Shanghai Gold and Silver Physical Price Premia Matter
Interview with Jay Taylor taped on September 1, 2014.
1. LBMA GOFO positive with 1 month GOFO at .84%
2. Physical Premia Matter: Shanghai Gold Exchange and Shanghai Metal Exchange physical metals premia vs. LBMA pricing:
SGE Gold: $1286.70 /oz & premium of $ 2.70/oz. = 0.2 % premium vs LBMA vs. -0.1% last week (no VAT on Gold in China).
SGE Silver: $21.26 /oz & premium of $1.81 /oz. = +9.3% premium vs LBMA vs. 8.1% last week
SME Palladium $1,058.30 /oz & premium of $150.30 /oz. = 16.6% premium vs LBMA vs. 16.4% last week
SME Platinum $1,519.09 /oz & premium of $100.09 /oz = 7.1% premium vs LBMA vs. 6.3% last week
- The above Shanghai prices include a 17% VAT tax. It is important to look at this entire price including VAT as that is what is paid on exchanges in Shanghai/China for metal.
- The above large price premia create a strong pull for metal from the west into the the 'off exchange' Chinese metals markets.
- In 2013 only 40% of China's 1.8 million ounce palladium consumption registered as imported metal yet China has negligible production of palladium.
- Even with this growing Shanghai price premium for silver, we can see increasing evidence of shortage in China's silver inventories on the Shanghai Futures Exchange which have now collapsed as of last week to 95 tonnes from 1,180 tonnes in Feb 2013. China produces 9,000 tonnes per year of silver.
The relentless pull of physical metal has leveraged impact on the highly levered paper precious metals markets in the West and potential to upset markets.
3. Koos Jansen has profiled China vs US Market:
London is the dominant gold and silver market: we must also include London's LBMA in any comparison as we do have knowledge of comparative statistics for the LBMA from LBMA's "Loco London Liquidity Survey Q1 2011": http://www.lbma.org.uk/assets/Loco_London_Liquidity_Surveyrv.pdf
This LBMA study gives LBMA as having 10:1 daily gross trading volume vs the LBMA's posted end of day net settled trading volume of gold. The study also notes:
- 90% of daily LBMA gold trading is in the spot gold market
- 5% in forward instruments
- 5% in 'other' instruments
The Shanghai Gold Exchange "SGE" (a physical exchange where gold must be deposited to write and trade gold positions) sees weekly gold trading volumes of ~ 125 tonnes or 25 tonnes per day.
The SGE sees 25 tonnes or ~ 750,000 oz of gold traded per day.
The Shanghai Gold Exchange saw total gold bullion withdrawals from exchange vaults of 2,196 tonnes of physical gold in 2013 compared to global mine production of gold of 2,982 tonnes in 2013.
Now consider the current LBMA gross daily gold trading volume of 179 million ounces of gold per day (or 5,600 tonnes per day) which is 238 x the daily volume on the Shanghai Gold Exchange. LBMA gross daily trading volume in June 2013 was 290 million ounces of gold per day (or 9,020 tonnes of gold per day).
The SGE recently saw weekly silver trading volume of 4,000 tonnes or 128 million ounces per week or 25.6 million ounces of silver traded per day.
In July 2014, the LBMA saw gross daily silver trading volumes of 1.634 billion ounces of silver per day which is 64x the volume on the Shanghai Gold Exchange. Annual global silver production is ~ 1 billion ounces.
The silver trading volume on the LBMA is calculated using the same 10x multiplier that the LBMA says exists for the net cleared volume vs the gross daily trading volume.
Paper trading on LBMA is leading to global shortages of precious metals through mispricing (artificially low pricing)
Now looking to the New York COMEX weekly gold volume of 2,500 tonnes or 500 tonnes per day of primarily unbacked paper contracts is less than 10% of the LBMA market trading volume.
For silver, both the COMEX and the Shanghai Futures Exchange (not the SGE) trade about 30,000 tonnes per week of silver or 6,000 tonnes per day.
In comparison, the LBMA currently trades 51,000 tonnes per day of silver.
Although the LBMA gives statistics only as average daily trading volume for each month, we can see from the averaged numbers just how high (and dominant) the LBMA trading volume of both gold and silver is.
For global gold and silver trading, we have to focus on London as the primary price setting mechanism - it trades hundreds of times the volume of the SGE and 9x the volume of large futures exchanges and these paper volumes distort global gold and silver prices.
4. Dimitri Speck's updated statistics of manipulation of the daily silver and gold fixing price in London:
Statistical evidence of price capping of silver exceeding the manipulation of gold at the daily fixing time.
The LBMA stopped giving silver lease rates in 2013 for the LBMA and the bullion banks have sprinted from the daily fix (now taken over by CME + Reuters).