LAWRIE WILLIAMS: Swiss gold imports and exports guide to the new reality
On a weekend which saw gold close at over $1,900, the latest gold import and export figures from Switzerland provide an extremely interesting sign of what is for the time being the new normal in global gold flows.
Switzerland, and its suite of gold refineries, is the ultimate middle-player in the global gold trade. An amount equivalent to around half global annual new mined gold production usually passes through the Swiss gold refineries every year. This may be sourced directly from operating gold mines, in the form of doré bullion for refining, from major gold centres like London for re-refining – mainly from the large good delivery gold bars into the smaller, and higher purity small bars and wafers which are the staple of the international gold trade, and scrap gold for re-melting and re-refining from a variety of sources. Thus the Swiss figures, which are released monthly, are a window on what is happening in terms of global gold flows at any given time.
Firstly we’ll take a look at the latest Swiss gold import figures which tell an interesting story (graphics courtesy of Nick Laird’s excellent www.goldchartsrus.com website received via Ed Steer’s daily newsletter):
What is particularly interesting about the above chart is that as well as imports from a number of gold producing nations the biggest flows came from Hong Kong and the UAE, both of which would normally be recipients of Swiss gold. Italy, another usual gold consumer showed prominently too. This suggests that the higher gold prices which prevailed in June prompted a number of usual gold consumers to reduce inventories and take profits, and also probably saw an increase in scrap supplies as individuals used their gold jewellery and artefacts to provide income where it was needed because of reduced earnings due to the coronavirus impact. This is gold doing its job of providing against a ‘rainy day’ in those countries where gold is often purchased as wealth protection insurance.
Now we’ll turn to Swiss gold exports for June. These tell an equally interesting story for those following gold supply and demand patterns:
What this shows is zero or minimal flows to the traditional gold consuming nations/territories – China, Hong Kong, India and the UAE. These normally top the Swiss gold export figures and demonstrate the huge turndown in Asian demand in particular as countries, and their populations, try to get to grips with the coronavirus impacts – perhaps coupled with a reluctance to buy at the current higher gold price levels.
The biggest recipient of Swiss gold exports in June was the U.S., followed by France, the UK, Germany and Turkey which demonstrates a significant change in sentiment toward gold - certainly in the first four of these – as the recognition dawns that the coronavirus-induced recession is likely to be deeper, and last longer, than the politicians would have us believe. The U.S. in particular is belatedly coming round to the seriousness of the pandemic with a record count in new infections and deaths recorded on Friday. Even President Trump, who has been attempting to convince the American people that the ‘China virus’, as he refers to it, is only a minor problem and would just fade away in the warmer summer weather, seems to be at long last coming round to take the incidence in its seemingly ever growing progress throughout the USA rather more seriously.
Make all of this what you will. Remember those cartoons of a few years ago showing Americans chucking gold over a wall to the Chinese and the latter throwing back dollars. Now it seems the boot is on the other foot. Gold is ever gaining credibility as a wealth protection panacea in the West, while those in the East are utilising it as a survival tool. In our view gold (and silver) has a way to run yet up to $2,000 (or $25 for silver) - and perhaps beyond. There may be corrections which halt their progress temporarily, but while the pandemic effects continue to blight Western economies, it may well be wise to put your faith in gold as a wealth protector at the very least. And if you are set on equity investment do look at the precious metals miners. These should be doing enormously well at the higher metal prices they are currently receiving.
25 Jul 2020