The latest Indian Bullion Bulletin has just been released wherein the chairman of the Shanghai Gold Exchange (SGE) Xu Luode presents the SGE’s international ambitions – read below.
The Chinese government regards the gold market as an indispensable component of China’s financial market and attaches great importance to its growth and development.
The Shanghai International Gold Exchange
Xu provides an excellent all round update of the SGE, though he’s somewhat exaggerating the performances of the SGE International Board (SGEI) up until now IMVHO. I don’t blame him though, the SGEI has great potential!
One way to enhance SGEI trading would be to allow individual foreign investors to have easy access to the international exchange and its wide range of products, which is currently limited to SGEI members (banks, refineries, etc). Xu notes this will change soon.
I’ve gotten numerous questions by email from investors worldwide that would like to trade on the SGEI, but can’t get through. At this stage it’s simply not possible, but my contacts at ICBC will timely notify me when everybody can trade at the SGEI. I’ll keep you posted.
To keep track more precisely of what’s going on in the Chinese domestic market Xu drops some fit numbers that help analyze what has happened in between the Shanghai Free Trade Zone (FTZ) and China mainland in 2014. Xu notes:
As of November 2014, international members have traded more than 100 metric tons of gold in aggregate with a total turnover of around RMB 25 billion; imported gold tipped in at around 12 metric tons, and a total of 15 metric tons of gold have been deposited into the International Board Certified Vault.
As the SGE does not publish withdrawal data from the International Board (in the FTZ) and the Main Board (in the mainland) separate, domestic withdrawal data – used as a proxy for Chinese wholesale demand – lost some of its precision since the inception of the SGEI (read this post for a comprehensive explanation of the relationship between SGEI trading volume and withdrawals).
However, with the numbers disclosed by Xu we can make a far better estimate of Chinese wholesale demand in 2014. Previously we knew total withdrawals for 2014 accounted for 2,102 tonnes, but these could have been influenced by SGEI withdrawals of which some could have been imported into the mainland or exported abroad. We didn’t know by how much, all we knew was SGEI trading volume that set the limits.
Now we know 15 tonnes had been deposited in the FTZ, of which 12 tonnes was withdrawn and imported into the mainland (by one of the 15 licensed banks). Meaning, Chinese wholesale demand (SGE withdrawals) could not have ben lower than 2,099 tonnes.
2,102 – (15 – 12) = 2,099
It’s possible all the gold deposited in the FTZ (15 tonnes) was withdrawn, but for sure 12 tonnes was imported into the mainland. So, theoretically only 3 tonnes could have distorted domestic withdrawals.
For a detailed explanation on the working of the Shanghai International Gold Exchange click here.
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