Globalisation and the Gold Market: The Growing Interconnectivity of - - PowerPoint PPT Presentation

Globalisation and the Gold Market: The Growing Interconnectivity of Trade and Trading

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PHILIP KLAPWIJK


Managing Director, Precious Metals Insights Limited

Asia Pacific Precious Metals Conference

Singapore, 5th June 2017

www.preciousmetalsinsights.com

Globalisation and the Gold Market: The Growing Interconnectivity of Trade and Trading

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• Gold market has for well over a century been truly ‘Global’:
• Gold production in S Africa & Americas; finance for mining companies;

refining & trading; central banks and Gold Standard; pivotal role for London market

• Globalisation stalled post-WW1, resumed post-WW2 but

constrained by: politics, regulation, technological limitations

• Faster pace of Globalisation in the ‘internet age’ due to

economic liberalisation, rapid growth in emerging markets, financial innovation, new technology 


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Global gold bullion exports have increased substantially over the last decade

Source: GTIS; Precious Metals Insights

1000 2000 3000 4000 5000 6000 7000 8000

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Tonnes

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Fabrication demand in 1989 and 2016 roughly equal but its regional distribution has changed markedly

Source: Thomson Reuters GFMS; Metals Focus; Precious Metals Insights

48% 22% 30%

Europe (inc USSR), Americas, Africa Middle East, Indian Sub-Continent SE & E Asia (inc China), Oceania

1989 2016

23% 35% 42%

Europe (inc Russia), Americas, Africa Middle East, Indian Sub-Continent SE & E Asia (inc China), Oceania

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500 1000 1500 2000 2500 3000

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Swiss Gold Bullion Exports (tonnes) Europe*, Americas, Africa Middle East, Indian Sub. Cont. SE & E Asia, Oceania

East Asia has been the main destination for the higher level of Swiss gold bullion exports in recent years

*Europe excluding UK Source: GTIS; Precious Metals Insights

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China’s gold bullion imports have exploded, much of them now going directly to the mainland instead of via Hong Kong

Source: GTIS; Metals Focus; Precious Metals Insights

200 400 600 800 1000 1200 1400 1600

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Tonnes Imports via Hong Kong Direct Imports

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500 1000 1500 2000 2500 3000

2010 2011 2012 2013 2014 2015 2016

China + HK Supply & Demand in Tonnes

FABRICATION DEMAND* TOTAL SUPPLY**

*Fabrication Demand (jewellery + industrial + coins); **Total Supply (mine production + scrap recycling + net imports to China/HK) Source: Metals Focus; Precious Metals Insights

In recent years there has been a substantial apparent supply ‘surplus’ in the China / Hong Kong market

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1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000

2010 2011 2012 2013 2014 2015 2016

China / Hong Kong Demand (tonnes) Fabrication Bar Investment Other Bullion 'Demand'*

Cumulative China / Hong Kong gold ‘demand’ since 2010 has amounted to over 10,000 tonnes

*Other Bullion ‘Demand’ is a net figure for mainland China plus Hong Kong Source: GTIS; Metals Focus; Precious Metals Insights

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40 60 80 100 120 140 160 180 200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Annual Turnover & Clearing Volume in ‘000 Tonnes

LBM* Comex Tocom CBOT SGE** SHFE** MCX

*London Bullion Market Clearing Transfers Volume annualised; **SGE & SHFE figures divided by two for comparison with others Source: LBMA; Exchanges listed above

Turnover has risen on Shanghai’s exchanges but it still lags New York and London markets by a considerable margin

Proposed gold trading initiatives would promote further interconnectivity in the global gold market

• LBMA’s OTC trade repository and pricing project
• LME spot and futures trading; centralised clearing venture
• HKEX’s CNH and USD gold futures contracts
• CGSE’s Qianhai / Hong Kong corridor
• SGE partnership with DGCX to trade Shanghai gold futures
• SGX’s Shariah compliant futures contract
• Planned gold futures contract on the ASX

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Globalisation and the Gold Market: Conclusions

• Gold market globalisation is well advanced in terms of trade links, although there

are still important exceptions, e.g. (near) prohibition on gold exports from China

• While Switzerland/UK are still pivotal, other physical entrepôts have become

increasingly important and intra-regional trade, especially within Asia, is growing

• Domestic gold trading has become liberalised in most countries but currency and

capital controls still hinder cross border activity in several cases

• Scope for arbitrage exists where partial gold market liberalisation creates
• pportunities based on local / international price or regulatory differences
• China’s market development a key factor for future trends in globalisation; much

depends on the Chinese leadership’s appetite for further capital account liberalisation and the associated scope for internationalisation of the RMB

• London will remain the dominant OTC trading hub and Comex the principal gold

futures market for the foreseeable future but their market shares will be eroded to the benefit of competitors in Asia, especially Chinese exchanges 11

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DISCLAIMER

The information and opinions contained in this presentation have been obtained from sources believed to be reliable, but no representation, guarantee, condition

• r warranty, express or implied, is made that such information is accurate or

complete and it should not be relied upon as such. Accordingly, Precious Metals Insights Limited accepts no liability whatsoever to the people or organizations attending this presentation, or to any third party, in connection with the information contained in, or any opinion set out or inferred or implied in, this presentation. This presentation does not purport to make any recommendation or provide investment advice to the effect that any gold, silver, platinum or palladium related transaction is appropriate for all investment objectives, financial situations or particular needs. Prior to making any investment decisions investors should seek advice from their advisers on whether any part of this presentation is appropriate to their specific

• circumstances. This presentation is not, and should not be construed as, an offer
• r solicitation to buy or sell gold, silver, platinum or palladium or any gold, silver,

platinum or palladium related products. Expressions of opinion are those of Precious Metals Insights Limited only and are subject to change without notice.