- 2018-10-18
Global gold flow
In less than a year, the global gold flow, chasing political worries, has dramatically reversed twice. The price of gold trading on electronic disks rose moderately by 8% in 2016, but it is still below the historical high set in 2011.
But like magma rushing underground, physical gold flows back and forth in different time intervals, first to Asia, then to the United States, and then back to the East. But it may change direction again, because American confidence in the dollar seems to have weakened.
From mid-2009 to March last year, refiners melted each 400-ounce "standard delivery" gold bar (mostly from London vaults) to produce higher-purity, kilogram-based gold bars favored by Asian buyers. This is expected.
To some extent, this represents the sale of household assets by Western consumers and investors and the purchase of commodities from rising global producers. The newly rich Asian countries hoard gold bars in kilograms or process them into jewelry for display or storage.
In March 2016, perhaps because of concerns about the politics of the US president, US investors began to enter the gold market aggressively, using US dollars to buy back some 400 ounces of gold bars. The Asians satisfied them and airlifted part of the kilograms of gold bars and gold bracelets to refiners in Switzerland to reprocess them into 400-ounce gold bars.
Then from October 2016 to the end of January 2017, Asian buyers (especially Chinese and Indian buyers) once again began to snap up gold from Americans. Gold refiners and traders worked hard to smelt the 400-ounce "standard delivery" gold bars that are the subject of exchange-traded funds (ETF) and futures contracts. Those gold bars were once again made into high-purity, kilogram-based gold bars favored by Asians and put on the Eastern market.
We may now understand why Indians and Chinese are buying gold in such a hurry. First of all, the Indian public has been affected by the "scrapped banknotes." Second, Chinese buyers are subject to stricter capital controls.
The U.S. stock market rose sharply after Donald Trump was elected as U.S. President. U.S. investors sold part of their reserves of gold to buy stocks, in response to Asian demand. GLD is the largest gold ETF in the United States. After the US general election in November, the fund's gold stocks fell by 15% due to net redemptions.
Obviously, a small number of people can plan ahead and prepare for the "unexpected" abolition of 500 rupee and 1,000 rupee banknotes in India on November 8 last year.
In the first few weeks of India’s “scrap”, legal gold imports have increased significantly, with 110 tons of gold imported strikingly in the first few days of November.
"Scrap" measures temporarily reduced India's cash supply by 86%, and many buyers who wanted to buy gold were unable to complete the transaction. India’s legal gold imports fell by half in December last year, and even the amount of smuggling seems to have temporarily declined.
Even when India's imports are declining, China's gold bar imports are still increasing. Swiss refiners are working day and night to convert 400 ounces of gold bars into kilograms of gold bars. In December last year, Swiss gold bullion exports to China increased from 30.6 tons in November to 158 tons.
Although Swiss export data for January 2017 is not yet available, a refiner told me that even considering the suspension traditionally due to the Chinese New Year, “January must be a record in the entire history of our dealings with China. One month of record".
But in early February, China's tightening of capital controls suppressed the gold market. Suddenly, import permits have become difficult to obtain. As one trader said: “Chinese officials understand that gold imports are used to circumvent capital control, so they decided to plug this loophole. They will eventually release gold imports again, but (Chinese officials) are declaring that everything is under their control. ."
At the same time, gold traders on the black market in India are busy. India's "crashing of banknotes" aims to force the political and business circles to "come to the sun," but it is likely to have the opposite effect.
A person engaged in the gold market business in India said: “India is in chaos now. Scrapped money has increased the demand for gold, but due to the cumbersome legal import procedures, smuggling has increased in an incredible proportion. India is now smuggling everywhere. "
"Illegal imports through Dubai have increased, but this is not enough to meet demand. So Indian traders are eager to change all logistics arrangements. They import raw materials directly from Africa, and even directly from places such as Sudan."
So far, increased demand for gold bars has been offset by selling in more confident regions. What will happen if Americans lose confidence in U.S. dollar assets while Indian and Chinese buyers can manage to resolve cash shortages and circumvent capital controls?
Box: Last year, global gold demand was the highest in three years
A report recently released by the World Gold Council showed that under the influence of the surge in gold investment demand, global gold demand increased by 2% to 4309 tons in 2016, the highest level in three years.
Since last year, global political and economic uncertainties have increased, especially the frequent twists and turns of the U.S. elections and Brexit and other "black swan" events, which have promoted investors' risk aversion and led to a flood of funds into the gold market.
According to the World Gold Council’s "Gold Demand Trend Report", the overall global gold investment demand soared by 70% last year, reaching the highest level of 1,561 tons in the past four years.
However, on the basis of the basically stable investment in physical gold bars and gold coins, investors prefer online securitization gold trading products such as ETFs (trading open index funds) to obtain more certain returns.