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LAWRIE WILLIAMS: China gold demand down over 50% year to date

As we had suggested a month ago, Chinese gold demand in February as defined by gold withdrawals from the Shanghai Gold Exchange (SGE) slowed almost to a trickle by Chinese standards in February.  This was due to the combined effect of the closure of the SGE for the Chinese New Year holiday period, extended by a prolonged shutdown with a virtual lockdown as a result of the Covid-19 virus peak in much of mainland China.  In the event gold withdrawals in February totalled only 28.99 tonnes – the lowest monthly figure for some years.  By contrast the February 2019 figure was a fraction under 100 tonnes and that for 2018 118.42 tonnes (See table below):

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





% change 2019-2020

% change 2018-2020











































Year to date






Full Year






 Source:  Shanghai Gold Exchange.

While we anticipate future months should see the continuation of the downward trend, it is unlikely to be as severe as in January and February, but the knock-on effects of the coronavirus outbreak, and the draconian policies which appear to have seen it brought under control in China, will impact March figures – and beyond too.  Chinese GDP growth rates will have taken a substantial knock, while the continuing restrictions affecting most of Europe and in North America will see a big fall in demand for Chinese-manufactured goods thus further impacting the nation’s continuing growth prospects.

Supply chain problems with Chinese manufactured goods and components may also see a number of major companies in Europe and North America in particular looking to diversify their supply sources away from single nation dependence.  This could put a further big dent in the Chinese export-led sector of the economy.  While China’s aim long term is to make its manufacturing sector primarily reliant on domestic purchasing, with exports providing the icing on the cake, it is still many years away from achieving this goal.  True it has an enormous population base keen to see earnings growth and increased purchasing power, but the Covid-19 outbreak, and the measures taken to control it, will have set back this programme by at least a full year, and probably longer.

As for global gold demand, the Chinese downturn will be a major contributor to a possible lowering of the yellow metal’s supply/demand fundamentals this year.  As can be seen from the SGE withdrawals table above, the nation’s gold demand looks to be heading for a 50% plus drop so far this year.  However this level of decline is unlikely to continue for the full year, but regardless we can expect the nation’s demand to be substantially lower than last year which already saw a major downturn in gold demand from each of the previous five years.  But the fall in the gold price, if it continues, will accelerate closures of existing older mines, possibly reducing overall supply.  Base metals prices are also slipping putting pressure on those base metals mines which produce gold as a by-product.

There is anecdotal evidence though that demand for physical gold is currently exceeding the available supply and thus the big gold price decline is almost wholly due to write downs of paper gold in the futures markets.  We hear that some traders are applying premiums for those wishing to purchase physical metal.  If this is indeed the case then perhaps the safe haven nature of gold will exert itself and halt the price falls. 

One should also remember that gold fell sharply alongside equities in the 2008 market crash, but managed to recover all its lost ground within a couple of months.  This crash is actually looking more severe given the drastic measures being taken by governments around the world to try and control the Covid-19 virus spread which are exacerbating the potentially adverse effects on many business sectors.  This was not the case in 2008!

16 Mar 2020 | Categories: Gold, China

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