Selected Recent Media Coverage & News Features - Philip Klapwijk - Precious Metals Insights Limited


Reuters Gold Forum

17 February 2015 Reuters Global Gold Forum with Philip Klapwijk of Precious Metals Insights Limited

Jan Harvey Good morning from London! Gold prices are down 0.8% this morning, snapping three sessions of gains, which had nonetheless failed to result in a close above the metal's 50-day moving average at 1232.  Today's dip has taken spot gold's 14-day relative strength index (RSI) to 42, against 56.9 at the start of Feb and well off January's high of 74.6. Silver's hugely underperforming this morning, down 2.4%, while the platinum group metals are also a bit softer.

 

16:54:04
Gold eased in Asian trade today as investors consider where demand will come from once the Chinese Lunar New Year celebrations commence tomorrow, MKS said in a note this morning. "We saw little in the way of physical buying out of China and it looks like the majority of purchases ended on Monday, now removing underlying support for the yellow metal," it said. "There was little interest in the metal following the break down in negotiations over the Greek bailout, however there is still time for an agreement to be reached, which may be holding investors back for the time being, so we may still see some 'risk off' interest in the metal as we get closer to the deadline for an agreement. The USD $1,220 - $1,235 range is still in play and further support sits around USD $1,216, where the 100 DMA currently sits - a level we may test as China takes leave."

 

16:55:39
Speaking of the Lunar New Year, I'll be joined in the Forum in a few minutes by Philip Klapwijk, an analyst with Precious Metals Insights in Hong Kong, who has kindly agreed to talk to us about how gold demand has looked in China in the run-up to the holiday. Please let me know via private message if you have any questions for him.

 

17:00:49
Euro-denominated gold is down 0.7% this morning, marginally outperforming spot. It remains on track for a fourth week of losses, currently down 0.3%. Here's a graphic of gold's performance in different currencies: 
http://link.reuters.com/cyv95s

 

17:04:02
I'm joined in the Forum now by Philip Klapwijk, an analyst with Precious Metals Insights in Hong Kong, who I'm sure some of you will know. Philip has kindly agreed to talk to us about how gold demand has looked in China in the run-up to the Lunar New Year holiday. Welcome, and thank you for joining us this morning!

 

17:04:21
Philip Klapwijk (Precious Metals Insights) A pleasure, thanks Jan.

 

17:04:27
Jan Harvey The period in the run-up to the Lunar New Year is considered a peak season for gold demand in China. From what you have seen, how has buying been this year, compared to last year and the year before?

 

17:05:25
Philip Klapwijk (Precious Metals Insights) Yes, a substantial amount of buying, especially of jewellery takes place in the run up to and even during the Lunar New Year holiday. The market impact is now largely over...until we see post New Year re-stocking.

 

17:06:06
In terms of the YoY, my sense is that 2015 is up moderately on 2014 but well below the exceptional demand seen in the same period in 2013.

 

17:07:11
The SGE premium in recent weeks gives some insight into this...$3-$6 is substantially below what was seen in the run up to the Lunar New Year in 2013 when double-digit levels were seen.

 

17:09:06
Jan Harvey What sort of consumer trends have been noticeable this

year – what sort of products are people favouring, and is gold buying overall as widespread as it has been in the past?

17:09:11
Philip Klapwijk (Precious Metals Insights) This is partly a price and timing related phenomenon but also I think speaks to - by Chinese standards - a somewhat 'soft' environment for retails sales of jewellery this New Year.

 

17:09:49
The bulk of demand, even more so for the New Year, is made up of 9999 pure gold jewellery.

 

17:11:03
In addition, from a low base particularly in volume terms, sales of gem set/studded jewellery have grown and, in general, K-gold is doing quite well. However, the market is dominated by 9999 plain articles when it comes to volume.

 

17:11:47
Michael Wagner Do the buyers see that 9999 jewellery really as jewellery or rather as investment?

 

17:11:57
Philip Klapwijk (Precious Metals Insights) demand for bars and ornaments has been lacklustre. This is in part due to a lack of investor interest (even for gift bars this rubs off) and the anti-corruption campaign.

 

17:12:39
They see it as both jewellery and as an investment. The mark-up on plain 9999 is very low and it is easy to re-sell.

 

17:13:43
I recently saw gold chain being sold for 261/RMB per gramme

 

17:14:19
This was barely above the gold price on the day. The model is to turnover stock very rapidly...pile it high and sell it cheap!

 

17:15:11
Michael Wagner Dangerous once you can't keep the speed high enough

 

17:15:16


Jan Harvey Is gold still a popular store of value in China, given price volatility over the last 5 years or so?

17:17:08
Philip Klapwijk (Precious Metals Insights) I think the volatility and the lower trend in the last couple of years has taken a bit of the shine off gold. However, this is at the margin only when it comes to plain gold jewellery. For bars, it is a somewhat different story as shown by the 2014 data for bar and coins sales. These slumped by half YoY.

 

17:17:46
Jan Harvey How do you as an analyst assess Chinese demand – by looking at premiums, import trends from Hong Kong, other factors?

 

17:18:55
Philip Klapwijk (Precious Metals Insights) Premiums help somewhat but can be affected by other factors such as seasonality (e.g. the Lunar New Year is 'late' this year on 19/2) and of course the level/direction of the international price, where the RMB is trading etc.

 

17:19:12
That said, the SGE premium is a useful thermometer.

 

17:19:57
In addition, other public domain data is important to track such as trade data for Hong Kong and, to the extent it is available, that for mainland China.

 

17:21:04
It is also very useful to regularly meet with the local trade to 'take the pulse'. Relying just on the published data can easily lead to misinterpretation of what is going on.

 

17:21:53
Jan Harvey Do you consider withdrawals from the Shanghai Gold Exchange to be a useful measure of demand?

 

17:23:14
Philip Klapwijk (Precious Metals Insights)  The withdrawals show what the big picture is for physical "demand". They are not per se an indication of the total demand for jewellery, investment products or industry.

 

17:24:23
This is because a good part of the withdrawals represent gold that is used purely for financing and other end-uses that are not equivalent to real consumption.

 

17:25:20
Michael Wagner Is financing with Gold a big deal in China?

 

17:25:59
Philip Klapwijk (Precious Metals Insights) Therefore relying on SGE withdrawals to measure the size of and change in true demand is highly misleading. For example, withdrawals in 2013 came to 2197t and in 2014 to 2102t. This both overstates the true size of demand and, of course, completely understates the drop in jewellery and especially bar demand last year.

 

17:26:15
Yes, the difference is mainly the use of gold for financing.

 

17:27:11
Jan Harvey How has that side of the market developed over the last few years? Is it still a growing area of business?

 

17:29:54
Philip Klapwijk (Precious Metals Insights) The use of gold for financing... a kind of "gold carry trade"....has developed tremendously in recent years. Essentially borrowers in the shadow banking milieu are taking advantage of the availability of gold at comparatively very low rates of interest compared to straight forward RMB loans.

 

17:30:40
An indication of this is that at end 2013 the SGE reported gold loans by members totalled over 1,100 tonnes. My understanding is that number will have grown quite a bit in 2014.

 

17:33:22
The important thing though to take into account is that nearly all these gold transactions are hedged...the idea is not to speculate on the gold price. Spreads on the loans in the shadow banking market are easily large enough to allow intermediaries to hedge their exposure and still make large profits. Potential defaults, of course, from the ultimate borrowers of RMB in the shadow banking market is another matter.

 

17:33:51
Jan Harvey Is it possible to quantify how far that 1,100 T has grown? And how are leasing rates developing in that environment?

 

17:35:55
Michael Wagner Yes, you only have to ask Bank of Portugal about Drexel to know that a default on Gold is always possible

 

17:35:56
Philip Klapwijk (Precious Metals Insights) No data has been released by SGE on the comparable end 2014 figure. Rates are tending to firm but one needs to put this in the context of the rates paid by borrowers in the shadow banking market which are often well into double digits...in percent and not basis points!

 

17:36:23
Fair point!

 

17:37:21
Jan Harvey September saw the launch of the a new gold trading platform in the Shanghai free trade zone. How is that developing, and has it met expectations?

 

17:39:10
Philip Klapwijk (Precious Metals Insights) I think it is fair to say that development has been fairly limited to date. This probably explains why recently the SGE has taken a number of measures to boost activity such as reducing or eliminating charges and fees.

 

17:39:56
It is still early days, though. Bear in mind the International Board was only launched on 19/9/14.

 

17:41:55
It may be that for the IB to flourish it will require further steps taken by the authorities to liberalise the foreign exchange market. At the end of the day the IB should provide a platform for onshore versus offshore arbitrage. The conditions don't seem to be right yet for that to happen. But I think this is outside the control of the SGE or the gold market.

 

17:43:50
Jan Harvey What role do you see that platform taking in the Chinese gold market in future?

 

17:44:13
Philip Klapwijk (Precious Metals Insights) I suspect that the subject of foreign exchange market liberalisation, which has always been somewhat slow and cautious, may be even more so in the wake of the example of the collapse of the rouble in recent months. The Chinese authorities will not want to create any strategic vulnerability. Even more so at a time of major change in their economic structure and with the propert market heading south.

 

17:45:44
I think it will be driven by wider considerations regarding when and how to liberalise capital flows and the foreign exchange market. The IB will come into its own when the transition phase really gets underway in earnest and arbitrage opportunities grow.

 

17:47:07
Jan Harvey New kilobar contracts have been announced in Hong Kong and Singapore in the last year. What’s the interest been like, as far as you can see?

 

17:48:13
Philip Klapwijk (Precious Metals Insights) The CME's HK kilobar contract only started to trade on 26/01/15 so it is still far too early to judge.

 

17:49:12
The Singapore kilobar contract has not attracted a great deal of interest since its launch last October. SGX data show just 173 futures contracts were traded through to the end of January.

 

17:52:03
Jan Harvey Great

 

17:52:06
And last but not least..
.

 

17:52:22
What’s your outlook for gold imports this year into China, and for overall demand this year?

 

17:57:39
Philip Klapwijk (Precious Metals Insights) The level of imports will reflect two main factors in the local market: The state of real, physical demand/consumption and the that of lets call it 'financial demand' for gold. The former should increase this year but, I expect, only moderately. Jewellery ought to see some gains but I can't see e.g. double digit or maybe even high single ones this year in terms of volume gains YoY. Bar demand will probably remain lacklustre but then the base established in 2014 is comparatively low. Overall, real consumption ought to increase and unless scrap or mine production surprise to the upside that should require a little more gold to be imported.

 

18:00:25
As regards the 'financial demand' for gold, the underlying demand from the shadow banking sector is growing much less rapidly but has the scope to increase further as long as it makes financial sense to use gold because of controls on RMB lending and on RMB interest rates. Many borrowers have no alternative but to seek alternative sources of liquidity.

 

18:01:36
Jan Harvey Do you have an estimate in tonnage terms?

 

18:02:02
Philip Klapwijk (Precious Metals Insights) On the other hand, the authorities are trying to rein in the growth of shadow banking and, specifically, trying to regulate more tightly the use of gold for financing purposes. Moreover, if the property market nosedives this will remove one of the key drivers of shadow banking borrowing growth.

 

18:03:49
I think that other things to bear in mind when it comes to the import volume are firstly that the tendency for 'direct' imports to the mainland to grow will continue and secondly that there will continue to be a large outflow of gold from the mainland into HK.

 

18:13:25
The latest WGC/GFMS GDT numbers showed consumer demand in China at 814 tonnes last year. Looking at the likely development for jewellery and bar & coin demand I think it is improbable that the comparable figure will exceed 900 tonnes (at most) this year. Much though will depend on the gold price trend, economic developments in China and the RMB exchange rate over the next ten months. It is very difficult to predict the full year figure in mid-February!

 

18:13:38
Jan Harvey Great. Thank you, Philip. And thank you for joining us today. Enjoy the holidays!

 

18:14:08
Philip Klapwijk (Precious Metals Insights) - Thomson Reuters Kung Hei Fat Choy!

 

17 February 2015 Reuters Global Gold Forum with Philip Klapwijk of Precious Metals Insights Limited

Philip Klapwijk Gold

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Precious Metals Insights Limited - Gold, silver, platinum & palladium markets consultants, advisers and analysts. Chinese, Indian, USA & world markets analysis and consultancy. Hong Kong & China based worldwide sonsultants service. Global gold, silver, platinum & palladium advisory services. Conference & summit speaking, presentations, panel members, seminars, bespoke advice, reports, analysis, mining ouput, production, consumption, jewellery, industrial and markets analysis, forecasts and other precious metals services provided by Philip Klapwijk managing director and Precious Metals Insights Ltd. Specialist focus area of Chinese and Asian market analysis.
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