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LAWRIE WILLIAMS:: China: 2020 gold demand more than halved after 5 months

We might have expected Chinese gold demand as delineated by Shanghai Gold Exchange (SGE) gold withdrawals in May to have seen a small pick-up given China has reportedly mostly emerged from its draconian coronavirus-control lockdowns, but that has not proved to be the case.  Indeed May gold withdrawals for the exchange have fallen back around 28% even from the April level, which we had previously reckoned to represent a small recovery in demand from the world’s No.1 gold consumer.  We had assumed that the April withdrawal level – an increase of 16% from March – would be the forerunner of signs of a return to a higher level of gold buying by the Chinese consumer, but it looks like our conclusions were somewhat premature (see table below).

Table: SGE Monthly Gold Withdrawals 2018-2020 (Tonnes)

 Month

2020

2019

2018

% change 2019-2020

% change 2018-2020

January

110.87

218.54

223.58

-49.31%

-50.64%

February*

 28.99

  99.77

118.42

 -71.14%

-75.52%

March

 82.27

 218.03

192.61

 -62.27%

 -57.29%

April

 95.80

 151.89

212.64

 -36.93%

 -54.95%

May

 69.18

 123.11

150.58

 -43.81%

 -54.06%

June

 107.45

140.59

July

 129.33

137.41

August

 107.73

190.59

September

 117.08

188.12

October*

   91.15

142.94

November

 119.43

179.08

December

 158.50

178.04

Year to date**

387.11

811.34

897.83

-52.29%

-56.88%

Full Year

 

 1642.01

2,054.54

 

 

 Source:  Shanghai Gold Exchange.

** Cumulative figure as reported by SGE

 

We thus look on the May SGE withdrawal figures as being a bit of an anomaly. And they perhaps suggest that China is not recovering as fast from the COVID-19 effects as quickly as we had been led to believe.  The virtual shutdowns of industry all around the world will, of course, have meant huge interruptions to the global supply chain which may have left the vast Chinese export sector with a distinct lack of a fully receptive market for its goods.  The virtual shutdown of around 90% of the global airline industry will not have helped here either.

We still expect China’s gold consumption to recover somewhat in the final seven months of the year, but now our view is that this will perhaps not nearly happen as rapidly, or as steeply,  as most observers had been suggesting.  Gold followers will recall that when the West was seeing heavy selling out of the gold ETFs from 2011-2013, the huge gold bullion demand out of China kept the gold market alive, and perhaps from falling back below the key $1,000 an ounce level.  Now the boot is very much on the other foot with massive ETF inflows (at least until the past couple of trading days) counterbalancing this apparent fall-off in demand from the world’s biggest consumer.

Of course the two could be connected, particularly with some of the Swiss gold refineries shut down for a couple of weeks.  Strong demand from the U.S. in particular, which showed up as record gold exports from Switzerland to the U.S. in May, could have affected the availability of gold going into the Far East.  Switzerland’s refineries handle a high proportion of the gold requiring refining, or re-refining, into the smaller sizes of bullion bars, coins and wafers in primary demand in countries like China, and a coronavirus-related temporary blip in such deliveries in May could be responsible for the apparent downturn in gold demand recorded in China that month.  If so, that should sort itself out in the coming weeks and months and show up in the Chinese statistics later in the year, but whatever transpires annual Chinese gold demand will be down substantially in 2020.  It will be interesting to see what the major analytical consultancies, which have whole teams investigating such anomalies, make of these latest figures.

 

08 Jun 2020 | Categories: Gold, China

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