Where is all this gold going?!

Sberbank (Switzerland) AG has been granted international membership of the Shanghai Gold Exchange (SGE), a global centre for the physical trade of gold, silver and other precious metals;

The membership gives Sberbank CIB direct access to the Chinese gold market;

"The membership will open the opportunity for us to participate in a greater capacity as a supplier to the world's largest consumer of gold."

Since July 2011, China has collected $2.2 trillion in US trade surplus dollars and recycled none of them (net) into US Treasury debt. This after China recycled 50%+ of it's trade surplus into US Treasury's over the previous 11 years. So what has China been buying with all those dollars since 2011? Among other things, buying an awful lot of gold. Perhaps as much as a trillion dollars worth since July 2011...and on this ongoing gold buying, perhaps 5,000 tons but even potentially in excess of 10,000 tons, gold prices have fallen by a third!?! Conversely, on the buyers strike in Treasury's, yields fell by a third?!?

There has been much conjecture since 2014 about the increasing numbers in the “precious metals” category on the balance sheets of listed Chinese commercial banks. By the end of 2015 China’s largest banks were holding RMB 598 billion in precious metals.

There are 16 listed Chinese commercial banks on China’s A-share market but Huaxia Bank didn’t disclose its precious metals holding in its annual report. If all aggregated precious metals holdings relate to gold, the upper bound is approximately 2,682 tonnes of gold.

In the Gold Survey 2016 report by GFMS that covers the global gold market for calendar year 2015 Chinese gold consumption was assessed at 867 tonnes. As Chinese wholesale demand, measured by withdrawals from Shanghai Gold Exchange designated vaults, accounted for 2,596 tonnes in 2015 the difference reached an extraordinary peak for the year. In an attempt to explain the 1,729 tonne gap GFMS presents three brand new (misleading) arguments in the Gold Survey 2016 and reused one old argument, while it abandoned five arguments previously put forward in Gold Survey reports and by GFMS employees at forums. Very few of all these arguments have ever proven to be valid, illustrated by the fact that GFMS perpetually keeps making up new ones, and thus gold investors around the world continue to be fooled about Chinese gold demand. For some reason GFMS is restrained in disclosing that any individual or institution in China can directly buy and withdraw gold at the Shanghai Gold Exchange, which is the most significant reason for the discrepancy in question.

According to my estimates true Chinese gold demand in 2015 must have been north of 2,250 tonnes.

China's annual gold consumption is expected to be 1,200 tonnes by 2020, state-owned Shanghai Securities News reported on Wednesday, citing an estimate from a Ministry of Industry and Information Technology (MIIT) official.

China, the world's top gold consumer and miner, consumed a total of 528.52 tonnes of gold in the first six months of 2016, down 7.68 percent from a year earlier, Shanghai Securities News said on Tuesday citing the country's gold association.

In comparison, China produced 229.102 tonnes of gold in the first half of this year, up 0.16 per cent from the same period a year ago, Shanghai Securities News said.

At today’s Bloomberg event, Roland Wang, the World Gold Council’s Managing Director for China, put the gold holdings of the Chinese commercial banks at the end of 2015 at 2,690 tonnes – which will presumably have risen further during the first four months of the current year. China’s ‘official’ gold holdings as reported to the IMF, plus its own reported 9 tonne gold purchase in April stand currently at around 1,808 tonnes. If we add in the commercial bank numbers we come up with a combined total of just short of 4,500 tonnes

China's gold demand was 867 tons in 2015, down 7 percent from a year earlier. The downward trend continued in the first three months of this year. Consumption came in at about 318 tons in the first quarter, off nearly 4 percent from the same period in 2015.

The Hong Kong gold exchange has teamed up with Industrial and Commercial Bank of China (ICBC) to launch gold trading services in the Qianhai free trade zone in September, providing custodial and physical settlement service targeted at commercial users and precious metals traders, according to the exchange head.

The local gold bourse plans to build a HK$1 billion permanent gold vault facility, including a bonded warehouse, trading floor and related offices areas in Qianhai, however the project will take two years before completion, according to Cheung.

To challenge the US dollar hegemony and increase its power in the global realm of finance, China has a potent gold strategy. Whilst the State Council is preparing itself for the inevitable decay of the current international monetary system, it has firmly embraced gold in its economy. With a staggering pace the government has developed the Chinese domestic gold market, stimulated private gold accumulation and increased its official gold reserves in order to ensure financial stability and support the internationalisation of the renminbi.