by Koos Jansen, Gold Seek:
On a firmly rising gold price the UK is one of the largest net importers of gold in 2016. The gold price went up 25 % from $1,061.5 dollars per troy ounce on January 1 to $1,325.8 on June 31. Over this period the UK net imported 583 tonnes and GLD inventory mushroomed by 308 tonnes.
In the month of June the UK gross imported 154.2 tonnes, up 22 % from May, and gross export was 1.9 tonnes, down 37 % from the previous month. Net import into the UK resulted in a robust 152.3 tonnes, up 23 % month on month.
Gross import by the UK from Switzerland remained resilient at 68.5 tonnes, up 11 % from May, while gross export to Switzerland was nix.
The most noteworthy gold exporters to the UK in June 2016 were:
Notable, the UK net imported a record amount from China mainland at 3.2 tonnes. This is very exceptional and has never happened in recent history, as far as I know.
In general gold export from the Chinese domestic gold market is prohibited – unless the Peoples Bank Of China would make an exception. Therefor, the export of gold from China to the UK was possibly sourced from the Shanghai International Gold Exchange (SGEI) in the Shanghai Free Trade Zone (SFTZ) that technically/physically is separated from the Chinese domestic gold market.
Although the tonnage isn’t staggering, the transfer becomes newsworthy when viewed in perspective. The Chinese have an interest in becoming a dominant player in the international gold market. To strengthen their economy they wish not only for more physical (private and official) gold reserves, another objective is a broad development of gold market infrastructure and integration with the international market. Read what PBOC governor Zhou Xiaochuan had to say in 2004 at the London Bullion Market Association (LBMA) conference :
The establishment and development of China’s gold market marks the basic completion of the construction of a market for major financial products in China, which will provide better micro grounds for China’s macro economic adjustment. For further development, China’s gold market should gradually realize three transformations: from commodity trade to financial product trade, from spot transactions to futures transactions, and from a domestic market to integration with the international market.
…. gold still has a strong financial nature and remains an indispensable investment tool. In major financial centers in the world, the gold market – together with the money, securities and FX market – constitutes the main part of the financial market.
China’s gold market must integrate into the global market. …. China should actively create conditions for its gold market to become an important part of the international gold market.
… gold still bears the marked nature of money under the modern financial system.
In September 2014 the Shanghai International Gold Exchange (SGEI) was erected in the SFTZ, followed by the launch of the Shanghai Gold Fix in April 2016, but up until now both events did not elevate China’s share in the international gold market as the Chinese had hoped for. But the Chinese always set out multiple strategies at once to reach their objectives.
Meanwhile, in the past 14 months four Chinese banks have penetrated the LBMA Gold Price auction. Namely, Bank of China, Bank Of Communications, China Construction Bank and Industrial and Commercial Bank of China (ICBC). In addition, ICBC Standard Bank has become an LBMA market maker for spot trading and a clearing member of “the not-for-profit company London Precious Metal Clearing Limited (LPMCL)” for which it has bought the 2,000 tonnes gold vault from Barclays in May. The vault is located in London.
This enables us to better execute on our strategy to become one of the largest Chinese banks in the precious metals market.
Is it a coincidence that China is suddenly exporting gold to the UK while ICBC Standard Bank was recently accepted as clearing member of the LPMCL and utilizes a gold vault in London? Likely the gold export to the UK is connected to the new clearing and vaulting activities by ICBC Standard Bank. Next to China’s strategy to develop the SGEI for gold trading in renminbi along the Silk Road, they’re actively increasing presence in the London Bullion Market.
However, I don’t think the majority of gold imports into the UK this year – aside from the import from China – are connected to ICBC Standard Bank, the imports mainly reflect Western institutional demand. Net gold flows through London have been correlated to the price of gold long before the Chinese entered the international precious metals construction.
So, although the 3.2 tonnes exported from China to the UK are exceptional, the UK manifesting itself as a net importer while the price is rising is quite normal.
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