13 July 2011

Pan Asian Gold Exchange Hype

The new Pan Asian Gold Exchange (PAGE) has got Andrew Maguire into hyper mode claiming that it "will ultimately destroy the remaining short positions in both gold and silver" and "in very short order affect current precious metals price discovery dynamics." This all based on his wishful thinking that "if just 1% of their [Agricultural Bank of China] customers bought a single 10 ounce contract, that would equate to 1,000 tons of physical gold being drawn down."

As Kid Dynamite comments in a FT Alphaville article on Maguire "a 10 ounce contract is worth well more than the average annual income in China, right? There was a stat recently that 40% of Americans couldn't come up with $2k if they needed it for emergency bills... I wonder what % of Chinese can afford to buy 10 ounces worth of gold?" I tend to agree. While it is always positive to have more ways people can buy gold, if you think that "this new gold and silver exchange has flown under the radar" of the big short players like Andrew does, then you are severely underestimating them, at your cost.

It reminds me of the hype that circulated some time back about the new vault in Hong Kong (by the way, what happened to all that metal was that clients were supposedly going to pull out of London and move to Asia, bringing down the LBMA?) Anyway, the impression (meme?) given by that story and the spin on PAGE is that there are few exchanges/markets around the world apart from the "fake" COMEX and London. Certainly, the story is that there are few places where "real" prices for physical metal can be found. In respect of that, you may find this list of gold markets from Sharelynx a useful reality check:

US- New York Open Outcry; Electronic Trading CME
UK- London LBMA
China - Shanghai SGE; SHFE
Hong Kong CGSE; HKEX; HKMEX
India - Mumbai NCDEX; MCX; NMCE
Indonesia - Jakarta JFX; ICDX
Japan - Tokyo TOCOM
Pakistan - Islamabad NCEL
Turkey - Istanbul IGE
United Arab Emirates - Dubai DGCX
Europe EUREX
Nepal - Kathmandu MEX
Russia - Moscow RTS
Singapore SICOM
South Africa - Johannesburg JSE
Taiwan - Taipei TAIFEX
Thailand - Bangkok TFEX
Brazil BMF

Between these, the 25+ ETFs that Sharelynx also tracks daily, and retail bullion dealers, I'd say it isn't too difficult for investors to buy gold these days. China certainly hasn't had access to these methods of buying gold to-date, but by the amount of physical metal we've seen being shipped into China over the past few years, I don't think Chinese investors (savers, more like) have had any problems getting all the gold they need.

13 comments:

Adrian said...

Hopefully Eric King read this. GATA and Eric seem to think Andrew is the real deal.

Brian O'Flanagan said...

excellent post, Bron. What's most surprising to me is how much publicity that ridiculous claim from Maguire has received. But such is the sorry state of the public discourse on gold and silver these days, I suppose. All we next is for Djibouti to open a gold exchange, and the shorts will really burn!

TG said...

I live in Vietnam and you can buy gold at very close to spot. It's 9999 quality and the spread is minimal, usually less than 1%. There are gold shops in all cities and towns.

The official media quotes the price http://vnexpress.net/

My point is that it's probably the same in China, so the people already have ready access to gold.

Silver is a different matter altogether, and I've never seen any bullion, while silver jewellery carries a premium of up to 100%

Gordon said...

Bron,

I have read several sceptics stating that the much vaunted gold buying by Chinese consumers is something of a myth put out by shills pumping buying gold.

You seem to imply that this is not the case and that the PM is indeed exporting considerable gold bullion to China. Am I reading you correctly?

Bron said...

TG - thanks for the local info. Is the recent Vietnam Govt moves against gold going to make any difference to gold hoarding?

Gordon - first to clarify, we don't export ourselves. Bullion banks & and other importers buy from us (cash upfront terms) and distribute themselves, we aren't interested in the financing and other risks that go with that.

While we don't directly distribute, we do know where it is going as we see the shipment paperwork. Up to 2-3 years ago almost all of WA's gold was going to India and Asia. Recently we have seen for the first time movements into China. So demand there is real. Whether WA's gold is going to retail or Govt, we don't know.

TG said...

Yeah a few months ago the government tried to stop the 'free market in gold' and suddenly the gold shops had no bullion bars to sell, although it was available at ‘official outlets’. The gold shops continued selling gold jewellery is of similar quality but I've never looked into it - I mean what I really want to know is the buy-sell spread.

Anyway I asked to a couple of VN friends and both independently knew people who could get bars for pretty close to the spot price. So if I as a foreigner could buy the bars you can be sure that the locals could do so easily.

So the government has so far been unable to stop the 'free market'. I haven’t seen an announcement but the gold shops are all now selling bullion bars again. With regard to hoarding, I don’t think they expected any dishoarding. In fact they announced subsequently that the citizens’ rights to own gold would not be effected. It may be they’re just trying to curb speculation. At the time of the ban the price here was at a premium of around 5% to the international price, while as of yesterday the price I was quoted was within 1% of the spot price. The price of gold is followed very closely here and it’s on the home page of the main online newspaper.

Of course the media isn't exactly pro-gold. Yesterday they had stories of people selling after the price hit 29m VND. Also recently they had the story of tungsten bars (not in Vietnam), and of clipped, ie underweight bars.

One remarkable thing is that recent efforts to curb the black market in USD appear to have been successful, for now anyway. The gold shops are the traditional place for the black market in USD and they currently offer only the official rate, around 20,700 to the VND.

As a ‘hoarder’ of gold, I watch the situation with great interest.

Bron said...

Thanks TG. Keep us in the loop on any changes, commenting to this post http://goldchat.blogspot.com/2011/04/vietnam-government-resisting-move-to.html is probably the best place.

Adrian said...

Bron, a gold experience in China I though you'd be interested in seeing TG's comments.

I was in Shanghai in April for a week, and we went to two government owned gold stores, and there was a very large product range which surprised me, but at the time there was supposed to be a lot of public demand, but the two times we went to the stores we never saw it. The buying we did see was some coins, and jewelry. We asked to see the bullion bars (which had lots of different designs and some were quite nice), and my mate was after numismatic coins, but none of them were at the MS64 he was after.

I don't doubt there is a lot of buying in China, but I did expect to see more people in the stores and there were only a few when we were there. It's not statistically significant, but more of an observation.

Kid Dynamite said...

It should be noted that TG's comments about government intervention of free markets in Chinese gold is the reason why we have seen differences between Asian and NY/London prices - Asia is manipulating their price (not necessarily on purpose, but nonetheless) by limiting imports- without a free market it can't be arbed.

Ignoramuses see the price difference and reach conclusions about US markets manipulating prices! So ironic...

musocam said...

The number of Chinese individuals with a net worth of at least 10-million yuan ($1.5-million) is set to nearly double to 590000 this year from 2008, the survey, conducted by global consultants Bain & Co and China Merchants Bank, showed.

Wealthy Chinese will have combined assets of 18-trillion yuan by the end of 2011, up 18% from the previous year, the report predicted.

The number of Chinese with a net worth of at least 10-million yuan hit 500000 in 2010, including 70000 with more than 50-million yuan and 20000 with more than 100-million yuan.

goldintheuk said...

Watch the tape for evidence! Gold is $1853 this weekend (2011-08-20) after hitting $1890 intraday on Friday. The London PM Fix on the date of this post was $1579, now it's $1848 as of 19 August, up 17% in 5-6 weeks in the summer when gold is normally in a slump.

Never mind the bullish hype and the bearish contradictions. Just stick with facts; watch the tape.

By the way, apparently, Chavez wants his gold fromthe BoE.

JF said...

Hi Bron - I've read some of your comments on another site and thank you for your insights and clarifications on various issues.

I was wondering if you think that when PAGE rolls out the international contracts if those will compete in any serious way with the others in existence.

One promoter of PAGE contends that a benefit to China will be bringing the Renminbi into greater usage on the international stage.

Do you think that makes sense?

Thanks

Bron said...

I left this comment at FOFOA (http://fofoa.blogspot.com/2011/08/treasure-chest-2-game-changer.html?showComment=1314885777401#c2299327569391384652):

I'm underwhelemed by PAGE. So there may be a "fully allocated spot gold contract". Guess what, we sell the 300t of physical gold we refine each year at spot in the OTC market - the buyers can be totally private. I don't think we will see much trading moving to PAGE beyond what bullion banks will feed it to meet local demand as other buyers aren't going to want their activities out in the public and visible to the benevolent Chinese Govt.

The Giants are going to continue to deal with the bullion banks in the OTC market where they can wade about without anyone knowing.