Total Chinese Gold Reserves Nearly 16,000t

Chinese gold demand remains very strong throughout week 46 (November 10 – 14), withdrawals from the vaults of the Shanghai Gold Exchange (SGE) accounted for 52 tonnes. The year to date counter has reached 1,761 tonnes.
Below you can see a screen shot of the Chinese weekly SGE report disclosing total withdrawals.

Since we have confirmation from the SGE about the exact rules for Chinese domestic banks on importing gold through the Shanghai International Gold Exchange (SGEI), we know for sure trading volume on the SGEI can distort Chinese wholesale gold demand measured by SGE withdrawals (which also include SGEI withdrawals).
Given the fact total SGE withdrawals are very strong tells us the Chinese are buying massive amounts of gold, of which most is imported. In contrast SGEI trading volumes are quite low, which suggests domestic banks do not import through the SGEI (I only heard from one domestic bank having imported 500 Kg through the SGEI).
Consequently I think SGEI trading is primarily done by foreigners in the Shanghai Free Trade Zone. All this volume is concentrated in the iAu9999 physical gold contract. Because this is a physical contract (100 % margin), and because of the low volumes, SGEI trading is not likely to be speculation, but simple physical buying. If these foreigners that buy physical also withdrawal the gold to ship it home or leave it in the SGEI vaults we don’t know.

This post was published at Bullion Star on 24 Nov 2014.