The physical gold market continues to develop in the most wonderfully counterintuitive way. While the paper gold price languishes below US$1,300 per ounce, physical demand out of China is now reaching previously unforeseen levels. If you’ve heard this story before, it’s more of the same, except that the demand tonnage is now so high as to be almost comical.
According to data released by the Shanghai Gold Exchange, the amount of gold contracts settled for physical delivery on its exchange reached a staggering 1,098 metric tonnes year-to-date as of the end of June.1 This is an astoundingly large amount of physical gold. For perspective, 1,098 tonnes represents approximately 40% of the entire estimated global gold mine production in 2013. It also represents roughly 1/8th of the US Treasury’s official gold reserves, and over 100% of China’s stated official gold reserves. If the rate of physical delivery on the Shanghai Gold Exchange continues at current levels, it will deliver the equivalent of over 100% of global mine production by the end of this year… all through one exchange.