By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com …..
The World Gold Council today released its “Gold Demand Trends Full Year 2013” report. This latest report alleges that China’s jewelry demand for 2013 (on page 19 of the report) was 150.7 tons (about 4.85 million troy ounces), that the Chinese bar and coin investment demand for the year came to 65.1 tons (about 2.1 million ounces, and that the Chinese central bank did not add any gold reserves last year. That is an estimated total demand of 6.95 Million Troy Ounces
The World Gold Council is the same organization that has never satisfactorily explained how the Chinese reported in April 2009 that they had added 454 (14.6 million ounces) tons of central bank gold reserves since 2003 but these same annual Gold Demand Trends reports had never picked either the supply of this quantity of gold nor the demand for it. In other words, the WGC has a track record of not producing accurate information about gold supply and demand in China.
Why should we now believe that their 2013 data is accurate?
In this same report, the WGC states that 2012 global mine output was 2,824.4 tons. The US Geological Survey in January 2013 estimated that 2012 global mine output at 2,700 tons including 370 tons from China. The WGC report does not break out mining supply from China for 2012 or 2013. So, in the area of gold supply, it is possible that the WGC is in the ballpark of the real figure.
It is a totally different story when it comes to reporting demand in China.
The Shanghai Gold Exchange delivered 2,181 tons (70.1 million ounces) of physical gold to buyers in 2013. Once physical gold has been delivered from the SGE, it cannot be returned to the Exchange without undergoing meltdown, refining, and fabrication into new gold bars. Thus, claims by some that the SGE data are inflated and misleading because the same bars are repeatedly put on and taken off the Exchange are not valid.
The China Gold Association reports that 2013 gold “usage” in China amounted to 1,176.4 tons (37.8 million ounces).
Liu Xu, an analyst at Capital Futures Co. in Beijing who is quoted in the above news story, estimates that total Chinese demand in 2013, including central bank additions of reserves, exceeded 1,400 tons (about 45 million ounces) last year.
Researcher Koos Jansen calculates that total Chinese demand in 2013 came to 2,197 tons (almost 70.7 million ounces).
The World Gold Council report is used by analysts and so-called precious metals experts around the world, supposedly because their information is “reliable.” There is a huge discrepancy between the WGC alleging that total Chinese gold demand in 2013 came to only about 7 million ounces, while the China Gold Association claims the number (excluding central bank purchases) was 37.8 million ounces, Liu Xu estimates total demand at about 45 million ounces, and Koos Jansen puts demand at more than 70 million ounces.
Published on Feb 17, 2014 Marcus Grubb, Managing Director Investment, talks through the findings from the Full Year 2013 Gold Demand Trends report
Who is right? It is likely that none of them have it correct. But I sure would not allocate my investment dollars on the basis that the World Gold Council figure is correct. To the extent they are once again wrong at being far too low on the demand side, expect gold prices in 2014 and beyond to be much higher than being forecasted by most analysts and so-called gold experts.
Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (under “News & Articles) . His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.
In an interview on Business News Network in Canada, Jeffrey Christian, the Managing Director of CPM Group stated that 2013 Chinese gold demand was 37.8 million ounces, the same as the China Gold Association.
The significance of Christian’s statement is that the two most cited sources for gold supply and demand statistics are GFMS, who did the report for the World Gold Council, and CPM Group. They rarely match in their data, but are almost always in the ballpark. In this instance, however, GFMS claims that 2013 Chinese gold demand was 81.5% lower than CPM Group. As I said, there is a huge discrepancy where each party should explain and defend their methodology.
Jeffrey Christian’s interview was on February 14. The link to view it is http://watch.bnn.ca/#clip1069394.
I am congenitally suspicious of ANY numbers for China on pretty much ANYTHING they say or have said about their economy. They are a totalitarian regime completely lacking in transparency (or truth) of any kind. Making personal investing decisions based on what is or is not happening in China is about as foolish as anything ever gets. I would NEVER count on China to aid me in any decisions. I discount China out of hand because basically all “news” out of China is baked in a casserole of lies.