There had been an eerie silence at the Comex in recent weeks, where after registered gold tumbled to a record 120K ounces in early December nothing much had changed, an in fact the total amount of physical deliverable aka “registered” gold, had stayed practically unchanged at 275K ounces all throughout January.
Until today, when in the latest update from the Comex vault, we learn that a whopping 201,345 ounces of Registered gold had been de-warranted at the owner’s request, and shifted into the Eligible category, reducing the total mount of Comex Registered gold by 73%, from 275K to just 74K overnight.
This took place as a result of adjustments at vaults belonging to Scotia Mocatta (-95K ounces), HSBC (-85K ounces), and Brink’s (-21K ounces).
Meanwhile, the aggregate gold open interest remained largely unchanged, at just about 40 million ounces.
Gold output has peaked in this commodities cycle, according to mining industry leaders and analysts who say few big projects will reach the point of production amid falling prices.
The lack of new assets and declining output at existing mines is expected to curb gold supply, a glimmer of hope for surviving producers of the precious metal in an industry coming to terms with a rush of investment when prices were far higher.
Kelvin Dushnisky, president of Barrick Gold, the world’s largest gold miner by annual output, said: “Falling grades and production levels, a lack of new discoveries, and extended project development timelines are bullish for the medium and long-term gold price outlook.”
Gold has been one of the commodities hit by the worst environment for mining in more than a decade. The price has declined more than 40 per cent from its 2011 peak, to a level where many gold miners struggle to recoup the costs of extraction.
This year some had expected gold to be under pressure from higher interest rates in the US, after the Federal Reserve began to tighten monetary policy last month.
However the gold price has risen 2.7 per cent so far in 2016, while stock markets around the world have tumbled. A controversial investment with a variety of competing theories for what determines the price, gold has provided comfort for investors who see the inert metal as a haven amid economic and political turmoil.
Miners hope limits to fresh gold supply will increase the chances of longer-term recovery.
India’s gold import in December 2015 is estimated to have crossed 100 tonnes following sharp increase in demand for the precious metal during the first and the last week of the month when prices fell sharply world over.
With 105 tonnes of estimated imports in December, total gross import in 2015 crossed 900 tonnes which was 25 per cent more than 2014. In terms of value, it was up about 12 per cent at around $35 billion, as December import bill was around $3.7 billion. India imported $31.17 billion worth gold in 2014.
Sudheesh Nambiath, lead analyst, GFMS Thomson Reuters said, “Gold demand increased in December when prices were at the lowest level in 2015, and as retailers increased their inventory to optimum levels. Our estimate for December import is 107 tonnes.” In 2015, just over 700 tonnes gold was net import as rest was duty-free imports for re-export after value addition.
Despite sharp spurt in quantity imported, import bill went up by only 12 per cent because of low prices ininternational market. Average international gold price fell by 8 per cent in 2015 while the price oscillated in a $246 range. In other words, gold prices in international market fell by nearly 20% from the annual high. The import bill low also because more imports took place when prices fell below $1,100 per ounce.
On the other hand, significant increase in import of unrefined or dore gold happened at a premium pricing, which at times was a percentage over the LBMA price. Its share in total supply increased from some 15% to 30% in 2015. Mostly dore is imported at a premium over the LBMA gold PM price because of heavy competition at sourcing, given the 2 per cent differential that refiners in excise-free zone enjoy. Dore gold import in net gold purity terms was more than 200 tonnes as per estimates of GFMS Thomson Reuters.
Gold import in November was 98 tonnes. In March and August 2015, gold import had crossed 100 tonnes mark as prices were lower, according to GFMS.
China’s largest bank is buying the lease on Deutsche Bank’s huge London gold and silver vault, enlarging its footprint in the city’s bullion market, according to reports.
ICBC Standard Bank, which took a controlling stake in London-based Global Markets business last year, has also applied to become a clearing member of the London gold and silver over-the-counter business.
The Chinese and South African lender is aiming to fill the gap left by Western banks, which are retreating from commodities to cut costs and reduce regulatory burden.
“They [ICBC Standard Bank] have taken on the lease for the vault,” Reuters quoted a source as saying.
Currently, five banks – JP Morgan, HSBC, Bank of Nova Scotia, Barclays and UBS – settle daily bullion transactions between dealers, amounting to more than $5 trillion-worth of metal each year in the London over-the-counter market.
These banks are shareholders of the London Precious Metals Clearing company. They will decide whether to accept or reject ICBC Standard Bank’s application within the next few months.
Amid ongoing efforts by Indian authorities to monetize (read confiscate) the citizenry’s precious metals (which we most recently detailed as an utter failure here and here), it appears the current suppressed low prices for gold have reignited demand and thus smuggling. Following the biggest seizure of smuggled gold earlier this year, The Guardian reports a 42-year-old-man, claiming to be a government official, was caught smuggling$15,000 of gold bars (hidden in his rectum) after police noted him “walking suspiciously.”
Russia continues to add to its gold reserves and added another 700,000 ounces in November or another 22 metric tonnes, and analysts believe this buying will continue and may intensify in the coming months.
Russian ally Kazakhstan increased its gold reserves for a 38th month to 7.03 million ounces in November from 6.96 million ounces a month earlier.
The latest large increase in Russia’s gold reserves – a “buying spree” as reported onReuters Africa has again gone largely unnoticed by most analysts. Indeed, the important monetary and geopolitical ramifications continue to be largely ignored in western media.
Russia’s total gold reserves have now increased to 44.8 million ounces or around 1,392.8 metric tonnes, with a current value of just $48.3 billion. Russia’s total FX reserves are $371.2 billion and their gold allocation remains just 13% of their total reserves.
The share of gold in Russian foreign exchange reserves is much lower than in many other countries such as the U.S., Italy and France. Russian diversification into gold is likely to continue and could intensify if relations with the U.S. and NATO powers further deteriorate.
While gold prices continue to languish in the doldrums and are on course for their worst month since 2013, global demand and especially Chinese retail, investor and official demand continues to remain very robust. Indeed, China looks likely to see a new record demand for gold annually again in 2015.
Shanghai Gold Exchange (SGE) deliveries as reported last Friday were again very robust with another 54.063 tonnes of bullion deliveries for the week ending November 20th. Shanghai Gold Exchange (SGE) deliveries remain the best indicator or proxy for actual Chinese demand and appear to show Chinese gold demand is heading for a new record in 2015 (see charts below).
China added another 14 tonnes or 450,000 troy ounces of gold bullion to its foreign exchange reserves in October.
Gold reserves rose to 1,722.5 metric tonnes or 55.38 million troy ounces at the end of October. This was up from 54.93 million at the end of September, data from the People’s Bank of China (PBOC) showed today.
China’s increasingly powerful central bank has been adding between 14 tonnes and 19 tonnes of gold every month. The strong demand and positive view of gold comes as the country looks to diversify its massive foreign exchange reserves of over $3.5 trillion.
Two months ago we gave our most recent review of what we dubbed the soft launch of India’s gold confiscation program, when the government’s “voluntary”gold-to-paper backed bonds conversion went, well, gold: back then, Modi’s government approved the gold monetization plan and sale of sovereign bonds proposed several months ago by the Reserve Bank of India.
The plans were first announced by Finance Minister Arun Jaitley in February as measures to woo Indians away from physical gold. As Jaitley explained the deposited gold would be auctioned, used to replenish the Reserve Bank of India’s reserves or be lent to jewelers. Subsequently, gold “depositors” can redeem in gold or cash depending on the tenure. Said otherwise, an attempt to “fractionally-reserve” gold, which would then be used a source of gold rehypothecation in the country that despite all the government’s efforts, remains starved for physical gold.
Now, one week after the gold scheme’s official launch, we take a look at how has it has done so far. In one word, so far the “gold monetization” plan has been a disaster with a laughable 30 kilograms in gold tendered by the people from physical into “government-backed” form.
The Times of India has the details, and reports that in the first-week “collection by the government’s sovereign gold bond scheme has been rather tepid with less than Rs 10 crore being reported to the Reserve Bank of India (RBI). The scheme, which closes on November 20, allows investors to purchase between 2 and 500 grams of gold-equivalent.
The amount of gold withdrawn from the vaults of the Shanghai Gold Exchange (SGE), which equals Chinese wholesale gold demand, accounted for 45 tonnes in the trading week that ended on 6 November. Year to date SGE withdrawals have reached an astonishing 2,210 tonnes, which is more than the full year record set in 2013 at 2,197 tonnes. With nearly two months of trading left in the Chinese gold market, SGE withdrawals are estimated to reach more than 2,600 tonnes.
Please read The Mechanics Of The Chinese Domestic Gold Market for a comprehensive explanation of the relationship between SGE withdrawals and Chinese wholesale gold demand.
If Chinese gold import will be higher than in 2013 remains to be seen. Two years ago China imported 1,507 tonnes in standard gold bars. According to my estimates China is on track to import 1,400 tonnes in 2015. This year’s SGE withdrawals can have been supplied by more recycled gold than in 2013 that in part replaces gold import.