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


 Globalisation and the Gold Market: The Growing Interconnectivity of Trade and Trading . PHILIP KLAPWIJK 
 Managing Director, Precious Metals Insights Limited Asia Pacific Precious Metals Conference Singapore, 5 th June 2017 www.preciousmetalsinsights.com


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

3 Global gold bullion exports have increased substantially over the last decade 8000 7000 6000 Tonnes 5000 4000 3000 2000 1000 0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: GTIS; Precious Metals Insights

4 Fabrication demand in 1989 and 2016 roughly equal but its regional distribution has changed markedly 2016 1989 23% 30% 42% 48% 35% 22% Europe (inc Russia), Americas, Africa Europe (inc USSR), Americas, Africa Middle East, Indian Sub-Continent Middle East, Indian Sub-Continent SE & E Asia (inc China), Oceania SE & E Asia (inc China), Oceania Source: Thomson Reuters GFMS; Metals Focus; Precious Metals Insights

5 East Asia has been the main destination for the higher level of Swiss gold bullion exports in recent years Europe*, Americas, Africa Middle East, Indian Sub. Cont. SE & E Asia, Oceania 3000 2500 Swiss Gold Bullion Exports (tonnes) 2000 1500 1000 500 0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 *Europe excluding UK Source: GTIS; Precious Metals Insights

6 China’s gold bullion imports have exploded, much of them now going directly to the mainland instead of via Hong Kong Imports via Hong Kong Direct Imports 1600 1400 1200 Tonnes 1000 800 600 400 200 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: GTIS; Metals Focus; Precious Metals Insights

7 In recent years there has been a substantial apparent supply ‘surplus’ in the China / Hong Kong market 3000 TOTAL SUPPLY** China + HK Supply & Demand in Tonnes 2500 2000 1500 1000 FABRICATION 500 DEMAND* 0 2010 2011 2012 2013 2014 2015 2016 *Fabrication Demand (jewellery + industrial + coins); **Total Supply (mine production + scrap recycling + net imports to China/HK) Source: Metals Focus; Precious Metals Insights

8 Cumulative China / Hong Kong gold ‘demand’ since 2010 has amounted to over 10,000 tonnes Fabrication Bar Investment Other Bullion 'Demand'* 11000 10000 China / Hong Kong Demand 9000 8000 7000 (tonnes) 6000 5000 4000 3000 2000 1000 0 2010 2011 2012 2013 2014 2015 2016 *Other Bullion ‘Demand’ is a net figure for mainland China plus Hong Kong Source: GTIS; Metals Focus; Precious Metals Insights

9 Turnover has risen on Shanghai’s exchanges but it still lags New York and London markets by a considerable margin LBM* Comex Tocom CBOT SGE** SHFE** MCX Annual Turnover & Clearing Volume in ‘000 Tonnes 200 180 160 140 120 100 80 60 40 20 - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 *London Bullion Market Clearing Transfers Volume annualised; **SGE & SHFE figures divided by two for comparison with others Source: LBMA; Exchanges listed above

10 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

11 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 opportunities 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

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