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Old 10-25-2013, 08:06 AM   #1
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Sprott's spat with the WGC

I found this interesting:

Quote :
Dear World Gold Council Executives;

As you very well know, the business environment for gold producers has been extremely challenging over the past few years. While demand for physical gold remains extremely strong, prices on the COMEX have fallen precipitously. This contradictory situation is the single most important obstacle to a healthy gold mining industry.

In my opinion, the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading. It is not the first time that GFMS (and World Gold Council) statistics have come under pressure from the investment community. In his now celebrated “The 1998 Gold Book Annual”, Frank Veneroso demonstrated the inconsistencies in GFMS gold demand data and proceeded to show how they grossly underestimated demand. The tremendous increase in the price of gold over the following years vindicated his conclusions.

For very different reasons, we are now at a similar pivotal point for gold. Over the past few years, we have seen incredible incremental demand from emerging markets. Indeed, so much so that the People’s Bank of China has announced that it is planning to increase the number of firms allowed to import and export gold and ease restrictions on individual buyers.1 In India, the government has been fighting a losing battle against gold imports by imposing import taxes and restrictions.2 Moreover, Non-Western Central Banks from around the world are replacing their U.S. dollar reserves by increasing their holdings of gold.3

But, demand statistics reported by the World Gold Council (WGC) consistently misrepresent reality, mostly with regard to demand from Asia.

To illustrate my point, Table 1 below contrasts mine production with demand from some of the world’s largest gold consumers. According to WGC/GFMS data, the world will mine, on an annualized basis, about 2,800 tonnes of gold for 2013.

But, I adjusted these figures to reflect mine production from China and Russia, which never leaves the country and is used solely to satisfy domestic demand. After adjustments, we have a total world mine supply of about 2,140 tonnes. On the demand side, I make some in-house adjustments to better represent demand from emerging markets. To proxy for gold consumption in China, Hong Kong, India, Thailand and Turkey, I use net imports of gold, as reported by their various governmental agencies. While imports might in general be an imperfect proxy for demand, those countries see very little re-export of what they import and keep most of it for themselves, so it is not unreasonable to assume that what they import they “consume”, on top of their domestic production. To this I add the demand, as estimated by the GFMS, from other countries and that of central banks. I annualized the year-to-date figures and found that for this year, annualized total demand is approximately 5,200 tonnes. On that basis, “core” annualized demand is approximately 3,000 tonnes more than mine supply.
...
More (long): http://www.sprott.com/markets-at-a-g...-gold-council/

The WGC responded with some weak sauce (the comments to the article are entertaining):

http://blogs.barrons.com/focusonfund...-data-quality/
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Old 11-18-2013, 08:52 AM   #2
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...
Although the Swiss, discreet as they are, do not publish country specific with whom they trade gold, nevertheless, their total trade numbers are very clear. Being one of the biggest trading, refining and storage centers in the world, vast amounts of gold cross their borders. In 2012 they have imported 2267 tons of gold and exported 1550 tons. On average import has transcended export by 25 % in recent years, which emphasizes Switzerland's storage function over this period. This has changed as the Swiss have imported 2420 tons and exported 2184 tons in the first three quarters of this year. Meaning not only trade is surging, but also that the gap between import and export is tightening. As was confirmed by Switzerland's biggest refinery, all gold coming in from London is being remelted into kilobars and sent forward to China. If we annualize gold export for 2013 the outcome is 2912 tons, 1362 tons more than in 2012. Gold that partially is shipped to Hong Kong, partially directly to Shanghai.

...

Just the official route has brought 826 tons of gold to China year to date, annualized 1100 tons. If we add 400 tons Chinese mining supply the total is 1500 tons othat will meet demand.

Whilst the World Gold Council estimates Chinese consumer demand will be over 1000 tons, my estimate is it will be over 2000 tons. In my humble opinion just the official route raises a few eyebrows to the WGC demand numbers. If we then take into account gold is also shipped into China through other ports than Hong Kong, more eyebrows are raised.

In a future post I will describe in detail how I calculated my estimate.
http://koosjansen.blogspot.com/2013/...on-update.html
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Old 01-26-2014, 10:07 AM   #3
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Koos has an excellent website for info on the gold flow to the East.

Here is another very good article from his site:

http://www.ingoldwetrust.ch/alex-sta...r-been-tighter

Quote :
Alex Stanczyk: Physical Supply Never Been Tighter

Wednesday I had the privilege again to interview Alex Stanczyk, Chief Market Strategist for the Anglo Far- East group of companies, who just returned from a trip to Switzerland. Alex confirmed to me the distribution of gold from west to east is not slowing down whatsoever. Refineries in Switzerland are still working 24 hour a day to cast bars for China, sometimes having difficulties sourcing the gold..

What was the purpose of your trip to Switzerland?

The purpose was two fold. We go to Switzerland once a year as part of our governance, we’re required to have an annual inspection of the gold, that was the main purpose of the trip. But in addition to that we also liked to talk to the refineries. It was myself, it was the managing director of Anglo Far-East mister Philip Judge, and Jim Rickards went with us, he sits on our advisory board.

We met with the managing director of the largest refinery in Switzerland and spend about two hours talking to him, we learned some very interesting things. Whats going on in the gold market as far as the price, is I think very counter intuitive. Everybody understands, knows and believes the price should be higher than it is, but it isn’t. There’s confusion in the marketplace, and there are two reactions; the reaction in the west is fear, confusion and uncertainty; the reaction in the east is buying. Now, this gentleman we were talking to probably has a better idea of physical gold flow than anybody else globally. He sees what is coming from the mines, he sees what is coming from the UK, and all over the world, as well as where its going. He indicated the price didn’t make sense because he has got so much fabrication demand. They put on three shifts, they’re working 24 hours a day, and originally he thought that would wind down at some point. Well, they’ve been doing it all year. Every time he thinks its going to slow down, he gets more orders, more orders, more orders. They have expanded the plant to where it almost doubles their capacity. 70 % of their kilobar fabrication is going to China, at apace of 10 tons a week. That’s from one refinery, now remember there are 4 of these big ones [refineries] in Switzerland.

That makes sense because withdraws from the Shanghai Gold Exchange vaults are 40 tons a week on average this year.

Well, there you go.

…At this Swiss refinery there have been several times this year on which they were unable to source gold, this shocked me. They’re bringing in good delivery bars, scrap and dore from the mines, basically all they can get their hands on. This gentleman has been in the business for 37 years, he was there during the last bull market in the late seventies. I asked him when was the last time this has happened, that he was unable to source gold, he said never. And I clarified it, I asked: let me make sure if I understand what you’re saying to me, in the last 37 years you’ve worked in the gold industry this has never happened? He said: this has never happened.


…There was one other comment that was fascinating, he said sometimes when they get gold in, it’s coming from the back corners of the vaults. He knew this because these were good delivery bars marked in the sixties. This is a huge supply squeeze and its worse than anything that has happened in the last four decades. At some point there is going to be a massive squeeze on the price.

…All four Swiss refineries combined may be doing as much as [supply China] 2000 tons this year. That doesn’t include what the Perth Mint ships to China, it doesn’t include the 400 tons the Chinese mined domestically, and it doesn’t include what they mined offshore with the mining companies they own all over the world. I suspect that total Chinese demand can reach as much as total global mining production this year.

…He also noted, in China there are 6 LBMA refineries but he has never seen a Chinese gold bar, they’re keeping it all. Gold that goes into China is like going into a black-hole. I don’t think it will be available on the market for decades to come, which only tightens the physical supply.

…The Chinese aren’t buying it for trading, they’re buying it as part of their wealth foundation for future generations. When the communists came to power in 1949, Chiang Kai-shek and the nationalist army fled the country and took all the gold with them. On that moment China had no gold, although they had thousands of years of history with gold, they had to start all over. I think the importance of rebuilding their gold reserves had been there in the last decades, but it accelerated the last three years or so, encouraging their people heavily to buy.

I also heard there is strong kilobar demand from the Middel East.

That’s because Dubai does a lot of clearing for that entire area. Given what’s happening to Saudi Arabia, and the potential that Saudi Arabia is separating itself from the United States, essentially the whole petro-dollar is at risk for them. Normally what they would do is sell their oil for dollars and then buy US treasuries, but if they’re gonna separate from the US they’re not gonna buy US treasuries. So what are they gonna buy?

Gold?

Yes, possibly. That’s what we think. We don’t think they will be buying US treasuries, they supported them for 40 years, but the US has basically stabbed them in the back.

Alasdair Macleod actually said, on the Keiser Report, that a lot of 400 ounce bars from the Middle East are being refined in Switzerland into 1 K 4 nine bars [a gold bar of 1 kilogram, 99.99 % purity] and then sent back. Is the 1 K 4 nine bar becoming some new form of liquidity?

Possibly, all the demand that we can see in China is for 1 K bars. They want kilo, and they want four nines.

When do think the price is going to rise?

I’m not comfortable to put a time on this. What I do know is that we are on the threshold of a situation that has never occurred before. A squeeze is imminent, it could take 3 months or 6 months, but all I know is that it’s coming, and I know that with 100 % certainty.

Written by Koos Jansen on December 5, 2013 at 8:08 pm
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Old 01-26-2014, 10:43 AM   #4
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Quote :
At this Swiss refinery there have been several times this year on which they were unable to source gold, this shocked me. They’re bringing in good delivery bars, scrap and dore from the mines, basically all they can get their hands on. This gentleman has been in the business for 37 years, he was there during the last bull market in the late seventies. I asked him when was the last time this has happened, that he was unable to source gold, he said never. And I clarified it, I asked: let me make sure if I understand what you’re saying to me, in the last 37 years you’ve worked in the gold industry this has never happened? He said: this has never happened.
Fascinating, Thank you for posting this Unobtanium


Quote :
When do think the price is going to rise?
I’m not comfortable to put a time on this. What I do know is that we are on the threshold of a situation that has never occurred before. A squeeze is imminent, it could take 3 months or 6 months, but all I know is that it’s coming, and I know that with 100 % certainty.
We are in the dark before the dawn.
Knowing this doesnt make it any easier to go through though.
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Old 01-26-2014, 03:03 PM   #5
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Their inability to source gold could also be partly explained by the drop in supply of scrap gold.
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Old 02-19-2014, 11:56 AM   #6
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Koos Jansen with another breakdown on the WGC's questionable reporting of China's Q4 2013 gold demand:

http://www.ingoldwetrust.ch/world-go...-gold-demand-2
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Old 02-19-2014, 12:19 PM   #7
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Good stuff in this Rickards interview too:
Quote :
...
James Rickards: I met with the largest gold refinery in the world, the head of precious metals operations. He’s recently expanded his own capacity; they put a whole new area in their factory and it’s highly automated. And he’s working triple shifts, he is working 24 hours a day to produce gold.

He is producing 20 tons a week and half of that is going to China. So that’s 10 tons a week, which is about 500 tons a year. And that’s just one refinery, not counting all the others, that’s a lot of gold.
...
http://www.theepochtimes.com/n3/5144...splace-dollar/
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Old 03-05-2014, 07:34 AM   #8
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Quote :
The Shanghai Gold Exchange (SGE) is back on schedule publishing their trade reports on friday that cover the previous trading week. Last friday’s report covered the trading week February 17 – 21. For me the most important numbers is always the amount of physical gold withdrawn from the vaults as this equals Chinese wholesale demand. Withdrawals in week 8 (February 17 – 21) accounted for 49 tonnes, year to date there have been 369 tonnes withdrawn from the vaults. If we divide the later by the number of days of the corresponding period (52) we come up with an average demand of 7.09 tonnes per day – this includes weekends and the one week holiday at Lunar year when the SGE was closed.

I got a few request regarding demand compared to last year and daily moving averages. Great ideas which I have carried out (request are always welcome, we’re doing this together). Compared to last year demand is up 51 % over the same period. ...
More: http://www.ingoldwetrust.ch/chinese-...mand-ytd-up-51
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