LAWRIE WILLIAMS: 2019 H1 China gold demand lowest for five years

China has been recognised as the world’s largest consumer of gold for around the past seven years, but while the latest figures still confirm the nation as the world’s No. 1, 2019 demand looks to have been the lowest for around five years.  Indeed if the country’s buying slump continues, 2019 may prove to be the first sub 2,000 tonne total gold demand year, based on SGE gold withdrawal figures, since 2016.

June Shanghai Gold Exchange gold withdrawal data certainly seem to confirm a downturn in Chinese gold demand so far this year.  This should not really be too surprising given the apparent effects of President Trump’s tariff impositions on Chinese imports to the U.S.  This latest data may well give some advantage to the U.S. in its recently resurrected trade talks with China given that it appears the U.S. President’s tactics may be beginning to have an effect on the Chinese economy, and on disposable incomes within the Middle Kingdom.  But whether this is likely to be sufficient to stimulate concessions from the Chinese to meet U.S. demands is rather less certain.  There is face-saving on both sides to take into account in such negotiations and saving face is perhaps more important in Asian cultures than in the West!

We have been consistent over the past few years in equating Shanghai Gold Exchange gold withdrawal data with the country’s overall total gold demand – a sometimes controversial view.  This data is much closer to the known levels of China’s own domestic gold production plus known and unknown gold imports plus an allowance for scrap conversion than are other estimates of Chinese gold consumption. These latter seem to ignore gold imported by the financial sector and restrict demand estimates to industrial demand (including jewellery and artefacts) and investment.  These cumulative figures appear to fall hugely short of known Chinese gold flows.

Meanwhile, see below a month-by-month tabulation of Shanghai Gold Exchange gold withdrawal data for the past three years showing the downwards trend we had already noted earlier in the year.  At the half-year point, withdrawals are over 23% down on the 2018 six months figure and over 30% down on 2017.  It should also be noted that both the 2017 and 2018 full year gold withdrawal figures ended up well short of those for the record 2015 year when full year SGE total gold withdrawals came to nearly 2,600 tonnes.

 Table: SGE Monthly Gold Withdrawals 2017-2019 (Tonnes)

Month

2019

2018

2017

% change 2018-2019

% change 2017-2019

January

218.54

223.58

184.41

-2.30%

18.51%

February*

  99.77

118.42

148.24

-15.75%

-32.70%

March

 218.03

192.61

192.25

 +13.19%

+13.41% 

April

 151.89

212.64

165.78

 -28.57%

 -8.38%

May

 123.11

150.58

138.08

 -18.24%

 -10.84%

June

 107.45

140.59

155.51

 -23.57%

-30.87% 

July

 

137.41

144.71

 

 

August

 

190.59

161.41

 

 

September

 

188.12

214.24

 

 

October*

 

142.94

151.54

 

 

November

 

179.08

189.1

 

 

December

 

178.04

185.21

 

 

Year to date

918.79

1038.42

984.11

-11.52%

 -6.64%

Full Year

 

2,054.54

2,030.48

 

 

Source:  Shanghai Gold Exchange.  Lawrieongold.com

* Months which include week long New Year and Golden Week holiday periods when the SGE remains closed

 

As far as global gold demand goes this still remains at a high level despite the Chinese fall-off.  Indian gold demand has been showing something of a pick-up so far this year, although official import figures may suffer in H2 given the recent raised tax level on precious metals imports.  (This may be countered by increased levels of smuggled gold, but this would not appear in official data and thus would be invisible in national statistics!).  India used to be the world’s biggest gold consumer until China overtook it, but remains hugely important given a national propensity to gift and hoard gold in  big quantities.

Anecdotal evidence suggests good continuing demand in Europe and the Middle East.  Central Bank gold demand continues at a high level too, so overall supply/demand fundamentals may be little affected by a fall-off in physical demand from China.  However, should the Chinese demand drop be sustained it will likely affect sentiment towards the yellow metal so we will need to watch future month SGE withdrawal data carefully.

As we have also suggested in recent articles there are enough potential geo-political flashpoints out there to make precious metals price projections problematical.  Any of these, should they blow-up would seem to have the potential to move the gold price, while the U.S. markets remain data-driven – in our view inordinately so.  But it is still U.S. futures market activity that remains one of the gold price’s principal drivers and this can be prone to manipulation by big money flows (whether real or spoofed).  Spoofing activity (where massive orders are placed without any intention of their being actually implemented) remains prevalent with the consequences for those who are caught seldom commensurate with the kind of money that can be made - as recent Department of Justice hearings, and fines, would seem to demonstrate.  At some stage such activities will be overwhelmed by reality.  As ever one needs to get one’s timing right to take advantage.

08 Jul 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com