The Shanghai Stock Market Crash and China Gold Demand

What Does it mean for the future of the gold market?

At present, up to 12 trillion yuan stays in domestic residents' saving accounts. The launch of individual gold investment, therefore, will allow residents to change currency assets into gold assets. At the macro level, it will expand channels for changing savings into investment, thus adjusting the money supply; in the micro aspect, allowing citizens to trade and keep gold can improve social welfare, benefiting both the country and the population.

Moreover, with the dual attributes of common commodity and currency commodity, gold is a desirable instrument for hedging. Therefore, developing gold trade for individuals is practical." – Zhou Xiaochuan, Governor, the People's Bank of China.

Shanghai stocks have fallen over 30% since mid-June. The equivalent in U.S. terms would be for the DJIA to fall 6000 points to the 11,000 level – a crash by any definition. Most of the commentary on this important subject has centered around the potential contagion effect for stock markets in the rest of Asia and beyond. There is another aspect to the crash worth considering though, and that has to do with the effect it will have on Chinese gold demand.

The Chinese people, it is well known, already have a cultural affinity to gold. That attachment just received a shot of adrenaline. Prior to June, trading volumes on the Shanghai Gold Exchange (SGE) were already running 20% higher than the previous year. Now, with crash psychology affecting thinking up and down the spectrum of investors, SGE is reporting volumes off the charts. In early July, Want China Times reported that "SGE posted a record trading volume of 48.33 million grams in a single day in late June." (48.3 metric tonnes, a big number.)



Typically stock market crashes inspire gold demand. In the case of China, where the government and central bank encourage citizen gold ownership as a matter of public policy, that lesson could become enshrined in the national psyche. The important consideration for investors elsewhere around the globe is what effect even stronger gold demand from China will have on the gold price both now and in the future.

Flow of physical metal between buyers and sellers will govern prices in China not paper trades

Ever since 2011 when China's demand began to ratchet up, clients have asked how the price of gold could be stagnant to down under the circumstances. The short answer to that question is that price discovery for gold does not occur in the physical market, but in the multi-trillion dollar leveraged paper trade in London and New York – a volume that dwarfs the physical delivery market. Now China is about to challenge that price discovery mechanism through significant infrastructure changes slated to take effect by the end of the year.

This new construct has as its base China's fundamental understanding and goals with respect to gold as summarized by Peoples Bank of China governor Zhou Xiaochuan in our masthead quote above; its affinity for delivered physical ownership, as opposed to paper-based metal; and, the official measures it has undertaken to make inroads into the international gold market's price discovery mechanism.

To gain a better understanding of how China is likely to affect price discovery in the gold market, let's start with something of interest that surfaced as a result of the recent Shanghai crash. Financial Times reported rumors floating the markets that Goldman Sachs was responsible for manipulating stocks downward. Officials denied those rumors and a spokesman for the exchange stated that "foreign investors with access to the futures market via theQualified Foreign Institutional Investor (QFII) program were only permitted to use futures for hedging operations and are not allowed to make directional bets. 

All recent trades by QFIIs complied with regulations." Of course if any manipulation of stocks were to occur, it would be executed in the leveraged futures market where bets can be placed at pennies on the dollar.

Up until I read that quote I was unaware of the strict procedures governing foreign trading on the Shanghai Futures Exchange (SHFE), China's only futures trading venue. A further investigation, helped along with some links from Koos Jansen, the Netherlands based expert on China's burgeoning gold market, revealed stringent rules governing trade on the SHFE for domestic participants as well, though not quite as stringent as the rules for foreigners. 

At the heart of those rules, SHFE imposes strict position limitations and margin requirements on traders in order to keep price speculation (or directional bets to use its term) to a minimum. Futures trading in China, clearly is meant to serve as an adjunct to the physical market instead of the other way around as it is in western gold trading centers. 

Hedging is maximized. Speculation is minimized. Leverage is controlled within reasonable parameters.

Link SHFE "Operational Manual for Gold Futures Contract Trading"

Chinese Demand for Silver Bullion Halved in 2014

Silver bars weren’t very popular last year — especially in China, where demand fell by half.

Chinese demand for silver bullion bars dropped 52% in 2014 from a year earlier, to 6.2 million ounces, according to the The Silver Institute’s annual World Silver Survey, which was produced by the GFMS team at Thomson Reuters. That was the lowest level since 2010.

“The sharp decline was attributed to the continual implementation of the anticorruption policy, which served a severe blow to the gifting sector, including bars,” according to the survey, which was released Wednesday.

A steep drop in silver prices certainly didn’t help. Silver futures SIN5, +0.79% on Comex fell nearly 20% last year, following a 36% plunge in 2013.

Total global demand for silver bullion bars fell 31% last year to 88.4 million ounces — in value, that’s about a $1.7 billion drop, the survey said.

Andrew Leyland, manager for precious metals demand at Thomson Reuters GFMS, told MarketWatch in an interview that he was surprised to see how weak demand from China actually was.

The government crackdown in gifting and its anticorruption campaign, along with a “softening of economic sentiment through the course of 2014,” impacted bar buying in China, he said. “A lot of luxury goods sectors didn’t have a particularly good year.”

Globally, investment in silver coins and bars fell by 20% last year to 196 million ounces, the survey said.

There was a slowdown in European buying of silver bars and coins, primarily due to an increase in sales tax in Germany that was applied to silver from the beginning of 2014, Leyland said.

He pointed out, however, that the market was coming from a record base year in 2013. Last year’s bar and coin investment figure was still the second highest on record.

And though the world’s silver mine production was up a 12th straight year in 2014 and supplies of the metal were at their highest in about 4 years, the market still saw a supply deficit of 4.9 million ounces last year.

Looking ahead, Leyland expects silver-mine supply to decline and is looking for growth in a number of demand sectors. He forecast an average silver price of $16.50 an ounce for this year.

Prices will see some short-term weakness, but are likely to end the year at more than $17 an ounce, with a couple of years of modest price increases to follow, he said.

2015 Chinese Panda Silver and Gold Coins No Longer Display Weight

Commencing from 2015, according to the People’s Republic of China national’s “Measurement Law” and the People’s Bank of China’s requirement, the gold and silver coins will be issued under the legal measurement of Metric System, i.e. grams, Kilogram and etc. 

The issuance of the gold and silver coins under the measurement of the Imperial System “Ounce” will be discontinued. Furthermore, from 2015 onward, the weight of the Chinese Panda Gold coins will no longer be stated on the coins. 

This has made the 2014 Chinese Panda Gold Coins with “Ounce” to be even more significant for collection.

Since Bank of China (Malaysia) Berhad’s announcement for the pre-booking on 21 May 2014, the Chinese Panda Gold Coins was overwhelmed by the market, registration has been increased rapidly. 

In order to fulfill customers’ needs, Bank of China (Malaysia) Berhad has made a soft launching on 6 June 2014 for the registered customers. And now, the Bank is proud to announce the official launch for the 2014 Chinese Panda Gold Coins to the public. 

 

The Chinese Panda Gold Coin is a legal tender Coin issued by the People’s Bank of China for 33 years continuously. It has the investment and memorable value, and potentially high collectible value. 

Being very unique in the coins mintage world, it has been awarded both locally and overseas recurrently and appreciated by the collectors from all the countries. The theme of the Chinese Panda Gold Coins is the national treasure of the People’s Republic of China, setting the bamboo as the background well demonstrated the harmonious and happy life.

2015 Panda Changes - Summary:

2015 Gold / Silver Pandas will no longer have the weight stamped on the reverse. It will be Panda motive as it is currently but without stating its weight.

The China Mint will be marketing the Panda Bullion Coins in grams and kilos (Kilograms) instead of ounces. 

At this stage it is unknown if they will introduce new sizes such as 25/50/100/1000 gram or stay with the current 3.1, 31.1g, 155.5g, 311g 

In order to better reveal the lively and playful character and the black and white colour of the panda, designers using the white and black effects that generated from the glossy and dark appearance of the gold refraction and reflection to invent the intaglio refraction method, at the same time using the drum opposite sandblasting technology to make the black and white colour of the panda become more three-dimensional.

Welcome all to visit any of Bank of China (Malaysia) Berhad branches to place your order.

2013 LUNAR SNAKE SILVER 1oz 999 Gainesville Coins Bullion Round

2013 LUNAR SNAKE SILVER 1oz 999 Gainesville Coins Bullion Round - Brilliant proof like strike

The 2013 1 oz Silver Year of the Snake Round is made of .999 fine silver and is 1 troy oz in weight. The silver Year of the Snake bullion round is one of the many privately minted products we offer here at Gainesville Coins. 

This silver round is Made in the U.S.A. and has a proof-like finish. Although this is not a legal tender coin, it is made of one troy ounce of 99.9% pure silver. Buy silver rounds for their unique design and their low premium over spot compared to nationally minted coins.

This round was created to celebrate the Chinese Zodiac 2013 Year of the Snake, as each year associated with the snake has a different symbol. 

The Years of the Snake include: 1929, 1941, 1953, 1965, 1977, 1989, 2001, and 2013. Those born in the Year of the Snake have a strong sense of morality and wisdom, and are considered exceptionally mysterious.

The obverse of the round depicts the image of a coiled snake amidst a forest of bamboo, as well as the Chinese symbol for "snake." 

The reverse of the coin bears a centered inscription of, "2013 Year of the Snake," along with the weight and fineness of the silver round, "One Troy Ounce, .999 Fine Silver," and once again the Chinese symbol for "snake."

1993 PANDA CHINA SILVER 1oz 999 Bullion Round

A 1993 PANDA CHINA SILVER 1oz 999 Bullion Round with crimson toning around the rims.

2014 Chinese Panda 1oz Silver 999 10 Yuan Legal Tender Coin

China first introduced the Silver Panda coin series in 1983, and every year since, a new variation of the Panda series has been introduced.

Shown on the the reverse of the 2014 Chinese Panda silver coins is a Panda grappling with a tree brnch. Incorporated into the design is the face value of the strike with the coin's weight and fineness shown beneath.

On the obverse of each coin, the Hall of Prayer for Good Harvests (The Temple of Heaven) of Beijing is depicted. Obverse inscriptions include the Chinese characters for People's Republic of China and the year. 

The 1 oz coin has a nominal face value of 10 yuan, and has a silver purity of .999. Each coin is 40 millimeters in diameter, and a weight of 31.1 grams.

2014 Silver Chinese Pandas are also available in 5oz and 1Kilogram (1kg)

2013 Panda Coins to Be Released on November 20th, 2012

The 2013 gold and silver panda commemorative coins are to be released by People’s Republic of China on November 20^th, 2012, which include 10 coins, 7 gold and 3 silver.

Patterns 

 

The front side pattern is the Qinian Palace of the Temple of Heaven, Beijing, the country name, and the year; the reverse pattern is the pandas drinking water, face value, weight, and fineness.

 

Specification and mintage 

 

(1)   The 1/20 oz round gold commemorative coins are bullion coins, containing 1/20 oz pure gold, with diameter of 14mm, face value of RMB20 Yuan, fineness of 99.9%, and max. mintage of 800000.

(2) The 1/10 oz round gold commemorative coins are bullion coins, containing 1/10 oz pure gold, with diameter of 18mm, face value of RMB50 Yuan, fineness of 99.9%, max mintage of 800000.

(3) The 1/4 oz round gold commemorative coins are bullion coins, containing 1/4 oz pure gold, with diameter of 22 mm, face value of RMB100 Yuan, fineness of 99.9%, max. mintage of 600000　

(4) The 1/2 oz round gold commemorative coins are bullion coins, containing 1/2 oz pure gold, with diameter of 27mm, face value of RMB200 Yuan, fineness of 99.9%, max. mintage of 600000.　

(5) The 1 oz round gold commemorative coins are bullion coins, containing 1 oz pure gold, with diameter of 32 mm, face value of RMB500 Yuan, fineness of 99.9%, max. mintage of 600000.

(6) The 5 oz round gold commemorative coins are bullion coins, containing 5 oz pure gold, with diameter of 60 mm, face value of RMB2000 Yuan, fineness of 99.9%, max. mintage of 5000.

(7) The 1 kg round commemorative coins are bullion coins, containing 1 kg pure gold, with diameter of 90mm, face value of RMB10000 Yuan, fineness of 99.9%, max. mintage of 500.

 (8) The 1 oz round commemorative coins are bullion coins, containing 1 oz pure silver, with diameter of 40mm, face value of RMB10 Yuan, fineness of 99.9%, max. mintage of 8000000.

 (9) The 5 oz round silver commemorative coins are proof coins, containing 5 oz pure silver, with diameter of 70mm, face value of RMB50 Yuan, fineness of 99.9%, max. mintage of 50000. 　

 (10) The 1 kg round silver commemorative coins are proof coins, containing 1 kg pure silver, with diameter of 100mm, face value of RMB300 Yuan, fineness of 99.9%, max. mintage of 20000. 

The gold and silver commemorative coins referred above are minted by Shenzhen Guobao Mint, Shenyang Mint, and Shanghai Mint.