Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Monday, March 3, 2014
Gold News March 3 , 2014 -- ICBC wants a say in fixing the price of gold ? Key takeaways -- “In case of changes in the market environment, we must prepare to meet the different needs of innovative products and services.” Zhou Ming, head of the precious metals department for ICBC, summarizes ....... For the future, Zhou Ming’s goals are clear and simple: to continue to build the precious metals “battleship”, heading towards international markets. “In 2013 China became the world ‘s largest gold producer and consumer, there is no reason for it not to have any voice in international price fluctuations.” Zhou Ming said, “This must be the aim of ICBC, to service the market and our customers competitively.” ........ Chinese physical demand YTD 369 tons , up 51 percent Y/Y ...... Additional timely points of view from GATA , Jesse and Turd Ferguson !
Precious Metals Aspirations Of The Biggest Bank In The World: ICBC
Notes from LK: Below you can read an interview with the head of the precious metals department of ICBC (Industrial & Commercial Bank of China), the world’s largest bank by assets and market cap. In a way it’s like the other side of the memo from the Chinese Government on gold policy we published earlier. On one hand, you see the policy directives in the memo carried out in practice. On the other, you can detect that this is just what the policy makers want to hear, how it’s the bank’s proud mission to bring the country into a stronger position in the international capital arena. Note the way they see that international capital markets and the players are intricately related to gold. Whichever way, they aspire to be a global player with their own full set of world-class systems and infrastructure. Being the world’s largest bank, what can stop them?
Translated by LK in Hong Kong:
The “Chinese dream” of ICBC’s Precious Metals Department - an interview with Zhou Ming
January 7, 2014
“In case of changes in the market environment, we must prepare to meet the different needs of innovative products and services.” Zhou Ming, head of the precious metals department for ICBC, summarizes.
International gold prices fell sharp on uncertainty of Fed monetary policy changes. Most participants in the gold market in 2013 have gone frightened. In charge of a leading precious metals business unit for the country, Zhou Ming has never allowed his team to be lost in confusion. Two years ago ICBC foresaw the possibility of large scale volatility in the gold market and started developing products, services and marketing
to prepare for this. Hence, ICBC launched gold accumulation schemes, swaps, forward hedging, lease/financing, collateralized loans and other financial services ahead of time. Developing to ongoing investment and consumption needs of the market, which produced good business results. For retail and institutional investors his department also launched products that adapt to the market. In 2013, ICBC physical gold sales increased by more than 80% YoY, the growth rate of the entire line of business also grew more than 30% over the previous year.
The bank’s precious metals department has many natural advantages. With more than 300 million customers and a more than 17,000 points sales network, the rapid rise of it’s business isn’t surprisingly. More importantly, large banks have many operational advantages. Corporates have experience in trading on the spot market, while banks can participate in the international market through five lines of business available to them: physical dealing, trading, financing, leasing and wealth management. Additionally, international commodities business requires cross-border, cross-product, cross-market, on-shore/off-shore, exchange/OTC spot and futures trading capabilities. Compared to other institutions, banks have more all-round global network transaction capabilities. This is also why the precious metals departments are growing so fast in Chinese banks.
Zhou Ming’s confidence is not limited to this. For him, the growth of the precious metals business is not accidental. Aside from ICBC’s management forward-thinking and advantages from being a bank, it’s also because in China’s internationalization process banking institutions are required to play this role.
When the precious metals department was established, ICBC chairman Jiang Jianqing said: “We have the ambition that ICBC becomes a world-class commercial bank in precious metals investment management.”
When serving as a general manager of Shanghai Industrial Investment (Holdings) Finance in Hong Kong, Zhou Ming experienced the Asian financial crisis, seeing the Hang Seng Index and the company’s shares tumble but couldn’t do anything about it. “A business manager under a planned economic system has no idea about financial crises in free economies”, he recalled, still feeling the fear. “It was frustrating and painful, when each blow came, no matter how you try yourself to face it, it ends up in defeat. it’s humiliating.” That taught him how slow and passive Asian capital markets are in the wider international landscape, and let him witness for the first time how miserable it is to be weak in the merciless international capital markets.
“Too few people take part in the actual Wall Street transactions. Too few understand the operations in this international game. Too few participate in the global flow of capital transactions. We didn’t know what was happening until after the facts. We were besieged and were only part of the losers.” Zhou Ming sighed. “I thought, one day China enters the international stage, we will need more people to participate in understanding the characteristics of capital flows, so we don’t have to be so passive.”
Now Zhou says, “I drive our traders to work on scale and quantitative problems of our platform for the possibility of taking part in international transactions.” In addition , ICBC has been introduced to Wall Street private equity and global financial transaction specialists, research models, product planning, and ways to analyse counter-party moves. Over the past year, our precious metals department has greatly benefitted and has become a radar through which to monitor markets.
Today, the establishment of the Shanghai Free Trade Zone has provided an additional stimulant for our department. “The State is building an open market right at our door step, which lets us test the water and practice before swimming. We will use this to learn some skills.” he said.
According to Zhou, ICBC’s precious metals department is working with HSBC, JP Morgan Chase, Brink, Metalor and other professional logistics providers, manufacturers and warehouse operators to communicate and learn about storage, transport, monitoring etc. If successful the ICBC precious metals department will have a a repository that is up to international standards for any insurance purposes in the FTZ in 2014.
This aside, Zhou Ming is also constantly working to expand his territories in the international area. In the first half of 2014, his department will have a trading exchange center in Hong Kong, to help settle with demands from Southeast Asia. “Because the USD can be used for settlement in Hong Kong, it is more direct and entirely on an international standard. This helps integrate the global trading capability of Hong Kong to supply a better internationalized product for South East Asia including China.”
For the future, Zhou Ming’s goals are clear and simple: to continue to build the precious metals “battleship”, heading towards international markets. “In 2013 China became the world ‘s largest gold producer and consumer, there is no reason for it not to have any voice in international price fluctuations.” Zhou Ming said, “This must be the aim of ICBC, to service the market and our customers competitively.”
Chinese Physical Gold Demand YTD 369t Up 51 % Y/Y
The Shanghai Gold Exchange (SGE) is back on schedule publishing their trade reports on friday that cover the previous trading week. Last friday’s report covered the trading week February 17 – 21. For me the most important numbers is always the amount of physical gold withdrawn from the vaults as this equals Chinese wholesale demand. Withdrawals in week 8 (February 17 – 21) accounted for 49 tonnes, year to date there have been 369 tonnes withdrawn from the vaults.If we divide the later by the number of days of the corresponding period (52) we come up with an average demand of 7.09 tonnes per day – this includes weekends and the one week holiday at Lunar year when the SGE was closed.
I got a few request regarding demand compared to last year and daily moving averages. Great ideas which I have carried out (request are always welcome, we’re doing this together). Compared to last year demand is up 51 % over the same period. Of course we had the shocker in April 2013 when withdrawals exploded to 117 tonnes in week 17. I don’t expect any spikes that big this year so probably this year’s growth compared to 2013 in percentages will be decreasing when we’ll pass April. Nevertheless, the daily average of 2013 was (2197/365) 6.02 tonnes, while this year we’re up to 7.09 tonnes. China is on schedule to establish a new record, if the world can supply any more gold.
Although I’m not much of a technical guy, I made the following calculation for the 200 DMA. Because the withdraw numbers are weekly disclosed I divided 200 by 7 (days in a week) which equals 28.57. The 200 DMA in the chart below is the trend line of 28.57 red columns (weeks), which boils down to 200 days. The hight of the trend line still corresponds to the (weekly) withdrawal numbers on both axes. (200 DMA = 28.57 WMA)
We can see the the 200 DMA rising in 2013 to nearly 50 tonnes a week in June, then it fell slightly at the end of the year. Before the new year wholesale demand picked up again prior to an unprecedented buying spree on retail level and moved the trend line up at currently just under 50 tonnes a week.
The longer this insatiable demand continues the more I start to ask myself where this gold is coming from. We know from Swiss refineries they’re having a very hard time to source this much gold for China.
According to the World Gold Council all above ground gold accounts for 170,000 tons, in my opinion it’s impossible to know this amount. It’s a rather Keynesian thought that an institution can know how much grains of gold every single human being across the globe extracted from the earths crust in the history of humanity, and how all these grains were allocated or maybe lost throughout history. I think the total amount of above ground gold is as invisible as the hand that regulates the free market. Every economic agent can only be positive about it’s own gold holdings and decide to exchange these against goods or services, depending on the exchange rates set by the free market. Although all exchange ratesare currently set by Keynes’ descendants, that doesn’t mean any institution knows the total amount of above ground gold.
It’s just a matter of strong and weak hands now. Most goldbugs are strong hands – because they not only hold gold for investment purposes, they also hold it because of their view on economic theory – while a random US citizen on food stamps that owns a golden earring is a weaker hand. Anyway, based on certain parameters (import, demand, mining) one would think that in coming months the price of gold and Chinese demand wil getin conflict;the situation simply can’t go on like this forever.
Meanwhile the mainstream media is slowly waking up to the possibility the price of gold has been manipulated for decades through the London fix, which in my opinion is just one aspect of the manipulation process. Although I’m sure this aspect will unravel the rest of the process as well. All in all lots of stress in the gold market, reflected by long periods of negative GOFO. I hope to write an article about the details of GOFO in the near future.
Overview Shanghai Gold Exchange data 2014 week 8
- 49 metric tonnes withdrawn in week 8 (17-02-2014/21-02-2014)
- w/w - 23.86 %
- 369 metric tonnes withdrawn year to date
My research indicates that SGE withdrawals equal total Chinese gold demand. For more information read this, this, this and this.
This is a screen shot from the weekly Chinese SGE trade report; the second number from the left (blue – 本周交割量) is weekly gold withdrawn from the vaults in Kg, the second number from the right (green – 累计交割量) is the total YTD.
This chart shows SGE gold premiums based on data from the SGE weekly reports (it’s the difference between the SGE gold price in yuan and the international gold price in yuan).
Below is a screen shot of the premium section of the SGE weekly report; the first column is the date, the third is the international gold price in yuan, the fourth is the SGE price in yuan, and the last is the difference.
In Gold We Trust
Written by Koos Jansen on March 2, 2014 at 5:24 pm