LAWRIE WILLIAMS: China gold demand 20% down y-o-y

Somewhat delayed by the Christmas holiday – which even affects the Shanghai Gold Exchange (SGE) - the exchange has at last released the figures on gold withdrawals in December, and even though they were at the highest level since March when some 218 tonnes were withdrawn, the December figure at 158.5 tonnes was still almost 11% lower than a year earlier and 14% down on the 2017 figure.  December withdrawals tend to be one of the highest months coming, as it does, ahead of the Chinese New Year when dealers and fabricators stock up ahead of increased demand resulting from the New Year celebrations.  This year the Chinese (lunar) New year falls on January 25th.

As we noted a month ago, SGE gold withdrawals this year were running around 20% lower than in 2018, which was confirmed by the latest figures.  The annual total came out at 1,642 tonnes – some 412.5 tonnes (or 20.08%) down on the 2018 figure, and the lowsest total in 7 years.  We have consistently equated the SGE gold withdrawal level to total Chinese gold demand as it reasonably closely approximates to the sum of known gold imports from countries which publish detailed export figures, plus China’s own gold output from official figures, plus an allowance for scrap gold recovery plus a small amount of unknown gold imports from countries which do not break down detailed figures.  The figures are all detailed in the table below:

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

 129.33

137.41

144.71

 -5.88%

- 10.63%

August

 107.73

190.59

161.41

 -43.48%

 -33.26%

September

 117.08

188.12

214.24

 -37.8%

 -45.4%

October*

   91.15

142.94

151.54

 -36.93%

 -39.85%

November

 119.43

179.08

189.10

 -33.30%

 -36.84%

December

 158.50

178.04

185.21

 -10.98%

-14.42% 

Full Year

 1642.01

2,054.54

2,030.48

 -20.08%

-19,13% 

 Source:  Shanghai Gold Exchange.

Perhaps luckily for those who follow gold’s supply/demand fundamentals for their investment decisions, the fall-off in Chinese demand this year, coupled with a rather smaller downturn in demand from No. 2 gold consumer India has been counterbalanced by increased demand in Europe and, most importantly, positive inflows into global gold ETFs and a strong level of gold buying from central banks with Russia taking the lead as it has done for the past several years.

The fall-off in Chinese gold demand as we estimate it, can perhaps be put down to the impact President Trump’s tariff impositions may be having on the Chinese economy which has seen its GDP growth rate slow.  This may give the U.S. President a slight advantage in ongoing trade negotiations between the two superpowers.  But China’s GDP growth rate is still around 6% per year which would be the envy of most Western economies, which suggests the latter is unlikely to bow too strongly to U.S. trade balance pressures.  It will probably give ground on some relatively non-contentious issues and agree to import more U.S. agricultural products, but some of these will be necessities anyway.  With Phase 1 of the proposed trade deal due to be signed tomorrow we shall see what ground has been given – not too much we suspect, but perhaps sufficient to ease trade negotiations a little.

The gold price is a little weaker today on a combination of eased Middle Eastern tensions, and what may be seen as a slight easing of U.S./China trade negotiations.  But, as we noted in an earlier post the gold price may well remain volatile and may move up and down on U.S. economic data in the meanwhile and could yet surge again should global geopolitical tensions re-assert themselves.

14 Jan 2020

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).

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