In early September 2015, I wrote an article titled “Moving
the goalposts….The LBMA’s shifting stance on gold refinery production
statistics”, in which I explained how the London Bullion Market
Association (LBMA) had, on Wednesday 5 August, substantially lowered its 2013
gold and silver refinery production statistics literally a few days after I
had commented on the sizeable figure of 6601 tonnes
of 2013 refined gold production that the LBMA had previously published in May
2015.
Specifically:
- On 5 August, the LBMA substantially altered and republished
Good Delivery List gold and silver refinery production statistics in two
of its published files: LBMA Brochure Final 20120501.pdf and
LBMA Overview Brochure.pdf
- For gold, the alterations were most pronounced in
the 2013 refined production figure which was reduced from 6601
tonnes to 4600 tonnes,
i.e. a 2001 tonne reduction
- Other years’ figures for refined gold refinery
output (2010-2012) were also reduced, with the 2008-2009 figures being
increased
- As part of the update, the LBMA linked its amended
figures solely to GFMS estimates of gold mining and
scrap output, adding the words ‘estimated to be‘
in front of the 4,600 tonnes figure, and the words ‘owing to recycling
of scrap material‘, thereby framing the revised figure solely in terms
of scrap gold in excess of 2013 gold mining supply. This use of GFMS
data is bizarre because all refiners on the LBMA’s Good Delivery List
provide exact refinery production statistics to the LBMA Executive as
part of the LBMA Pro-Active Monitoring programme, so there are no need
to reference estimates from external data providers
- In the updated versions of the brochures, the LBMA
made no reference to why the gold figures had been reduced, nor what the
original figures referred to, particularly for the huge difference of 2,000
tonnes of gold refinery output in 2013 between its two
sets of figures
- By 12 August, the LBMA had again updated its 2013 gold
refinery output figure to 4579 tonnes
In my Part 1 article, I had concluded that:
“There are 2,300 tonnes of 2013 gold
refining output in excess of combined mine production and scrap
recycling being signalled within the 6,601 tonnes
figure which was removed from the LBMA’s reports on 5 August 2015.
Could it be that this 6,601 tonne figure included refinery throughput
for the huge number of London Good Delivery gold bars
extracted from gold ETFs and LBMA and Bank of England vaults and converted
into smaller gold bars in 2013, mainly using LBMA Good Delivery Swiss gold
refineries? And that maybe this 6,601 tonne figure stood out
as a statistical outlier for 2013 which no one wanted to talk about?”
Note that for 2013, Gold Field Mineral Services (GFMS) estimated gold
mining production to be 3,022 tonnes, and gold scrap supply
to be 1,280 tonnes for 2013, so in total GFMS estimated gold
mining + scrap supply at 4,302 tonnes in 2013. Therefore,
the LBMA’s original figure for 2013 gold refinery production of 6,601
tonnes exceeded the combined GFMS mine and scrap supply by 2,300
tonnes.
Whose interests are served by replacing actual refinery output figures
with far lower estimates comprising GFMS gold mine production and scrap
recycling data? What happened to the third major source of gold supply to
refineries during 2013, i.e. London Good Delivery gold bars, and why won’t
the LBMA reference this? Why would the LBMA go to great lengths to
de-emphasise the huge volume of Good Delivery gold bars being sent to gold
refineries (especially in 2013) for conversion into 9999 fine kilobars, when
its obvious for all to see that this huge migration of bars happened?
This article, which is Part 2 of the analysis into the LBMA’s 2013 gold
refinery statistics, looks into this 6,601 tonne number and
the 2,300 tonne delta compared to GFMS estimates, specifically examining the
mountain of evidence that highlights the huge volume of Good Delivery bars
that were processed through the Swiss gold refineries in 2013, and the huge
associated shipments of gold from the UK to Switzerland, and onward from
Switzerland to Asia.
Part 2 also looks at the extent to which GFMS and the World Gold Council,
through their report text and data, addressed, and did not address, the
non-stop processing of Good Delivery gold bars into smaller finer kilobars
during 2013.
When Part 1 was written, I had also planned that Part 2 would examine the
2013 gold withdrawals from the London-based gold ETFs, and the 2013
withdrawal of gold from the Bank of England, however, these topics were
subsequently addressed in a separate piece titled “How many Good Delivery gold bars are in all the London
Vaults?….including the Bank of England vaults“.
That article itself had found a lot of interesting information including:
- that the entire London LBMA vault network (including
the Bank of England) lost 1,500 tonnes (120,000 bars) between 2011 and
early 2014, shrinking from 9,000 tonnes to 7,500 tonnes
- Between the end of February 2013 and the end of
February 2014, the amount of gold in custody at the Bank of England fell
by 755 tonnes
- In 2013, the large physically-backed gold ETFs which
store their gold in London saw a 720
tonne outflow of gold (GLD 561, IAU 60, ETF Securities’ PHAU 52, ETS
Securities GBS 42, ‘Source’ Gold 31)
- The full set of gold ETFs storing their gold in
London can, nearly down to the exact tonne, account for all of the LBMA
vaulted gold held outside the Bank of England vaults (See start of
my article titled “Central
bank gold at the Bank of England” for an explanation of this)
Note: Deutsche Bank gold ETFs and an ABSA gold ETF also store their gold
in London, and during 2013, these 2 sets of ETFs lost approximately a
combined 12 tonnes of gold (~9 tonnes from Deutsche and ~3 tonnes from ABSA,
so this would increase the 720 tonne ETF loss above, to about 732
tonnes.
Yet another Change to the LBMA Brochure in September 2015
On 29 September 2015, the LBMA made a further alteration to the 4-page
LBMA Overview Brochure, the brochure that had featured the shifting gold
and silver refinery output statistics.
On this occasion, although the data in the table remained unchanged, some
unusual footnotes were added underneath the table of refining statistics. The
text, table and the new footnotes are as follows:
The footnotes are highlighted as per yellow box:
Let’s look at these 3 footnotes one by one.
Note 1): The data for 2008-2013 contains estimates which will
be updated when actual data becomes available.
This note is illogical, since the LBMA already has all of the exact data
of gold and silver output per refinery. This was stated in the previous
versions, and it’s all detailed in my previous article.
Also, specifying ‘Figures correct as at September 2015’ is
illogical since the LBMA states that the data is ‘estimates’ and not ‘actual
data’. Correct relative to what? How can ‘estimates’ be deemed to be correct
if the ‘actual data’ is not published?
That would also explain the bizarre note number 2.
Note “2) Refined production should include only the refinery’s output
that has gone through a refining process”.
Footnotes to tables are normally used to explain data, not to justify the
data. This Note 2 sounds more like a pronouncement or a direction from a LBMA
communication to the refineries rather than an explanatory footnote.
In English grammar, ‘Should‘ means to give advice, a
recommendation or a suggestion, and to express obligation or expectation.
This footnote looks like it has been lifted out of a directive from the LBMA
to the member refineries.
Converting a 995 fine Good Delivery ~400oz bar into a series of 999 kilo
bars does involve a a chemical refining process in addition to melting and
pouring. The transformation by the refineries of large bars into smaller bars
is still throughput, and is a refinery process (as you will see below).
Also problematic to the LBMA’s footnote is that converting 9999 fine scrap
(in the form of old bars) to new 9999 bars, which sometimes happens, would
not necessarily be captured in the above LBMA footnote, so this approach to
seemingly attempt to tie in the LBMA data to GFMS mining and scrap refining
data opens up a can of worms.
Note 3): the production of newly accredited refiners excludes production
in the years prior to accreditation.
Note 3 should be obvious, and besides, it wouldn’t change much in terms of
the huge gaps in the numbers between 6601 tonnes in 2013, and the GFMS figure
of 4302 tonnes.
Macquarie 2013 – Where has the ETF gold gone
In August 2013, Macquarie Commodities Research, in its report “Where
has the ETF gold gone” commented that:
“over 1H 2013 it [the UK] has exported 797 tonnes [of gold],
equivalent to 30% of annual gold mine production”
“…gold bars from ETFs have gone to Switzerland, where most of the
world‟s gold refining capacity is, to be remelted into different size bars
and coins and then sold on end consumers, predominantly in Asia, specifically
China and India.“
“Trade data also backs up this movement of gold – Hong Kong customs
reported imports of gold from Switzerland of 370t in 1H 2013, up 284t on 1H
2103 (fig 3), while Indian imports from Switzerland appear to have risen by
more than 100t YoY.
It is not really very surprising that the gold has found its way from
vaults in London (and most likely the US and Switzerland) to Asia via Swiss
refineries. We have repeatedly noted that gold ETFs are part of the physical
gold market and if investors don’t want the gold it has to go somewhere
else.”
Since the four large Swiss gold refineries account for the lions share of
worldwide annual gold refinery output (See my article “Swiss
Gold Refineries and the sale of Valcambi“), its important to examine what
the Swiss gold refineries had to say about the smelting of London Good
Delivery gold bars into smaller bars in 2013, as well as their comments about
the dramatic reduction in gold scrap coming into the refineries during that
time.
Note that London Good Delivery gold bars are variable weight bars that
weigh about 400oz each (12.5kgs). These are the standard type of gold bars
stored in central bank vaults and held in physically backed gold Exchange
Traded Funds (ETFs) such as the SPDR Gold Trust (GLD).
Swiss Gold Imports from the UK: 2013
In 2013, Switzerland imported more than 2,600 tonnes of gold
and exported approximately 2,800 tonnes of gold. That year’s
gold import and export totals were the highest ever annual totals recorded
for Switzerland. See chart below from Nick Laird’s Sharelynx.
Although Switzerland doesn’t possess any major gold mines, it does host
one of the largest physical gold markets in the world, which regarding
investment gold, primarily comprises the large Swiss gold refineries along
with some bullion banks (including UBS and Credit Suisse), the Swiss National
Bank and the Bank for International Settlements (BIS), and the Swiss wealth
management and private banking sector. But the throughput and precious metal
processing of the four large gold refineries accounts for nearly all the
country’s gold imports and exports.
The UK is consistently the largest import source of gold into Switzerland.
In 2013, Switzerland imported nearly 1,400 tonnes of gold from the UK
during the year, with hardly any gold moving back in the opposite direction.
Notwithstanding the fact that the UK does not have any producing gold mines,
1,400 tonnes is 46% of GFMS 2013 global gold mining production estimate of
3022 tonnes. And despite the fact that GFMS itself stated that the UK only
contributed 41 tonnes of gold scrap to the 1280 tonne global gold scrap total
in 2013, 1400 tonnes of UK gold exports to Switzerland is 109% of GFMS’s 2013
global gold scrap estimates.
So why is the LBMA not including all of this 1400 tonnes of UK to
Switzerland gold exports in its 2013 gold refinery production statistics?
Even Swiss gold imports from the United States in 2013, at 267
tonnes, paled into comparison compared to Switzerland’s imports of 1,373
tonnes of gold from the UK, and left all other import sources such
as Italy and France in a distant third.
Thanks to Nick Laird of Sharelynx
for permission to use the above 3 charts.
Swiss Refineries – From the Horses’ Mouths
Let’s look at what the Swiss gold refineries had to say about the
conversion of Good Delivery gold bars into smaller bars during 2013. You will
see that the large Swiss refining companies treat Good Delivery bars as one
of three sources of supply coming in to their refineries.
It’s important to note that the transformation of London Good Delivery
bars of 995 fineness into, for example, kilobars of 9999 fineness, still
involves the use of chemicals in reactions, albeit smaller amounts than when
refining mining ore, and is not just a simple melting and re-casting
exercise.
Argor-Heraeus’s perspective on Good Delivery bars in 2013
In its 2013 Corporate
Sustainability Report, Argor-Heraeus had the following comments to say
about the 400oz bar to smaller bar transformations:
“In 2013, we consumed 3,120,603 kg of
chemicals, 4% less than in 2012, despite a slight increase in precious metals
processing. This decrease derives from the fact that a
large percentage of gold processing involved the re-smelting of metal already
in circulation (Good Delivery) to obtain high-fineness ingots, which are in
great demand. The processing of a metal that is already
pure requires smaller amounts of chemicals in reactions, as opposed to the
refining of raw materials from mines.”
Argor-Heraeus even divides the gold inputs that go into its refining
process into three distinct categories, namely, a) Scrap, b)
Mines and c) Good Delivery, such is the
importance of the Good Delivery refining activity to the refinery. See the
following graphic from the Argor-Heraeus 2013 Sustainability report, complete
with descriptive icons of the three input sources inputs of metal:
The text box from the left-hand corner of the above graphic has been
zoomed in and magnified below to aid readability:
Elsewhere in the same report, Argor-Heraeus reiterates the same 3 sources
of gold supply that come in to its refineries for ‘Transformation
and Processing‘.
Argor-Heraeus picks up the Good Delivery bar theme again in its 2014
Corporate Sustainability Report, where it produces a similar but slightly
more detailed graphic, complete with the icons, and which explains that the
Good Delivery bars can be either ‘grandfathered or non-grandfathered‘
and that the materials are ‘already certified Good Delivery,
or already high-quality‘. High quality but not good delivery could be
signifying gold bar brands on the former London Good Delivery list, or else
lower grade coin bars, that had originally been made from melting down and
casting into bars the gold coins that were previously in circulation.
Coin bars were at one time on the London Good Delivery list up until 1954.
Grandfathered is a term used by the LBMA in its discussions of ‘Responsible Gold
Guidance‘ and is defined as:
“Grandfathered Stocks: Gold investment products (ingots, bars, coins
and grain in sealed containers) held in bullion bank vaults,
central bank vaults, exchanges and refineries, with a
verifiable date prior to 1 January 2012, which will not require a
determination of origin. This includes stocks held by a third-party on behalf
of the listed entities.“
The Argor-Heraeus 2014 graphic referencing Good Delivery bars is as
follows:
Metalor’s information on Good Delivery bars in 2013
In its 2013
Annual Report (large file 3.4 MBs), within the review of
2013 performance section, large Swiss based gold refinery Metalor
Technologies highlights a steady demand for ‘recasting of
gold bars for banks':
“Full-year net sales in the Refining business unit declined by 16
percent as precious metal prices remained low, reflecting a weak global
economy. The drop in prices negatively impacted the price/volume mix, as
reduced quantities were retained at lower prices. This was partly offset
by steady demand in less profitable activities,
such as the recasting of gold bars for banks.”
Metalor also provided a host of pertinent insights into other drivers of
the 2013 gold market:
“The spot-price of gold and silver declined by more than 30 percent
over a six-month period, and this prompted sharp
sell-offs of the gold stored in ETF (Exchange-Traded Funds) vaults.
The consensus is that this
surplus was absorbed by strong China based bullion purchases,
while price-dependent scrap flow fell rapidly.”
“High grade precious metal bearing scrap flows
worldwide dropped sharply due to sustained price erosion.
This market development created an overhang in refining capacity, and a much
more competitive pricing environment, although some of the volume
reduction in scrap flows was offset by new mining doré
contracts. The drop in price led to strong bullion
purchases, mainly driven by China.”
The Refining business unit saw a challenging 2013, due to reduced gold
prices. This resulted in a continuous slowdown in the
scrap market. …….a decreasing volume of
mining doré coming from abroad, due to changes in country regulations.”
“In Asia, the Hong Kong refinery was able to
sustain a high level of activity due to strong demand
and a high premium on bullion products.”
Valcambi on refining of Banks’ gold
Valcambi has an annual refining capacity “in excess of 1,200 tons for
gold and 400 tons for silver“, so is known for having potentially unused
refining capacity.
Following the July 2015 Valcambi acquisition by Indian company Rajesh
Exports, the acquirer clarified to Indian newspaper ‘Business Standard’ that
it was a regular activity for Valcambi to use its excess capacity to meet
“emergency” refining requirements for gold held by bullion banks.
In fact, on the recently updated Valcambi website, an entire web page is
now devoted to describing how transportation works for banker clients, in
addition to clients that are miners, scrap dealers, other refineries, and
watch makers. See ‘Transportation
for Bankers‘ web page which details the import and exports procedures which
the Valcambi refinery offers its banker clients.
Under its Assaying web
page, Valcambi even sees fit to specifically explain the process for the
incoming ‘shipments of Good Delivery (GD) bars‘ which are
merely checked to confirm that they haven’t been tampered with, as opposed to
the shipments of ‘Non Good Delivery (NGD) precious metals‘, which
are subjected to homogeneity checking, sampling and analysis. This shows that
the volume of Good Delivery bar shipments into Valcambi is significant enough
to warrant specific coverage on its website.
Under its Refining
web page, Valcambi again details its ‘3’ sources of incoming gold, namely
“primary doré supplied by mines”, “industrial scrap and recycling“,
and “metals invested and owned by financial and governmental institutions“,
i.e. London Good Delivery Bars.
On the phenomenon of a low gold price leading to a decline of gold scrap
coming into Valcambi, the CEO, Michael Mesaric, recently had the following to
say while
talking with Indian publication Bullion Bulletin at the India
International Gold Convention (IIGC) 2015 in Goa:
“Bullion Bulletin: The gold price is
coming down continuously, is there any impact on the refinery segment?
“Michael Mesaric: There is a small
impact as well because if the gold price is very low there is very little
scarp coming in.”
Argor-Heraeus interviews -“They’re bringing in
good delivery bars”
On 4 December 2013, Alex Stanczyk from Anglo Far-East group, in an interview with
Koos Jansen published on his BullionStar blog, said that he (Stanczyk) and
colleague Philip Judge, accompanied by Jim Rickards, had just returned
from a visit to Switzerland where they had met with the managing director of
one of the large Swiss refineries. Although the identity of the
refinery was not revealed, Alex Stanczyk said that the refinery MD informed
them that there was huge demand for fabrication at his refinery and that:
“They put on three shifts, they’re working 24 hours a day, and originally
he (the MD) thought that would wind down at some point. Well, they’ve been
doing it all year. Every time he thinks its going to slow down, he gets more
orders, more orders, more orders. They have expanded the plant to where it
almost doubles their capacity. 70 % of their kilobar fabrication is
going to China, at a pace of 10 tons a week.”
“They’re bringing in good delivery bars,
scrap and doré from the mines, basically all they can get their hands on.”
“…sometimes when they get gold in, it’s coming from the back corners
of the vaults. He knew this because these were good
delivery bars marked in the (nineteen) sixties.”
The same Swiss gold refinery executive was interviewed by Jon Ward of the
Physical Gold Fund in September 2015, with the interview published as a podcast
and as a transcript.
“Jon Ward: In 2013, I recall you commented on
the tightening of physical supply in the gold market and even the
difficulties you were having in sourcing material. In fact, as I remember,
you remarked that in 30 years, you’d never seen anything like it.”
The exact identify of the Swiss refinery executive was also not revealed
in the September 2015 interview, however the executive is most certainly from
the Argor-Heraeus refinery. Why? Because, the introduction to the 2015
interview states that:
“The gentleman we are interviewing is part of senior management
of one of the largest Swiss refineries. His refinery is one of only 5
global LBMA referees…”
The LBMA appoints 5 refinery assay laboratories to help it to maintain the
Good Delivery system. These appointees are known as ‘Good Delivery Referees’
and they meet on a quarterly basis at the LBMA. The 5 Good Delivery Referees
are Argor-Heraeus, Metalor Technologies and PAMP (all from Switzerland), Rand
Refinery (South Africa), and Tanaka Kikinzoku Kogyo (Japan).
Therefore, the interviewee has to be from one of three Swiss refineries,
namely, Argor-Heraeus, Metalor or PAMP.
Furthermore, and this is the critical point, during the interview, the
refinery executive states that his company has just opened in Santiago,
Chile.
“Head of Refinery: ..looking at mining
partnerships, we are expanding in Latin America. We have just
opened in Santiago, Chile, and are trying to provide even
more competitive services for the Latin American mining industry.”
Out of the short-list of Argor-Heraeus, Metalor, and PAMP, the only one of
the three to open an operation in Santiago, Chile in 2015 (and the only one
of the three to even have an operation in Chile) is Argor-Heraeus. See
Argor-Heraeus new item below from the news page of its
website dated 16 September 2015:
The press release for the above Chilean plant announcement is only in
Italian, but can be read here.
Lets look at what the Argor-Heraeus refinery executive says about
conversion of Good Delivery bars to kilobars, both in 2015 and during the few
years prior to that. From his September 2015 interview:
Jon Ward: Over the last couple of years, has
this meant that you actually had to melt down and re-refine a whole lot of
400-ounce bars for China? If you have, I’d like to know where the bars come
from.
Head of Refinery: The bars are coming from
what you could call “the market.” Looking
back, there were all these ETF liquidations, and the ETFs were holding bars
in the form of 400-ounce bars. At that time a lot of the physical liquidity
maintained in the London gold market was actually in 400-ounce large bars.
The final customers were not interested in 400-ounce bars, so it was one of
our jobs to take these bars, melt them down, refine them up to the 999.9 standard,
and cast them into kilo bars.
Jon Ward: Were a whole lot of these bars
coming from London?
Head of Refinery: Regarding the
ETF liquidations, this gold had to go somewhere, and that was all converted.
This is a thing you see every year. You also see some liquidations of
physical gold held with COMEX and NYMEX. More or less, these are the sources
of gold other than newly mined.
PAMP – Three Shifts and Full Capacity – Barkhordar
In January 2014, in an article titled “Gold
Flows East as Bars Recast for Chinese Defying Slump“, Bloomberg
highlighted that the PAMP refinery, owned by MKS (Switzerland) SA, was at
full capacity during parts of 2013, and the article quoted PAMP
Managing Director Mehdi Barkhordar as saying that they had to add production
shifts to cope with processing demand:
“Gold’s biggest slump in three decades has been a boon
for MKS (Switzerland) SA’s PAMP refinery near the Italian
border in Castel San Pietro, whose bullion sales to China surged to a record
as demand rose for coins, bars and jewelry.”
“To keep up with orders, MKS added shifts at the PAMP
refinery, located about 4 miles (6.4 kilometers) from the
Italian border, Barkhordar said in November…”
“Furnaces that can process more than 450 tons a year were at
full capacity from April to June, melting mined metal, scrap
jewelry and ingots at 1,000 degrees Celsius
(1,832 degrees Fahrenheit) into the higher purities and smaller sizes favored
by Asian buyers.”
“The surge in orders meant some parts
of the refinery worked three shifts instead of the usual two,
Barkhordar said.”
Again, you can see that there were three sources of supply for
the PAMP refinery in 2013, i.e. mining, scrap and ingots (bars). According to
GFMS, global scrap gold supply fell by 354 tonnes (21%) from 1634 tonnes in
2012 to 1280 tonnes in 2013, so this did not account for the ‘surge in
orders’ and the need to add extra refinery shifts. Likewise, global gold
mining output only increased by 160 tonnes (5%) from 2860 tonnes in 2012 to
3022 tonnes in 2013, and much of this increase was in China, Russia,
Australia, Kyrgyzstan, and Indonesia which refine their own gold domestically,
so this would also not explain the surge in orders, which therefore can only
be attributable to recasting existing large gold bars into “smaller sizes
favored by Asian buyers“.
Therefore, all 4 of the 4 large Swiss gold refineries are on the record that
London Good Delivery gold bars were a very significant source of gold supply
into their refineries during 2013 and even since then. So why did the LBMA
amend its 2013 gold refining production statistics and seek to purely link
its revised ‘estimate’ numbers to GFMS estimates of gold mine supply and gold
scrap supply? There is an entire third source of gold supply to the refiners
being overlooked because the LBMA dramatically reduced its 2013 gold refining
production figure of 6,601 tonnes. Classifying Good Delivery
bars as a supply source for refining is as legitimate as classifying gold
scrap as a supply source for refining, and both come from above ground gold
stocks.
GFMS and the World Gold Council
The well-known gold research consultancy GFMS, as well as gold mining
lobby group the World Gold Council, between them produce a number of gold
supply and demand reports each year. [Note: GFMS, formerly known as Gold
Fields Mineral Services, is now part of Thomson Reuters].
Each year GFMS publishes a gold survey and related update reports later in
the year. In 2013, this GFMS gold survey included two update reports.
The 2013 survey and its updates were sponsored by Swiss refiner Valcambi
and Japanese refiner Tanaka, with ‘generous support‘
from a selection of entities including Swiss refiner PAMP (part
of the MKS Group), South African refiner Rand Refinery,
US gold mining companies Barrick and Goldcorp, bullion bank Standard Bank, US
futures exchange CME Group, and the gold mining sector backed World Gold Council.
Its notable that the GFMS reports are ‘sponsored’ by some of the large
Swiss gold refiners, yet there is nothing in the GFMS reports that puts cold
hard factual numbers on the amount of Good Delivery bars processed through
the refineries. As you will see below, GFMS mentions the good delivery bar
processing in passing in its text, but not in its 2013 gold supply-demand
‘model’.
What, if anything, did GFMS have to say about conversion of
London Good Delivery gold bars into smaller gold bars, such as kilobars,
during 2013?
In its GFMS
Gold Survey for 2013 – Update 1 (large file 11MBs) report, published
in September 2013, the report states that:
“Strong trade flows were recorded between the UK and
Switzerland, where Good Delivery metal was refined to
smaller bars and shipped to India and China.”
The GFMS
Gold Survey for 2013 – Update 2 (large file 9.8 MBs), published in
January 2014, reiterated this point about large bar to small bar refining. On
page 5 of the Update 2 report it states:
“The duality of disinvestment in the developed world and an
increase in physical demand from Asia was witnessed by the largest
movement of gold, by value, in history as bars were shipped
to Asia, often being melted down into smaller bars en route.”
Notice that not all Good Delivery bars were converted to smaller bars
before shipment to Asia. Some shipments went straight to Asia without being
melted and converted.
And on page 9 of the same Update 2 report, the source of some of these
smaller bars is given, i.e. the source was UK ETF gold holdings:
“As a consequence, UK-led ETF outflows found
their way to Switzerland, where refiners
melted the metal into smaller bars, and shipped them East, in
order to satisfy the surge in demand.”
The World Gold Council (WGC), regularly issues its own gold supply demand
reports called ‘Gold Demand Trends‘, and publishes these reports in
the form of an annual version, followed by shorter quarterly updates. In
‘Gold Demand Trends Q3 2013′, published in November 2013, the WGC said:
“Gold continued to work its way through the supply chain, to
be converted from London Good Delivery bar form, via the refiners, into
smaller Asian consumer-friendly kilo bars and below.
This process is borne out by recent trade statistics. Data from Eurostat show
exports of gold from the UK to Switzerland for the
January – August period grew more than 10 fold to 1016.3
tonnes. This compares to a total of just 85 tonnes for the
same period in 2012.”
In its Full Year 2013
edition of ‘Gold Demand Trends’, published in February 2014, the World
Gold Council had this to say about the London Good Delivery bar shipments
going to refineries, being transformed into smaller bars, and then
recommencing their onward journey to the East:
“No review of 2013 would be complete without a mention of the unprecedented
flow of gold from western vaults to eastern markets, via refiners in North
America, Switzerland, and Dubai.”
“These shifts resulted in the shipment and
transformation – on an epic scale – of 400oz London Good Delivery
(LGD) bars into smaller denominations more suitable for
consumers’ pockets.”
Notice the reference to refiners in North America and Dubai also, in
addition to Switzerland.
In its ‘Gold Demand Trends Q1 2014‘ published in May 2014, the
WGC stated that:
“As illustrated last year when gold flowed out of
western ETFs, through refineries in Switzerland and to
consumers in the East, official
trade data can provide insights into global gold flows.”
The full GFMS
Gold Survey for 2013 (large file 6.2 MBs), i.e the report
before the 2 updates, was originally published in April 2013, and was written
too early in 2013 (probably written in March 2013) to really capture the
flows of Good Delivery gold bars from the UK to Switzerland that were smelted
into smaller bars. This was before the massive gold price smash of April 2013
that got the ETF gold sales going. That report mentions ETF gold outflows of
148 tonnes up to 11th March 2013, including 111 tonnes from the SPDR Gold
Trust (GLD), but the 2 GFMS update reports from September 2013 and January
2014 were written at a later date, with a better vantage point, when the
400oz bar to smaller bar trend had gathered momentum.
Where was the Swiss refinery output going to in 2013?
On the outbound export route, Swiss gold exports of 2,800 tonnes
in 2013 went primarily to Hong Kong (939 tonnes), India (520 tonnes), China
(254 tonnes), Singapore (179 tonnes), Thailand (149 tonnes), Turkey (147
tonnes) and the United Arab Emirates (125 tonnes), with the residual 500
tonnes going to other destinations as detailed in the below chart from Nick
Laird’s Sharelynx.
GFMS – Masking the Swiss refining of Good Delivery Bars?
Given that the LBMA decided to compare its amended gold (and silver)
refinery production statistics against GFMS ‘estimates’ of gold supply
(especially out of sync for 2013), then its important to look at what GFMS
claimed gold supply and demand to be in 2013. This may help in determining a
possible rationale the LBMA had for reducing its refinery output figures.
So, does the 2013 GFMS gold supply and demand data model show this “largest
movement of gold, by value, in history” “on an epic scale”
phenomenon from the UK to Swiss refiners to Asia? The answer is explicitly
NO, neither in 2013, nor in any prior year, but to a limited extent yes, but
only after drilling down into the sub-components of an obscure GFMS balancing
items within the GFMS supply-demand equation.
But GFMS precious metals supply data and the way it’s presented does not
seem to want to highlight the ‘largest movement of gold, by value, in
history‘. So even though GFMS mentions (in passing – see above) the
historically important 2013 movement of 400oz bars to refineries through
places like Switzerland and their transformation into smaller bars by the
large gold refineries, the GFMS gold supply statistics keep some of
the relevant numbers locked away and jumbled up within a rather odd rolled up
figure that it calls “implied net (dis)investment“. Other relevant
data, such as OTC demand data, is not even detailed by GFMS, it’s just
assumed.
GFMS gold supply – Disaggregating the implied figure
Here is how GFMS gold supply statistics looked for 2013, taken from the
GFMS Update 2 2013 report published in January 2014. In 2013 GFMS used 4
supply categories, namely, ‘Mine production‘, ‘Old gold scrap‘,
‘Net producer hedging‘ and ‘Implied net disinvestment‘.
GFMS-style gold supply
and demand figures, 2013 – from GFMS Update #2 report
The first thing to notice is that there is no GFMS supply category called
‘Good Delivery bars’, unlike the large Swiss gold refiners
themselves which actually list Good Delivery bars as a distinct gold supply
category, such is the importance of that supply source.
Neither is there any category for Gold ETF outflows. So even though 6,600
tonnes of gold came out of LBMA gold refineries in 2013, if you looked at a
GFMS supply demand model from 2013, you would never know this. Apart from
gold mine production of 2,982 tonnes and old scrap supply of 1,371 tonnes
(which together totalled 4,353 tonnes), the only other non-zero supply figure
in the GFMS model was ‘implied net investment’ of 383 tonnes.
On the demand side in 2013, GFMS listed jewellery fabrication (2,198 tonnes),
other fabrication (792 tonnes), central bank purchases (359 tonnes), physical
bar investment (1338 tonnes), and producer de-hedging of 50 tonnes. Again,
looking at this demand side, you would not know that gold refinery output in
2013 reached 6,600 tonnes, and that this figure was 2,300 tonnes more than
combined mine production and scrap recycling.
There was also a footnote to the above GFMS supply and demand summary
table which defines the GFMS definitions of ‘Net producer dehedging‘
and ‘Implied net disinvestment/investment‘.
GFMS defines ‘Implied net disinvesment‘ or “Implied net
investment‘ as a residual figure in its supply-demand table
(i.e. a plug figure), and states that this “captures the net physical
impact of all transactions not covered by the other supply/demand variables“,
So basically, it’s a catch-all plug figure. GFMS says that “the implied
net (dis)investment figure is not independently calculated, but derived
as the item which brings gold supply and demand into balance.” See full
GFMS explanation below:
This ‘Implied net’ (investment/disinvestment)’ figure is
where the 2013 GFMS supply and demand figures become, in my view, completely
convoluted and opaque. GFMS says, in both its 2013 Update 1 and Update 2
reports that:
“It is interesting to examine how the implied
figure compares to information on activity within the different arenas
of investment over the year, (although given aforementioned
limitations in this information, it is not possible
to dis-aggregate accurately the implied figure into these components)”.
How GFMS exactly makes sense of its ‘Implied net’
(investment/disinvestment)” figures is hard to fathom because there is no
proper explanation of the ‘aforementioned limitations‘ that GFMS
alludes to except the fact that it doesn’t seem to be able to offer estimates
for physical bar movements in Comex nor physical bar movements in OTC
activity, part of which it considers the bar shipments to Switzerland to be.
GFMS could also maybe ask the gold refineries in Switzerland and elsewhere
for the throughput figures on what they refined in 2013, be it gold mine
doré, scrap metal, or Good Delivery bars, and then use that data also. And
GFMS could also ask the SPDR Gold Trust Authorised Participants how much gold
each of them took out of the GLD in 2013 and how this gold made its way to
Switzerland and elsewhere, did the banks send the gold to Switzerland
themselves using secure transporters such as Brinks, or did they sell it to
other parties who then sent it to the refineries etc etc. The same question could
be asked of the Bank of England and the amount of gold withdrawn from its
gold vaults and the bullion bank identities of who withdrew it.
In the GFMS world, demand has to equal supply, so whichever side of the
equation is greater, the other side has to have a plug figure. In 2013, GFMS
put the above items into the demand side, and arrived at an estimate of 4,737
tonnes for demand. It then did an estimate for supply using only 2
components (mining and scrap), and arrived at 4,353 tonnes for
supply. Since demand did not equal supply, GFMS then said that implied
dis-investment was 383 tonnes. (The figures are 1 tonne out due to what must
be a rounding error).
Here is my quick and easier to read version of the GFMS 2013 gold supply –
demand table:
GFMS then takes the plug figure of 383 tonnes and thinks about an
explanation for it.
In its 2013 gold surveys, GFMS also produced another figure which it
called ‘World Investment‘, which it defined as “the sum of
implied net investment, physical bar investment, and all coins“. It
provided this ‘world investment’ figure for both H1 and H2 2013.
This ‘world investment’ figure includes investment demand for physical
gold bars and coins, gold medallions, and imitation coins (made of gold), but
it also includes investment in products such as gold-backed ETFs. So if there
is a huge outflow of gold from the gold ETFs, as there was in 2013, GFMS did
not consider this to be gold supply, but rather, GFMS considered it to be
negative demand, that it then buries in the implied net investment category.
Since the Authorised Participants of the large gold ETFs redeemed huge
amounts of gold from these ETFs in 2013, especially in the first half of
2013, GFMS refers to this as gold ETF ‘investors’ redeeming gold
from the ETFs. This is not entirely true because only large investors
can redeem from an ETF such as GLD. Small investors just sell their shares in
GLD. GFMS calls these 2013 ETF redemptions ‘implied disinvestment’, and it is
this phenomenon that caused the GFMS ‘implied disinvestment’ category to be
negative in the first half of 2013, but not in the second half of 2013, when
GFMS insists that there was positive ‘implied net investment’.
GFMS calculated that there were 550 tonnes of gold outflows from ETFs in
the first half of 2013, and 330 tonnes of gold outflows from the same ETFs in
the second half of 2013, making a total outflow of 880 tonnes for 2013.
Somehow, although the 550 tonnes of gold that left ETFs in H1 2013 caused the
H1 implied net investment to be a negative 613 tonnes (as would be expected),
the 330 tonnes of outflow from gold ETFs in H2 2013 did not, in GFMS’s eyes,
have the same effect, and GFMS’s implied net investment in H2 2013 was a
positive 230 tonnes, meaning that although ETFs had an 880 tonne outflow for
the full year 2013, the GFMS implied net investment was only -383 tonnes.
This then creates another residual number which would have to have been a
positive 497 tonnes from some other type of investment demand.
What else is buried in this GFMS implied net investment apart from ETF
flows? It seems to have been Comex exchange activity and OTC activity that is
within this implied figure, but GFMS avoids putting numbers on it, hence the
confusion.
The reason given by GFMS for a positive net investment of 230 tonnes in
the second half of 2013, which cancelled out approximately 500 tonnes of the
ETF gold outflows, was what it calls “significant net buying” in the
OTC market.
GFMS refers to its implied net investment figure as “a proxy for
institutional investor activity” and said that it “shifted to negative
territory” in H1 2013. I’ve included the GFMS 2013 discussion below, just to
should how convoluted and unsatisfactory this GFMS logic was. Firstly, the
GFMS Update 1 report discussion on ‘implied net investment':
“The implied net (dis)investment figure is not independently
calculated, but derived as the item which brings gold supply and demand into
balance. The figure should therefore not be seen as an exact tonnage
equivalent but instead an indication of investment activity separate from
retail bar and coin demand. Additionally, although a substantial majority of
this tonnage will reflect such activity, implied net (dis)investment could
also include other flows that, technically, are outside the definition of
investment. One example is the impact of any central bank activity that is
not being picked up in our official sector figures and that would, as a
result, be absorbed within our implied net (dis)investment category.”
“Despite this caveat, implied net (dis)investment typically does
provide a clear indication of the overall impact of investor activity on the
market for the period discussed. Furthermore, using information collected
through field research and publicly available data, Thomson Reuters GFMS
performs a ‘reality check’ on these values.”
“It is interesting to examine how the implied figure compares with
information on activity within the different arenas of gold investment (although
given aforementioned limitations in this information, it is
not possible to disaggregate accurately the implied figure into these
components).
Due to the nature of gold ETFs and other similar products, we are
certain that the near 580-tonne decline in ETF holdings had a one-to-one
impact on the volume of investment. The picture is somewhat more
opaque when it comes to the futures and OTC markets. As for
the former, at end-June, noncommercial and non-reportable net positions in
Comex futures were 477 tonnes lower than the end-2012 figure. Turning
to the OTC market, however, the first half-year saw robust volumes of
investment.“
“As a shortage of bullion rapidly developed in many regional markets
and local premia jumped, transactions that were related
to physical gold transfer jumped in the London market.
Feedback from our contacts, gold trade data and clearing statistics published
by the LBMA indicate that a substantial amount of large gold
bars (from redemptions of ETFs and sales from unallocated accounts) were
shipped to Switzerland from mid-April to be converted to small bars
for markets in Asia and the Middle East”.
In its 2013 Update 2 report, GFMS then stated the following. Notice how a lot
of the text is copied over from the previous Update 1 report. Update 2:
Therefore, GFMS throws a number of items into its OTC category but steers
clear from committing itself to really explaining what it means by OTC
activity. It states that “the OTC
market is dominated by institutional investors“. It states
that “a substantial amount of large gold bars (from redemptions of
ETFs and sales from unallocated accounts) were shipped to Switzerland from
mid-April to be converted to small bars for markets in Asia and the Middle
East“.
It alludes to “direct shipments, albeit more restrained, from the
United Kingdom to the Far East also jumped, as refineries reached full
capacity.”
GFMS hazily refers to ‘metal accounts’, which I would consider to be
unallocated accounts, and not directly related to absorbing physical ETF gold
outflows. GFMS says in its 2013 Update 1 report that “Metal accounts held
by western high-net-worth investors also posted a net rise, largely reflecting
gold’s traditional role as a means of wealth preservation. This was also
partly related to the ongoing shift out of gold ETFs, as metal accounts
offered lower fees, while transactions in the OTC market were
less transparent than in ETFs.”
By the time it wrote its Update 2 report for 2013, GFMS had concluded
that:
So an 880 tonne outflow of gold from the large ETFs (which are
predominantly based in London), as well as hundreds of tonnes of gold
outflows from the Bank of England, that led to 1373 tonnes of gold being exported
from the UK to Switzerland in 2013, the lions share of which were transformed
into kilobars and then shipped to the Asian markets, somehow, according to
GFMS, turned into only a negative 383 tonne implied net investment due to “significant
net buying for the year as a whole” in the OTC market. There is no
attempt to explain the 1373 tonnes of gold exported from the UK to
Switzerland in 2013.
If you classify gold ETF outflows as a distinct supply category of gold,
which seems logical to me and which the large Swiss gold refineries also
consider it to be, then a GFMS supply-demand model would look like this:
The trouble (for GFMS) then is, that the model doesn’t balance, and they
are left with a 496 (or 497 tonne) item on the demand side that they can’t
explicitly explain what it refers to.
World Gold Council version of GFMS 2013 data
The World Gold Council (WGC) also publishes gold supply and demand data in
its annual and quarterly ‘Gold Demand Trends‘ publication. Until
2015, the WGC used GFMS data as a data source, after which it switched to
using gold supply and demand data from the Metals Focus consultancy (see
below for discussion of the WGC – Metals Focus switch). The WGC uses a
different (and easier to understand) layout format for presenting the gold
supply and demand data, but for the 2013 format, it still subscribed to the
approach of putting ETF withdrawals in the demand category as a negative
number.
In its ‘Gold
Demand Trends – Full Year 2014‘ report, which has the most complete data
for 2013, the WGC states in a footnote that the source is
“Source: GFMS, Thomson Reuters; The London Gold Market Fixing Ltd;
World Gold Council. Data in the table are consistent with those published by
GFMS, Thomson Reuters in their Gold Survey but adapted to the
World Gold Council’s presentation”
The above WGC model puts gold ETF outflows (Good Delivery bars) into its
own line item, but instead of including it as Supply, the WGC puts this in a
negative demand. There is also another line item under demand that the WGC
calls ‘OTC investment and stock flows‘, which it defines as “Partly
a statistical residual, this data is largely reflective of demand in the
opaque over-the-counter (OTC) market, with an additional
contribution occasionally from changes to fabrication inventories.”
GFMS changes its Supply-Demand Methodology in 2014
When the GFMS
2014 Gold Survey was published in April 2014, GFMS had surprisingly
altered the methodology and formatting of its supply-demand data model to
include gold ETF outflows as an explicit line item. GFMS also ditched the
implied investment concept, but came up with a physical surplus /deficit plug
figure instead. I say surprisingly because GFMS had used its previous
supply-demand model for a long number of years. GFMS did not dwell on why
this had not been done earlier, choosing instead to highlight the benefits of
such a change:
Could it be that GFMS subscribers questioned as to why the huge ETF
withdrawals were not explicitly listed in the 2013 GFMS supply-demand model,
that forced the change? Perhaps.
The inclusion of ETF gold flows (and gold flows from gold futures
exchanges) were explained as follows. The OTC category continued to seem to
cause problems to GFMS. See below:
The actual re-gigged GFMS supply-demand model, redone for 2013 was as follows.
The figures for 2013 are slightly different from the ones that GFMS published
during 2013, since the table below was published in April 2014 when GFMS
probably had updated data about 2013 compared to the reports it published
during 2013:
The above GFMS revised model can also be reformatted as below, moving ETF
and Exchange ‘build’ to the supply side, since they are supply and not
demand:
How the 99 tonnes of Exchange Inventory supply is calculated is not clear.
Net Balance of 277 became 276 due to rounding differences. Even including
ETFs and Exchange Inventory, there is no explanation by GFMS of what the Net
Balance referred to beyond a vague reference to OTC activity.
This GFMS 2014 Survey report was sponsored by Swiss refiner Valcambi, and
Japanese refiner Tanaka, with support from Swiss refiner PAMP, the CME Group,
the World Gold Council, German refiner Heraeus, Italian refiner Italpreziosi
(Italy), Rand Refinery of South Africa, and Istanbul Gold Refinery. Again my
question would be why not ask all of these refiners (especially the Swiss
refiners) what their throughput of Good Delivery bars was during 2013.
Instead, GFMS still seemed to struggle with explaining what it calls ‘OTC
trade’. It even discussed (with a straight face) the huge London gold market
clearing volumes of paper gold in 2013, seemingly trying to use this as some
sort of vague connection to physical bar movements:
As to GFMS’ assessment (on page 26) of OTC activity, there is nothing
concrete offered by GFMS as to what the OTC investment consists of. It
mentions bars being shipped to Switzerland and on to Asia, but why is this
activity not captured in physical demand?
However, GFMS does have a section in its 2014 (discussing 2013) titled
“Supply from Above-Ground’ Stocks”.
“If we include the sales of ETF holdings, then the visible supply of
gold to the market from above-ground stocks was 2,160 tonnes, equivalent to
42% of total demand in 2013. The figure comprises 1,280 tonnes of scrapped
fabricated products and 880 tonnes of sales from ETF stockpiles.”
And it also included a table of ‘Visible Supply’ in which it did add ETF
withdrawals of 880 tonnes to the ‘SUPPLY’ side for 2013, which created a
total of 5,182 tonnes of gold supply for 2013. So this is further proof that
the amended LBMA gold refinery figures for 2013 are completely out of
sync with reality, since even GFMS now includes this ETF supply.
But still, 5182 tonnes of supply does not explain 6600 tonnes of gold refining
output for 2013. What about all the gold that was withdrawn from the Bank of
England in 2013 and shipped to Switzerland? Does GFMS capture this central
bank related flow?I can’t see anywhere in the GFMS model where these type of
gold flows are captured.
GFMS claims that for official sector transactions, it uses sources such as
the IMF and central bank websites, and also “our own proprietary data on
undeclared central bank activity, compiled using information collected
through field research“. Then why does it not capture all the gold at
the Bank of England that has been lent by central banks to bullion banks
which has then been withdrawn from the vaults of the Bank of England and
flown to Zurich during 2013?
And even for some central bank purchases that it has learned about, GFMS
won’t reveal who the purchasers were due to ‘respect of confidentiality’.
What does this say for accuracy of a supply-demand model if the
nontransparency of central bank transactions prohibits gold transactions
being publicised? See example from GFMS Update 1 report 2013:
“South Korea raised its bullion holdings by 20 tonnes in March. The
balance of gross buying in the public domain consisted of small gains in gold
reserves in a handful of countries. The overwhelming majority of these
purchases were made by Asian countries, including Nepal, Mongolia, Brunei and
Indonesia. Apart from the aforementioned buyers, over 40% of gross purchases
or some 80 tonnes were accounted for by undeclared transactions, details
of which cannot be released in respect of confidentiality.
In some cases, gold was added quietly in the local market.”
By the time it wrote its Update 2 report for 2013, GFMS listed some
additional central bank buyers during 2013, and then stated that:
“Apart from the aforementioned buyers, over 60% of gross purchases or
some 225 tonnes were accounted for by undeclared transactions, details
of which cannot be released in respect of confidentiality.
In some cases, gold was added quietly in the local market.”
That’s more than 135 tonnes of central bank purchases during 2013 that
were not captured in the GFMS model.
Borrowing Gold in London
In my 7 September article “How
many Good Delivery gold bars are in all the London Vaults?….including the
Bank of England vaults“, I included a quotation from the Financial
Times on 2nd September 2015 which stated:
“The cost of borrowing physical gold in London has risen sharply in
recent weeks. That has been driven by dealers needing gold to deliver to
refineries in Switzerland before it is melted down and sent to places such as
India, according to market participants.”
And I concluded that:
“it begs the question, why do the dealers need to borrow, and who are
they borrowing from. And if the gold is being borrowed and sent to Swiss
refineries, and then shipped onward to India (and China), then when will the
gold lenders get their gold back?”
Scotia Mocatta, a bullion bank which is very active in the Indian and Hong
Kong/Chinese gold markets, vindicated this point in its ‘Metals Monthly
September 2015‘ (page 3):
“The recent low Gold price has spurred physical buying interest to the
extent that lease rates have climbed as
metal is borrowed and delivered to refineries to be melted
into the required bar sizes (such as kilobars) before being shipped to its
final destination.”
So, where in the GFMS and World Gold Council data models is this “metal
that is borrowed and delivered to refineries to be melted into the required
bar sizes (such as kilobars)” being reflected? It appears that these
gold bar movements are not being reflected at all.
World Gold Council switch from GFMS to ‘Metals Focus’
Earlier this year, the World Gold Council (WGC) switched from using GFMS
as a data provider of gold supply and demand data. In an announcement, the
WGC said:
“Starting in May 2015, we will be publishing gold supply and demand
data provided by Metals Focus, a leading precious metals consultancy. These
data will feature in Gold Demand Trends First Quarter 2015 onwards.
Previously, we sourced gold supply and demand data from GFMS Thomson Reuters.
The decision to change data providers was based on rigorous
market research and a competitive pitch process. For more
information, please see the focus box in Gold Demand Trends First Quarter
2015”
The focus box in Gold
Demand Trends First Quarter 2015 states:
“When new data sets become available and new methodologies are
developed, we review how these might complement and advance our own methods.
To that end, in 2014 we conducted a rigorous assessment of
the gold market data landscape – a process which involved an
in-depth review of a number of leading data providers. Following
this review we appointed Metals Focus as the provider of our core demand and
supply statistics.”
“The World Gold Council is committed to publishing the most accurate
gold demand data available. We are confident that the move to Metals Focus
supports this aim.”
What the WGC didn’t mention in its press release nor in its Gold demand
Trends Q1 2015 report is that in October 2013, the WGC purchased a 50%
shareholding in Metals Focus Data Limited via its subsidiary WGC
(UK) Ltd. The other 50% is owned by Metals Focus Limited. Surely this 50%
shareholding is material information that should have been divulged by the
WGC in its ‘focus box’ statement above? With its recent emphasis on costs
savings, the WGC may have opted for switching from GFMS to Metals Focus
partially because it may save money by using a data provider that it has an
ownership interest in.
From the WGC 2014 financial statements:
WGC (UK) Ltd (Company No. 07867682) is a fully owned subsidiary of the
World Gold Council, operating out of the same address as the parent company,
10 Old Bailey, London.
Metals Focus Data Limited is a joint venture for “the collection of data
relating to the supply and demand for precious metals and
licensing of data to third parties”.
What is Metals Focus Limited?
Metals Focus Ltd (Company No 08316950) was incorporated in December 2012,
and was founded by
Nikos Kavalis, Charles de Meester and Philip Newman, all of whom have
previously worked at GFMS. Kavalis (through Premier Metals Consulting Ltd),
de Meester and Newman each own a 28.87% shareholding in Metals Focus
according to CompanyCheck.
Metals Focus 2013 accounts can be seen here.
Metals Focus Data Limited, the 50-50 joint venture between the World
Gold Council and Metals Focus Ltd, whose latest accounts can be seen here,
has the following
directors: Nikos Kavalis, Philip Newman and Lisa Mitchell of Metals
Focus, and Terry Heymann, an MD at the World Gold Council.
Some of the sponsors of Metals Focus and its reports include Swiss
refiners Valcambi and PAMP/MKS PAMP, other refiners Asahi Refining, TCA
(Italian precious metals refining), the World Gold Council (obviously), Brady
Commodity Software Solutions, the CME Group, and G4S. So Metals Focus could
also obtain very direct data from at least these Swiss refineries as to their
throughput of Good Delivery gold bars.
Although the World Gold Council has now switched data suppliers to Metals
Focus since earlier this year, in its 2015 Q1 Gold Demand Trends,
it still uses the same supply-demand presentation format as previously,
with ETFs in 2013 being classified as negative demand and not supply.
Interestingly, in the Metals Focus data, the ETF line item for 2013 has now
risen to 916 tonnes.
Conclusion
With 6,600 tonnes of Good delivery refinery gold refining
production confirmed by the LBMA to have taken place during 2013 (before the
LBMA altered its data), you can see in the above analysis that this is
problematic for the models of GFMS, the World Gold Council and possibly the
model of Metals Focus too. Since the LBMA is sent refining data by its
members, then, if it chose to, the LBMA could generate very accurate data for
gold and silver refinery output for all of 2014 and nearly all of 2015.
Almost all other industries are able to publish accurate industry
production figures with a minimal lag of maybe 2-3 months that provide an
up-to-date snapshot of that industry’s activity. This is also true of
economic data such as labour statistics and housing starts. Why then is it so
hard for the LBMA to publish full and comprehensive gold refinery output data
on a quarterly basis?
If this reporting procedure was put in place, the global gold industry
would have far more clarify and insight into the huge flows of kilobar gold
that are, on a daily and weekly basis, now being flown from Switzerland into
Delhi, Ahmedabad, Chennai, Bangalore, Hyderabad and Kolcata in India, and
that are also flowing at a torrential rate through Brinks vaults in Hong Kong
and on into China.
Ronan Manly
E-mail Ronan Manly on:
Follow @BullionStar
Follow @ronanmanly
