Swiss Gold Flows Counter Reports Of Slackening Gold Demand
Zurich-Switzerland (July 5) Summary•Swiss gold flows for May continue to show gold moving from West to East.
•Data also shows that physical exports were actually up 10% year-over-year which suggests demand has not slackened.
•Most gold continues to come from the UK and investors should pay close attention to how long that can continue.
New Swiss gold export and import data is out, and since physical gold flows is one of the most important things that gold investors should track, they should pay close attention to this data. Since Switzerland is home to the four of the biggest gold refineries in the world with almost two-thirds of the world's gold is refined in Switzerland, it makes an excellent source of gold flow data for investors.
All of this is nice to know, but until recently investors didn't have any good way to track and analyze Swiss gold flows as the government didn't publish details on these exports and imports. That all changed in 2014 as the government finally decided to publish these numbers, and considering the importance of the nation to physical gold transactions, all investors should pay close attention to these numbers.
Swiss Gold Imports and Exports for May
When it comes to analyzing these numbers the three main things that we look for is how much gold is being transferred, where the gold is coming from, and where it is going to.
First let us take a look at Swiss gold imports.
As investors can see, Switzerland imported 119 tonnes of gold in May with round a third of it coming from the UK, followed by the United States. This is continuing the pattern that we have been seeing since 2013 where gold is being imported into Switzerland from the West (mainly the UK and the USA).
Let us now take a look at Swiss gold exports.
As investors can see there is not much surprise here as the biggest countries importing gold from Switzerland are China, India, and Singapore (a fast growing Asian banking center). This continues the pattern of gold going from West to East.
Finally, let us take a look at the gold imports and exports since 2014.
The goal here is to look at historic volume (remember Switzerland produces no gold internally so exports and imports should be similar as gold needs to be imported so it can be exported) since it gives us an idea of how active the gold market it.
What we want to get a feel for with this data is how active are physical gold flows, with lower volume representing less interest in gold and vice versa. Surprisingly enough (at least if you follow all the bearish news on gold from mainstream financial media), it seems gold flows are relatively stable - we haven't seen a big drop in physical gold flows. In fact, Switzerland exported 108 tonnes of gold in May which is up around 10% from last May's totals of 97 tonnes of gold exports.
What this Means for Gold Investors
There are a number of takeaways for gold investors:
1.Large amounts of gold continue to be exported from the UK
2.India, China, and other Asian nations are still importing gold in large volume
3.2015 is looking to be the second most active year in terms of Swiss gold exports
The first two points suggest that the physical gold flows from the West to the East are still not abating despite some media reports or the dropping gold price.
The biggest question we have is how much gold can the UK export before "the vaults go empty"? Investors should remember that the UK does not mine any gold so all of these exports are from ETF's based in London, banks and private vaults, and possibly (and we think probably) central bank gold leasing. This cannot continue indefinitely - either we see Asian gold demand subside OR the UK runs low of export-ready gold. It is a grand game of chicken and we are watching for which side blinks first.
Finally, we also have to note that Swiss gold exports have still been very strong, which suggests that physical gold demand is still very present. In fact, Switzerland is on pace to export a little under 2000 tonnes of gold in 2015 - the second most active year on record. This is critical because it is physical gold demand that has held the gold market despite the pressures from paper traders.
We also think it's the physical market that could provide that "moment of great dislocation" where the gold market jumps because of bad bets by paper gold traders. If it happens, it will happen because physical demand overwhelms the paper price of gold and there will be a scramble to find actual gold to satisfy a large buy order.
Thus we believe that investors should consider having a large exposure to gold with positions in physical gold and the gold ETF's (SPDR Gold Shares (NYSEARCA:GLD), PHYS, CEF). Additionally, the miners that have been underperforming gold over the last few months may offer investors considerable leverage to any rise in the gold price. Investors looking for this leverage may want to consider evaluating gold miners such as Goldcorp (NYSE:GG), Agnico-Eagle (NYSE:AEM), Newmont (NYSE:NEM), or even some of the explorers and silver miners such as First Majestic (NYSE:AG) (we're not suggesting these companies specifically - only suggesting them for further investor research).
Despite the weak gold price, Swiss data is showing that physical gold demand continues to be strong and gold is still moving from West to East. We do not know how long this can continue for, but it either ends with demand from the East slackening or the West running out of the desire to export more gold at these gold prices.