How The West Has Been Selling Gold Into A Black Hole

Among other topics in this article Koos shows what effect china’s gold purchases has on the price of gold.

Koos Jansen

Koos Jansen

Deep value, special situations, research analyst, newsletter provider

Originally published on

Kindly be advised to have read my posts The Mechanics Of The Chinese Domestic Gold Market and The Great Physical Gold Supply & Demand Illusion before continuing.

In December 2016, Chinese wholesale gold demand, measured by withdrawals from the vaults of the Shanghai Gold Exchange (SGE), accounted for 196 tonnes, down 9% from November. December was still a strong month for SGE withdrawals due to the fact that the gold price trended lower before briefly spiking at the end of the month, and the Chinese prefer to buy gold when the price declines (see exhibit 1).

In total, Chinese wholesale gold demand reached an astonishing 1,970 tonnes in 2016. But will these huge tonnages bought by China ever have an impact on the gold price? I think it will.

Exhibit 1. Exhibit 2.

As in previous years, SGE withdrawals were mostly supplied through imports in 2016 at approximately 1,300 tonnes. And as in previous years, SGE withdrawals were roughly twice the size of Chinese consumer gold demand. The latter is published by all “leading” consultancy firms, such as the World Gold Council and Thomson Reuters GFMS. Because these firms have systematically underreported and eclipsed Chinese gold demand since 2007, a significant share of the financial industry is unaware China has imported 5,000 tonnes in the past years, which is not allowed to be exported.

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