Katchum's  Instablog

Send Message
Albert Sung is the author of the Katchum Macro-Economic Blog, monitoring breaking economic news from a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at... More
My blog:
Katchum's Macro-economic blog
  • SGE Gold Deliveries A Leading Indicator For China Gold Imports From Hong Kong? 2 comments
    Dec 30, 2013 2:19 PM | about stocks: GLD

    Let's compare the two charts. The first one is the amount of gold deliveries to Shanghai gold exchange, or equal to the amount of gold withdrawn from the Shanghai Gold Exchange Vaults, which can be accessed here. The SGE withdrawal numbers in chart 1 (courtesy of Koos Jansen, website: In Gold We Trust) is equal to Chinese imports and Chinese mine supply and is equal to Chinese demand for gold because all the gold is sold through the SGE.

    Chart 1: SGE deliveries (original link)

    The second chart are the China gold imports.

    Chart 2: China Net Imports from Hong Kong

    Now let's put them together. What do you see?

    Chart 3: Chart 1 + Chart 2

    First of all, the amount of gold withdrawn from the SGE is always higher than the net imports from Hong Kong to China. Chart 1 x 4 > Chart 2. That's because SGE covers imports and Chinese mine supply.

    Second, both charts go up in time, which means Chinese increasing demand is real. You can even predict what the Chinese gold imports from Hong Kong will be, just by looking at the weekly numbers from SGE.

    Third, the SGE numbers are approaching world mine supply (yellow blocks), which means the Chinese are buying up all the gold that is produced in the world at this moment. The only way the Chinese can get a hold of this gold is by buying it from someone who is selling (aka The West).

    Fourth, if you look at the imports as a ratio of SGE deliveries, the Chinese are importing more and more gold instead of producing it. A few years ago they only imported 10 tonnes a month on a SGE delivery of 60 tonnes a month. Now they are importing 100 tonnes a month on a SGE delivery of 160 tonnes a month. That's an increase from 15% to 60%.

    Fifth, now we come to the real interesting part. If we shift the two charts 4 months from each other. Then we see a perfect correlation. It means that when the SGE deliveries go up (Chinese demand goes up), then China needs to import more gold a few months later (imports from Hong Kong go up). The lag is about 4 months. This means we have a leading indicator for China gold imports from Hong Kong. I'm not sure about this correlation yet, we'll see when we get more data in the following year. But it looks promising.

    Chart 4: Chart 1 + Chart 2 Shifted 4 Months

    Sixth, now it becomes even more interesting. Whenever the volume of delivered gold at the SGE goes up, the premium between Shanghai and London goes up. See Chart 5 peaks in June and December which coincide with the peaks from Chart 1. The Chinese are making use of the arbitrage opportunity between Shanghai and London to withdraw more gold at the SGE.

    Chart 5: Gold Premium Shanghai/London

    Stocks: GLD
Back To Katchum's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (2)
Track new comments
  • User 806590
    , contributor
    Comments (16) | Send Message
    Of course SGE delivery and imports are correlated, where else has the gold to come from. BTW, you might want to use the monthly SGE delivery chart for your comparison.


    The chart is somewhere in this post




    Kind Regards,


    30 Dec 2013, 03:09 PM Reply Like
  • Katchum
    , contributor
    Comments (615) | Send Message
    Author’s reply » Thank you very much!
    30 Dec 2013, 03:12 PM Reply Like
Full index of posts »
Latest Followers


More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.