Swiss Gold Stats Point To Big Continuing Supply/Demand Anomalies

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Includes: GLD, IAU
by: Lawrence Williams

Summary

The latest Swiss gold import and export data has been announced and shows a continuation of the anomalies noted earlier this year.

The largest source of Swiss gold imports in June was the UAE - which is normally major export market.

The largest destination for Swiss gold exports was the UK - in normal years a principal source for Swiss gold imports.

We have seen some strange reversals this year in Swiss import and export figures for gold and these continued in June. Switzerland, where several of the world's most important gold refineries are located, forms a major global conduit for refining gold scrap, doré bullion from mines and for re-refining larger size gold bars into the smaller sizes mostly needed in the retail and investment sector around the world.

For most recent years the primary source for this gold has been the UK, which itself imports and refines gold from around the world, but here the supply to the banks' gold vaults is mostly in London Good Delivery gold bars of 400 kg plus and some of these were in turn re-exported to Switzerland for conversion to the smaller sizes. Principal gold export destinations from the Swiss refineries had usually been to Hong Kong, India, the Chinese mainland, the United Arab Emirates (UAE) and other major market centers where gold is made into jewelry, artifacts and for investment and hoarding for which the London Good Delivery bars are mostly too large in size and cost.

But this year it has been all change as we have noted before - See: Swiss gold import/export data: Update with charts and thus we have been paying particularly attention to the official Swiss figures for gold imports and exports which are normally announced on or around the 20th of the month. Thus the statistics for June have just come in and serve only to confirm the continuation of this anomalous trend reversal which we have seen so far this year.

The most pertinent examples of the trend are that the UAE (which does not have any mined gold production) has become the largest exporter of gold to Switzerland, followed by Hong Kong - likewise, while the UK has become by far the biggest importer of Swiss gold. Meanwhile the second largest destination for Swiss gold exports is, as might be expected, Hong Kong, but the U.S. rose to be the third largest export market for Swiss gold in June, only then followed by India and China.

Table 1. The 10 largest sources for Swiss gold imports June 2016

Rank

Country

Gold Tonnes imported

% of Total Gold imported

1.

UAE

48.0

28.9

2.

Hong Kong

16.4

9.9

3.

Thailand

15.6

9.4

4.

USA

14.3

8.6

5=.

Ghana

5.3

3.2

5=.

Italy

5.3

3.2

7.

Venezuela

4.9

3.0

8.

Germany

4.3

2.6

9.

Peru

4.0

2.4

10.

Argentina

3.1

1.9

Rest of World

44.9

27.0

Total Swiss Gold Imports June

166.1

100

Click to enlarge

Source: goldchartsrus.com and lawrieongold.com

Looking at the import table above, the principal surprises have been the exports from the first three nations, all major gold jewelry manufacturing centers. Again, some of the high returns of gold to Switzerland could be accounted for by a drop-off in local gold demand in all three nations/territories, coupled with an opportunity to take advantage of the higher gold prices through the year to date and take profits while running down excess inventory. Ultimately this will likely reverse again as Asian demand picks up. The Swiss figures should thus be watched closely as they are very much a trend indicator.

Of the other major exporters of gold to Switzerland, both the U.S. and Ghana are significant gold mining countries, as are Peru and Argentina, so those figures do not surprise. Venezuela too produces gold, but here it has recently seen central bank gold sales - which appear to have been handled via the Bank for International Settlements (BIS) in Switzerland, so the June figure could just be a minor continuation of this process. Italy is another important fabricator of gold jewelry, so the trend here could be similar to that noted with the top three, but on a much smaller scale.

Table 2. The 10 largest destinations for Swiss gold exports June 2016

Rank

Country

Gold Tonnes exported

% of Total Gold exported

1.

UK

65.0

37.9

2.

Hong Kong

34.8

20.3

3.

USA

20.5

11.9

4.

India

20.3

11.8

5.

Mainland China

18.1

10.5

6.

Germany

3.2

1.9

7.

Singapore

2.0

1.2

8.

Italy

1.6

0.9

9.

France

1.4

0.8

10.

UAE

1.1

0.6

Rest of World

3.7

2.2

Total Swiss Gold Exports June

171.7

100

Click to enlarge

Source: goldchartsrus.com and lawrieongold.com

Similarly Swiss gold exports should also be watched to pick up on these distinct global gold flow trends. We have speculated before that the huge volume of Swiss gold returning to London has been due to a combination of big purchases into the gold ETFs which vault their gold in London - notably SPDR Gold Shares (NYSEARCA:GLD), comfortably the biggest of all the gold ETFs - coupled with perhaps a shortage of non-attributable physical gold available in the London vaults.

There are things we can glean from these gold movements if, indeed, they are due what is perhaps the conclusion noted above. The UK (London) inflows, as opposed to what have been substantial outflows in prior years, could be taken as indirect confirmation that GLD does indeed hold the physical gold to the extent it claims (There has always been a segment of the gold bug community that has expressed doubts about this). It will be interesting to see if the Swiss exports back to the UK continue at anything like the June levels in July, given something of a sharp drop in GLD inflows so far this month - indeed in the latest weeks we have been seeing some significant outflows and the only reason July has seen positive inflows so far has been due to a massive rise of 28.8 tonnes over the July 4th holiday weekend. Since then outflows have predominated.

Thus, at the time of writing, GLD has only expanded its gold holdings by a relatively tiny 9 tonnes so far in July, compared with 79 tonnes in June, 44 tonnes in May, a fairly small 7 tonnes in April, 33 tonnes in March, a massive 105 tonnes in February and 39 tonnes in January. Meanwhile the gold price has risen by around $250 from its 2015 year-end close, seemingly in line with the big ETF influx, but it too has seen something of a dip this month as there has so far been something of a minor reversal in the ETF flows.

It is certainly possible that gold holding availability in London was put under a major strain back with the huge February inflows into GLD, from which it has been battling to get back on track since. An upturn in liquidations out of GLD in the second half of the current month, which looks like it could be occurring as investors take some profits, could thus ease the strain on London vaults and may lead to a big drop in Swiss gold exports back to the UK when the July figures are released by the Swiss Customs Administration. We shall see.

As we also noted in the article linked above, the U.S. too has become a net importer of Swiss gold in recent months, which may also indicate some tightness in COMEX vaults in terms of availability of attributable gold - in part again to feed the second largest of the U.S. gold ETFs, the iShares Gold Trust (NYSEARCA:IAU) which holds some of its gold in New York - it also vaults gold in London and Toronto. IAU has also seen some large gold inflows during the current year.

Otherwise the Swiss gold exports follow the fairly normal pattern with most going to Hong Kong, India and direct to the Chinese mainland. These do suggest a small pickup in demand in July from China (taking Hong Kong and mainland figures together) and also from India, but not significantly so with the world's top two gold consumers thus taking important amounts of gold from the Swiss refineries, but not as much as over the past three years - so far. This year the downturn in Asian gold demand has been countered by the flows of the precious metal into the gold ETFs. There is a hint now that if ETF flows are now weaker this may coincide with a pickup in Asian demand in the second half of the year. Continue to watch the gold flows - they may be one of the best indicators of where the gold price is headed next.

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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.