GoldMinerPulse: Shanghai Gold Exchange Physical Gold Delivery (Settlement)

Shanghai Gold Exchange Au(T+D) Delivery Volume Trends

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Shanghai Gold Exchange (SGE)

Gold Delivery From SGE Vaults

SGE Gold Delivery From Vault, 2013 vs 2014
2013 2014 % Chg 2014 over 2013
4 January 2013 to Tonnes Gold Delivered from Vault 2 January 2014 to Tonnes Gold Delivered from Vault
12 April 2013 512.5 11 April 2014 606.4 18.3%
29 March 2013 457.7 28 March 2014 559.1 22.2%
1 March 2013 291.5 28 February 2014 417.6 43.3%
2 February 2013 178.7 24 January 2014 215.9 20.8%

An example of the Chinese langauge report showing delivery volume from vault is presented below. The image below was taken from p. 7 of the 14 June 2013 report (available 21 June 2013) which can be found in the weekly Chinese language reports page, the location where weekly Chinese language reports can be accessed.

Physical Delivery From Vault 14 June 2013

Charts prepared using the weekly gold deliveries from SGE vaults and other related information are available here. An excellent blog on Shanghai Gold Exchange physical delivery is also available here.

A July 2013 Bloomberg story, Gold Deliveries From Shanghai Bourse Jump on Physical Demand used the physical delivery data published by the SGE as a source (compare the year to date delivery numbers found on page 7 of the 5 July 2013 SGE weekly report (use the translation key above).

Data on daily delivery from vault is not available in any SGE report -- the quantitly labeled as delivery volume on the SGE English language pages should be understood as "settlement volume" and is definitely NOT delivery volume from vault.

I received the following explanation on the daily Au(T+D) delivery, which I track in the next section below, from a contact at the SGE:

Simply speaking, Au(T+D) is a product with margin and position concept, i.e. you get a long position after buying and get a short positon after selling. Delivery happens everyday between long and short positions. So delivery volume is the volume delivered from some short positions to some long positions. It's nothing relevant to the volume leaving the vault which is not an available data. Think about futures, delivery occurs from short positions to long posotions, kind of similar concept for your understanding.

My SGE contact would not, however, comment on the approximately 20 days of 0 Au(T+D) delivery volume during April and May of this year.

Sorry as an exchange, we can not make comments on trading pattern. You have to analysis by yourself based on public info.

The SGE has a flexible range of good delivery bars, which I believe is consistent with an exchange that is commonly used for physical delivery to consumers (source: CHINA NATIONAL GOLD GROUP CORPORATION): Shanghai Gold Exchange Good Delivery


Daily Au(T+D) Reports

For consistency with the SGE, which reports in units of kilograms, I now show all daily totals in tonnes.

The following chart is based on the Au(T+D) plus the mAu(T+D) daily settlement volumes. The mAu(T+D) is new in 2014 and is quickly becoming a popular item on the SGE. As the Au(T+D) and mAu(T+D) daily settlement volume increase/decrease I expect to see a corresponding rise/fall in the weekly physical gold delivery from vaults. However, since not all Au(T+D) or mAu(T+D) settlements lead to a physical delivery, a rise in total settlement volume is only a rough indicator of expected physical deliveries from vault.


Weekly Gold Delivery From Vault Charts

Weekly Gold Delivery From Shanghai Gold Exchange Vaults

The above graph of physical gold delivery out of the Shanghai Gold Exchange (SGE) vaults was prepared by @KoosJansen (website In Gold We Trust) based on the weekly reports from the Chinese portion of the SGE site. The SGE has confirmed these are deliveries from the vault and the numbers are updated on a weekly basis (each Friday). I expect to have the weekly delivery data available here. The recently available China Gold Market Report 2011 provides an excellent overview of the Shanghai Gold Exchange and physical gold deliveries. The monthly gold deliveries shown in "Figure 3-8 Delivery volumes and weighted average prices of Au (T+D) at SGE in each month of 2011" on p. 17 of 32 in the report shows the same 2011 monthly delivery figures in the chart below.

Open Question Regarding SGE Physical Delivery From Vault: What is The Velocity Of Gold On The SGE?

I believe there is an open question in understanding the SGE gold delivery from vault numbers. Consider the following quote from the SGE 2011 Annual Report:

During the year, SGE's vault management system run in good shape, with 49 vaults used for delivery involving 31 jurisdictions. Among the vaults used, 72.06 percent were designated, fulfilling the demand for physical gold in the entity industry.

I imagine that there would be some sale events where Dealer A in Jurisdiction 1 sells gold to Dealer B in Jurisdiction 2 and in turn later in the week/month/year, Dealer B sells the same gold to Dealer C in Jurisdiction 3. The SGE vaults and jurisdictions in operation in 2011 certainly suggest such a scenario is likely to happen. Given that dealers also sell to local clients, I would expect that each deal would want their physical held in their vaults in their jurisdiction for efficient access as required.

Therefore it would be extremely useful to understand the "velocity of gold" in the SGE system. That is, on average, how many times is each kilogram of gold delivered in the course of a week/month/year. My wild guess, based on no science and no first hand knowledge is that SGE velocity of gold is 2 or greater. I look forward to future discussions on this important topic via Twitter, @goldminerpulse. @KoosJansen suggests that my dealer to dealer sale scenario would be treated as a paper transaction and counted as an Au(T+D) deliver but not a physical deliver from the SGE vaults.

@KoosJansen could be correct that this scenario would not result in double counting which still leaves the question as to what are the other scenarios in which a given 1Kg bar of gold gets delivered multiple times from the SGE vaults in the course of a week/month/year. For example, private investor Z buys 1Kg from dealer A and subsequently Z needs to raise cash (say his private wealth investment failed and s/he needs money now) and sells the 1Kg bar back to dealer A. Dealer A subsequently sells the same bar to private investor Y. Under any counting rules this scenario would result in double counting. However, would such a theoritical scenario occur with any appreciable frequency?

Monthly SGE Physical Delivery From Vault: SGE Versus COMEX

Physical Delivery From Vault: SGE vs COMEX

The above graph of monthly gold delivery from vault demonstrates very clearly, what many have expressed repeatedly on sites such as KingWorldNews, that the COMEX is a paper gold market while the SGE is a world class market for physical gold delivery.

Yearly SGE Physical Delivery From Vault Versus World Gold Production

Yearly SGE Physical Delivery From Vault Versus World Gold Production

Note: The 2013 figures are year to chart date.

Based on my TSX Gold Producer 4Q on 4Q growth rate, I expect 2013 production growth will be less than 1%. Also factoring in the loss of Rio Tinto's Kennecott gold production since April due to a collapse of an open pit wall, plus the fact El Coronel mine in Zacatecas Mexico is having labor problems, along with the April plunge in gold prices, I expect to see a negative growth rate in the world's 2013 gold production over 2012 totals.