The small (in area and population) European nation of Switzerland is the location of four of the world’s largest gold refineries – Argor-Heraeus, Metalor, Produits Artistiques Metaux Precieux (PAMP) and Valcambi. Between them they refine annually a volume of gold equivalent to more than half global new mined gold output – sometimes far more when Asian demand is running particularly high, as in 2013, and when supply is plentiful (2013 saw huge disinvestment out of the major gold ETFs). That year Swiss refineries processed, and exported, around 2,600 tons of gold equivalent to about 80% of global new mined gold output.
According to Singapore based precious metals website, www.bullionstar.com, which undertakes considerable research into global gold flows, in a normal year the Swiss refineries account for around 65-70% of global gold refining capacity. Switzerland has a population of only around 8 million people and a GDP of around US$700 billion – compared with the USA’s 320 million and $18 trillion respectively – thus this small European nation produces well above its weight in terms of global gold flows.
And, in a normal year around 80% of this gold is exported to Asia and the Middle East – in particular to the world’s two biggest gold consuming nations – China and India where most of the gold (all of it in the case of mainland China) ends up in firm hands, not to be released back on the global open market.
A Dominant Power in the Gold Market
Why are the Swiss refineries so dominant? A mixture of years of history and their specialty which is re-refining gold bars of the standard 0.995 purity as held by most central banks and produced by most other refineries and outputting the smaller higher purity (0.9999) bar sizes and wafers in demand in the eastern markets.
A standard good delivery gold bar, as defined by the London Bullion Market Association (LBMA), weighs between 350 and 430 troy ounces with a minimum acceptable fineness of 995 parts per thousand pure gold (0.995).
The refineries also process scrap gold from a variety of sources, and doré bullion received direct from mining companies. (Doré bullion is a semi-pure alloy of gold and silver, usually created at a mine site. The proportions of silver and gold can vary widely. Doré bars weigh as much as 25 kg – or up to around 800 troy ounces.)
Over the past three months alone, Switzerland imported some 606 metric tons – or tonnes - (1 ton weighs 2024.6 pounds and is thus equivalent to 1.1 US tons) of gold and exported 496 tons. For the full 2016 year Swiss gold imports totaled 2,087 tonnes and exports 2,151.5 tonnes – equivalent to around two thirds of global new mined gold output. However 2016 was an anomalous year as it saw something of a reversal of gold flows in and out of Switzerland due to slow demand in the traditional Asian and Middle Eastern markets which prompted a degree of destocking to take advantage of higher gold prices. Flows had just about come back to normality by the end of the year – so we’ve tabulated below figures for the first two months of the current year, which are nearer normality, showing the primary destinations, and make-up of Swiss gold exports over the two month period.
Table: Swiss gold exports by country January/February 2017 (tons)
Percentage of total
United Arab Emirates
Rest of Asia/Middle East
Rest of World
What the above table also shows is that over the first two months of the current year 86.7% of the re-refined Swiss gold was destined for Asia and the Middle East. And, as noted above, most of this gold is into firm hands and doesn’t resurface back on the global market. In the West, purchased gold is much more likely to be traded – moving in and out of the gold ETFs for example.
The above figures point to India as being once more the primary destination for Swiss gold exports if one treats mainland China and Hong Kong as separate destinations, but over a full year ;positions could change, albeit probably not by much. Of course, with most of the gold going into Hong Kong primarily destined to go on to the mainland China as a whole is probably the most significant end point for Swiss refined gold. Figures in this respect may also be distorted by the Chinese (Lunar) New Year, which occurred in late January this year, and which led to a simply enormous volume of gold going into mainland China from Switzerland in December – 154 metric tons – with only 38.9 metric tons into Hong Kong that month and 21.1 metric tons to India, but while such figures may even out over a full year they were too anomalous to be used in a three month assessment here.
The other point to draw from these statistics is that Hong Kong imports and exports of gold can no longer be considered a proxy for Chinese figures. There was a time when the vast majority of gold going to mainland China was routed via Hong Kong. No longer is this the case, although often the media treats Hong Kong gold imports and exports as being those for China as a whole. As can be seen in the above table nearly 60% of the Swiss gold going to China and Hong Kong during the first two months of the current year was destined to go directly to the Chinese mainland, avoiding Hong Kong altogether. Over a full year, and taking other exporters of gold to China and Hong Kong into account, the volume going to the mainland via Hong Kong is probably 50-60%, down from around 90% only a few years ago, so Hong Kong is gradually being phased out as a principal route for Chinese-destined gold. Beware of media headlines when you read that Chinese demand is dropping, but the story just relates to Hong Kong figures.
A Leading Indicator of the Flow of Gold
So Swiss gold flow figures are extremely significant when it comes to working out where most of today’s new gold supply is actually going. It is true Chinese gold demand looks weak, as does Indian at the moment, but even weak gold demand in these two nations will account for more than half of the global new mined supply. And little of this will ever come back on the global market. The West keeps churning out gold and the East absorbs most of it and keeps it.
This becomes even more relevant given that the likelihood is that the supply of global new mined gold is nearing a peak (more of that in a future article) and may be just about to start turning down – slowly at first, but likely to accelerate given the ongoing impact of the fall back of the gold price from late 2011 to early 2016 which has reduced new mine building and gold exploration. We may not see what could be described as a gold shortage given the huge size of above-ground stocks, but certainly a tightening of available supply and the Swiss re-refined gold export figures exemplify this in a way few other statistics can. The center of gravity of gold demand is inexorably moving eastwards.
As an example, the two biggest central bank gold buyers over the past few years have been Russia and China who see the yellow metal as having an increasingly important role to play in future currency status as the huge US debt position gradually destroys confidence in the mighty dollar as THE global reserve currency and alternate trading options are slowly put in place.