LAWRIE WILLIAMS: China gold demand holding up but perhaps not growing

While Chinese gold demand as defined by gold withdrawals from the Shanghai Gold Exchange (SGE) was only marginally higher than a year ago in the holiday week affected month of February, the cumulative total remains well in advance of the figures for the previous two years.  In both 2021 and 2022 the Chinese New Year holiday week fell wholly within February, although was earlier in the month this year.  But in the coronavirus affected 2020, the holiday week occurred partially in January as the Lunar New Year occurred that year on January 25^th.

Table: China SGE Monthly Gold Withdrawals 2020-2022 (Tonnes)

 Source:  Shanghai Gold Exchange, Sharps Pixley.

*Months incorporating Golden Week holidays when SGE closed for a week

Because the February withdrawal figures were so close this year in February to those for 2021, it is probably too early to tell how demand over the full year will hold up, but the initial trend looks to be positive.  A full year return to the 2,000 tonne demand level, as we were suggesting a month ago, though, remains a little more uncertain, so we will be monitoring the SGE gold withdrawal figures in future months closely to check for signs as to whether Chinese gold demand this year is continuing to recover or not.

There is a suspicion that Chinese gold imports this year will still increase given that this may be one of the few markets fully open to Russian gold deliveries as a result of economic sanctions imposed over the Russian invasion of Ukraine.  China is not a participant in the sanctions imposition and so far has shown no signs of condemning the Russian action.  However whether this will show up in overall demand figures may be more difficult to ascertain.  Some Russian gold could flow directly into government holdings about which China tends to be extremely secretive and may thus not show up in normal demand statistics..

2020 Chinese gold demand figures were severely affected by the measures taken to keep the virus pandemic spread under control, which certainly seem to have been highly effective, but this shows up strongly in gold consumption figures for that year  The Chinese economy has returned to growth since, but it remains an export-driven economy and inflation may be taking a toll on export market spending habits, which could reduce demand for Chinese goods, in which case domestic consumer demand for gold could be adversely affected through the rest of the year. 

It is early days yet so it is extremely difficult to adjudge what the impact will be on global gold demand.   If the downturn in the country’s domestic gold production continues, the market may still improve as far as gold imports are concerned to counterbalance any production shortfall.  China thus remains perhaps the most significant market for gold going forwards, but possibly not as strong as had been thought previously.

09 Mar 2022 | Categories: Gold, China

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