LAWRIE WILLIAMS: Gold, GFMS, China Demand – Koos speaks out
Bullionstar’s Koos Jansen has been carrying on a several year-long crusade against precious metals analytical consultancy, GFMS, for publishing what he describes as incomplete and misleadingstatistics which, he reckons, hugely underestimate true Chinese gold demand. But it should also be borne in mind that other highly respected consultancies like Metals Focus (which usurped GFMS as supplier of statistical data to the World Gold Council) and America’s CPM Group, although they may not be quite as downbeat on the Chinese statistics as GFMS, also produce hugely lower estimates for Chinese gold consumption than Jansen’s preferred measure of Shanghai Gold Exchange withdrawal figures.
What is more all the above consultancies have tended to come up from time to time with differing reasoning for the apparent consumption discrepancy – all of which have been stated with apparent absolute certainty – until the next year when the past year's reasoning is replaced by the next theory.
In a new posting bullionstar.com - Debunking GFMS’ Gold Demand Statistics – Jansen looks at all GFMS’ latest opinions on this, and why they are all, in his view, incorrect – indeed he describes them as a cover-up, which also has to apply to the theories on this matter promulgated by the other major precious metals analysts. (It is hardly surprising that Metals Focus’ analysis comes up with something close to that of GFMS, although perhaps not quite so downbeat, is because the latter consultancy utilises the services of Hong Kong based consultancy Precious Metals Insights whose managing director is Philip Klapwijk former executive chairman of GFMS and who will thus have had ultimate responsibility for the original GFMS research on Chinese consumption data.) Given Metals Focus provides, as noted above, the data used by The World Gold Council in its pronouncements, this is often the data used by global media as the definitive Chinese gold demand data.
This might not be a problem if the GFMS and Metals Focus/WGC data was anywhere close to the kinds of figures which Jansen comes up with, but the figures they use are only less than half those suggested by Jansen based on SGE gold withdrawals. In part this is because what the consultancies count as gold demand ignores financial/institutional demand, which can be substantial, and which is one of the reasons why Jansen considers the data misleading. Last year, for example, SGE withdrawals amounted to over 2,596 tonnes of gold whereas GFMS calculations for Chinese consumption came in at less than 900 tonnes - a figure also picked up by much of the world’s mainstream media. The difference between that and the SGE figure is ENORMOUS.
We have pointed out here beforehand that the real, and obvious, anomaly comes in when you look at actual gold supply into China. If we add known Chinese gold imports – from Hong Kong, Switzerland, the UK, the USA and Australia, all of which publish their gold export figures - and add in Chinese gold production (China is the world’s No. 1 gold producer – some 450 tonnes in 2015) plus an estimate of scrap supply, not to mention direct imports from countries which don’t publish such statistics, we come up with a combined figure of around 2,000 tonnes or more (if anything Jansen’s calculations are even higher). As gold exports from China are officially prohibited – which isn’t to say that absolutely zero goes out, but close – these figures would seem to make the GFMS calculations even more unlikely given whst comes in doesn't go out again.
This year though Chinese gold demand is going to be lower by almost any standards. Up until end-October SGE withdrawals were 1,560 tonnes – 28% down on the record 2015 year and with the reported import clampdown, although expectations for November withdrawals, due to be announced this week or next, are likely to be far higher than in recent months due to restocking demand ahead of the Chinese New Year holiday, the annual total is likely to be under 2,000 tonnes for the first time since 2012.
Even at this reduced level, Chinese gold demand, as represented by the SGE figures is still running at over 60% of global gold output. Rising premiums also suggest Indian gold demand is back on the up which could be seen as positive for the global gold price but the immediate price triggers are probably the result of the constitutional referendum in Italy, the Austrian Presidential vote and the likelihood of the U.S. Fed raising rates when it meets next week (December 13th and 14th)- seen as high!