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LAWRIE WILLIAMS: Huge switch in direction of Swiss gold exports in 2019

If anything points to the enormous changes in gold demand last year one only has to look at Swiss gold export figures to appreciate this.  In 2018 86% of Swiss gold exports were destined for Asia and the Middle East, while last year this fell to around 44%, while exports to the UK came in at 44% also.  What this signified was a dramatic fall in demand from Asian nations – notably China and Hong Kong, - while the big inflow to the UK was almost certainly for metal which would be held by the big gold ETFs which mostly keep their gold in UK gold vaults. 

And here is the similar chart for the prior year:


We calculated that in 2018 the amount of gold passing through the Swiss refineries and then exported amounted to the equivalent of around 46% of new mined gold production.  In 2019 this proportion fell to around 36% but it still makes the Swiss refineries probably the most important in the world when it comes to the principal conduit for newly mined gold heading to consumers worldwide.

How come this small landlocked European nation is so important to global gold flows? Switzerland has a batch of major gold refineries which specialise in taking doré bullion from mines, scrap gold and large refined gold bars and producing high purity gold in the small kilobar sizes and wafers most in demand in Asia and the Middle East.  The amounts flowing through Switzerland have probably fallen in recent years due to the building of new gold refineries in Asia and the Middle East (some owned by the Swiss refiners) but nevertheless the amount of gold routed through Switzerland remains substantial.  Indeed if one takes Chinese gold production (which all remains in China) of around 400 tonnes out of the equation, Swiss refineries still  handle an amount of gold equivalent to over 40% of global new mined non-Chinese output.

Probably the principal reason for the fall in gold exports in 2019 has been the gold ETF demand in the UK.  In the past the UK, which is the centre of the global gold trade, has been the principal provider of gold to the Swiss refineries in the form of good delivery gold bars which are, like the other sources of Swiss gold imports,  remelted and re-refined to the smaller sizes and purities more popular in what used to be the principal markets of Asia and the Middle East.  But with demand from the gold ETFs which tend to store their gold in larger bar sizes undoubtedly some gold has changed hands directly, thus bypassing Switzerland altogether.  At least that is the logical explanation as we see it.

As we pointed out in earlier articles mainland Chinese gold demand last year diminished sharply, which would tie in with the big fall in Swiss exports over the year.  Deliveries via Hong Kong also fell substantially.  January demand this year was also heavily down and we would anticipate the February figure will be exceptionally low given the trading impact of the Chinese New Year holiday combined with the coronavirus.  We should receive figures which will enable us to assess this in the next week or so.  Luckily for gold supply/demand fundamentals gold ETF demand remains strong and is so far countering the Chinese falls.  However the coronavirus may boost safe haven buying in some countries if it is felt equities could collapse further,  Counter to this though is that the virus could lead to reduced demand should wealth collapse along with equities and forced strong asset sales to maintain liquidity is also on the cards.  Thus both equity and precious metals markets are likely to remain volatile until there is a more certain outcome to the results of virus control and containment measures.

04 Mar 2020 | Categories: Gold

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