGE, last thing I read from them on China they seemed to have to have changed their stance (Understanding China’s gold market, July 2014):

China’s authorities have a range of options when purchasing gold. They may acquire some of the gold which flows into China; there has been no shortage of that. Butthere are reasons why they may prefer to buy gold on international markets: gold sold on the SGE is priced in yuan and prospective buyers – for example, the PBoC with large multi-currency reserves – may rather use US dollars than purchasing domestically-priced gold. The international market would have a lot more liquidity too.

11) For what it’s worth, I have two sources in the mainland, including a teacher in ‘economics and the gold market’ at the Henan University of Economics and Law in Zhengzhou City, that both tell me the PBOC would not buy gold through the SGE.

12) Last but not least, the SGE President of the Transaction Department confirmed to Na Liu from CNC Asset Management Ltd. the PBOC does not buy any gold through the SGE. Na Liu wrote in a report about 2013 SGE withdrawals:

…none of the 2,200 tonnes of gold was bought by the Chinese central bank. The President said: “The PBOC does not buy gold through the SGE.”

Why The PBOC Buys Gold Through The SGE

1) There are also arguments the PBOC does buy gold through the SGE. For example, in the previous chart we can see SGE customers are very keen on buying the dips. Is this buying pattern caused by clever consumers or is the PBOC perhaps in play here? (My response would be, currently the SGE has 8,358 institutional customers – and 7.33 million individual customers, I believe these buyers can perfectly be responsible for the buying pattern we see on the SGE with regard to withdrawals in relation to the price of gold.)

2) More important is a lot of metal on the balance sheets of Chinese banks. Although the annual reports of the banks do rarely specify these holdings other than “precious metals”, presumably they can be gold, silver, platinum, gold savings accounts, gold swaps, leases, pledges and derivatives. MacQuarie bank has estimated by the end of 2014 approximately 1,800 tonnes of gold was spread over all Chinese banks’ balance sheets. Though unclear what kind of gold we’re actually talking about, I’m positive all this gold has at some point been through the SGE system and therefor belongs to the visible gold flows. I will research the banks balance sheet topic extensively for a separate post,for now let’s be open minded to the possibility some of this gold can be added to the PBOC balance sheet in the future. Song Xin, President of the China Gold Association, General Manager of the China National Gold Group Corporation and Party Secretary, wrote I an opinion editorial in July 2014:

Establish a Gold bank. We need to establish our gold bank as soon as possible, and enable it to break the barrier between the commodity and monetary world. It can further help us acquire reserves and give us more say and control in the gold market. It may be guided under the PBOC and led by the China Gold Association, involving leading gold industry companies and commercial banks, and it’s business would include: gold pricing (fix), gold financing and leasing, gold-guaranteed payments, gold saving accounts, gold lending, gold production chain financing and issuance and trading of paper gold and other gold investments. This gold bank can then naturally use market-oriented methods to change commodity gold into monetary gold reserves, thus help us increase our strategic gold reserves.   

3) Probably the most significant reason people think the PBOC buys gold through the SGE is the huge gap between SGE withdrawals and consumer demand as reported by the World Gold Council (WGC). Let’s have a look at this gap in a chart.

WGC demand vs SGE withdrawals 2

As you can see there is an immense gap between the purple bars (WGC demand) and the red bars (SGE withdrawals). Possibly some of this gold has been moved to PBOC vaults.

I’ve extensively been writing on these pages “the gap” was not filled by PBOC purchases – for a lot of reasons. I’ll let go of this analysis here, simply to be able to present all pros and cons.

4) There are periods in which gold on the SGE (Au99.99) trades at a discount to London/NY spot. When the price in China is lower than in the UK this means there is more supply in Shanghai than in London. Gold is currently not allowed by the PBOC to be exported from the mainland; for foreigners the gold in China can’t be physically moved out of the mainland in general trade (however, I think there is possibility for SGEI members to arbitrage an SGE discount, that is to buy Au99.99 (long) and at the same time hedge on the COMEX (short) when the discount has narrowed close all positions and strike a profit).

In the periods of persistent discounts on the SGE – i.e. March 2014 – withdrawals remain relatively high. Is the PBOC buying the discounted gold to take possession and support SGE trading?

I shall rest here. For all pros and cons we think of many counter arguments, it’s an endless story. The purpose of the listed arguments is to provide you with as much information about the Chinese gold market and PBOC purchases as possible.

Does The PBOC Buy Gold?

Do we know the PBOC buys gold at all? Yes, Jim Rickards’ story illustrates what goes on behind the scenes – gold is imported from central Asia – and his writings are certainly not all we have. I’ll briefly present a few clues, after which we’ll try to make some sense of it all.

1) From a study by Zhang Bingnan, Vice President of the China Gold Association, (August 2012):

Forecast the optimal gold reserve capacity in the next 20 years. The conclusion is: 2020, China’s gold optimal reserves should be 5,787 tonnes – 6,750 tonnes. 2030 should be 8,995 tonnes – 10,532 tonnes.

Estimated PBOC gold reserves growth (by Zhang)

2) Yi Gang, deputy Chinese central bank governor, stated (March 2013):

We will always keep gold in mind as an option in reserve assets and investments. We are able to import 500-600 tons a year, or more, but we will also take into consideration a stable gold market. If the Chinese government were to buy too much gold, gold prices would surge, a scenario that will hurt Chinese consumers. We can only invest about 1-2 percent of the foreign exchange reserves into gold because the market is too small.

3) From Song Xin, President of the China Gold Association, (July 2014):

That is why, in order for gold to fulfill its destined mission, we must raise our [official] gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US.

4) Deutsche Bank Markets Research (November 2014):

In another example, the Chinese government’s open market purchases of roughly 500 tonnes per year have not prevented the gold price from plummeting in recent years.

5) Roland Wang, World Gold Council China Managing Director, said (March 26, 2015):

China currently holds about 1.6 percent of its foreign exchange reserves in gold, which is relatively low compared with developed countries and some developing countries, WGC China managing director Roland Wang said.

“The ideal amount should be at least 5 percent of its total forex reserves,” Wang told Reuters in an interview in Hong Kong.

Remarkably, the exact same day Reuters published Wang’s statement Chinese newswire Caixin published a story on gold written by Hedge Fund manager Li Sheng (March 26, 2015):

Gold accounts for only 1.6 percent of China’s forex reserves. This is only a fraction of the figure in the United States and many other developed countries. If China ever increased the level to 5 percent, it would have an enormous impact on global demand for gold.

Funny enough, Li mentions the exact same numbers as Wang from the World Gold Council on the same day: 1.6 % and 5 % of total FX reserves. If China would announce they hold 5 % of total reserves in gold, this would translate into roughly 5,000 tonnes. 

6) Jeremy East, Managing Director Global Head, Metals Trading, Standard Chartered Bank (June 25, 2014):

I was at the Shanghai Derivatives Forum at the end of May and one of the speakers was a representative of the [China] Gold Association. He gave us quite an interesting insight into the flavor of what is going on in China from a strategic perspective. Some of the things he talked about included that China planned to change the landscape of world gold markets. He talked about having a strong currency and about having that currency backed by gold, like the US dollar. He also talked about people holding more gold and encouraging more people to hold gold. That is not just individuals, but also the central bank. From that perspective, it is also getting gold into the country in terms of encouraging domestic gold production, but also investing in international mining companies and sourcing the product from them. China has got a very friendly gold strategy.

I do not rule out the PBOC buys gold through overseas mines. (By the way, China is not planning to “back” their currency with gold in my opinion, they’re more likely to “support” their currency with gold at no fixed parity.)

What many of these clues have in common is that they hint the PBOC buys about 500 tonnes a year and thus its official gold reserves are approximately 3,500 tonnes. Unfortunately, we can’t know anything for sure. We just have to wait for the Chinese government to make a decision and disclose a number they see fit – the number disclosed can be less of what they actually have.

Facts And Speculation

Let’s chew on some numbers to separate facts from speculation. In the first chart below I’ve plotted a conservative estimate of the total above ground reserves in China mainland on March 31, 2015. This estimate is based on the assumption the PBOC has bought zero gold since 2009. The starting point is 1994, when the Chinese gold market was not yet liberated, at that time the PBOC was the Chinese gold market, it had the monopoly on all gold trade. 

Total Estimated Chinese Gold Reserves 1994 - 2015 exx PBOC
Conservative estimate

Let me explain how I compiled this chart. Precious Metals Insights (PMI) has estimated that 2,500 tonnes of gold amongst the population were present in the mainland in 1994; that’s the dark grey jewelry base you can see in the chart.

According to the PBOC their official reserves in 1994 accounted for 394 tonnes. Since then China is said to be an “importer”, suggesting mined gold before 1994 could have been exported. In the next screen shot from the China Gold Market Report 2010 we can read the clue “China has been a gold importer since the 1990s” (/1994).

Screen Shot 2015-05-17 at 11.48.53 PM

To support the theory China has only seriously began importing gold a few years ago – not in the eighties – have a look the next chart on gold trade between Hong Kong and China. Net imports ramp up in 2010.  Other countries than Hong Kong, such as Switzerland, started to visibly export to China after 2010.

Hong Kong - CN yearly gold trade January 2001 - March 2015

Chinese domestic mines produced 90 tonnes in 1994. This is a chart showing Chinese mining since 1994:

Chinese mining 1994-2015

The starting point in the first “estimate chart” above is 2,500 (jewelry base) + 394 (official reserves) + 90 (mining) = 2,984 tonnes in 1994. Subsequently I added yearly domestic mining, cumulative, as the Chinese didn’t export any gold since that year, and cumulative imports.

In 2001 The PBOC announced their official reserves had increased to 500 tonnes, in 2003 to 600 tonnes and in 2009 to 1,054 tonnes. Because the Chinese gold market wasn’t fully liberalized in that period I have subtracted all PBOC gains until 2003 from cumulative domestic mining. From 2003 to 2009 total supply (scrap + mine + import from Hong Kong) wasn’t sufficient to meet total consumer demand and 454 tonnes PBOC purchases. Although the PBOC claims all purchases before 2009 were done from domestic mines and scrap, I don’t think that’s possible. Hence, I think the PBOC started invisible import somewhere in between 2003 and 2009.

Fact is, the result is that the minimum of total above ground gold reserves in China mainland on March 31, 2015, was 13,177 tonnes (1,054 tonnes in official reserves and 12,123 tonnes in private reserves).This does not capture gold in the black market, that thrived before 2002, neither any assets from wealthy Chinese families. It’s the most conservative estimate I can make using all data I could find. This estimate can also be used if the PBOC has predominantly bought gold through the SGE since 2009, for these purchases would have been captured invisible import numbers or in domestic mining, both flows go through the SGE. If so, additional PBOC purchases, everything north of 1,054 tonnes, would have to be subtracted from the 12,123 tonnes in private reserves.

However, in my opinion the PBOC has not bought gold through the SGE since 2009, but abroad through the major global gold hubs and possibly from overseas mines. The next chart is a copy of the previous conservative estimate, now supplemented by 500 tonnes a year since 2009 for PBOC purchases, which I have not subtracted from cumulative domestic mining or cumulative import, as my assumption is this gold has invisibly been imported and not bought through the SGE.