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LAWRIE WILLIAMS: China gold demand may be faltering

Chinese gold demand, as represented by gold withdrawal figures from the Shanghai Gold Exchange (SGE), slipped in September from the same month a year earlier, but remained above the corresponding 2016 figure.  The cumulative figure for the year to date remains higher than that of a year ago after nine months, but only by just over 3%.  (See table below:)

Table: SGE Monthly Gold Withdrawals (Tonnes)





% change 2017-2018

% change     2016-2018




































































Year to date




+  3.3%


Full Year



Source: Shanghai Gold Exchange. 

* Months include week long New Year and Golden Week holiday periods

Perhaps this is not too surprising as latest reports out of China, as reported by Bloomberg, in an independently produced PMI type survey, suggest that Chinese business confidence has dropped to the lowest level in its seven-year history in September.  This is presumably a factor as the U.S. and Chinese governments imposed new rounds of tariffs on each other's exports, escalating the Trump Administration initiated trade war.

The report highlights the latest results of an ongoing indicator from Beijing-based Cheung Kong Graduate School of Business which has dropped to its lowest level in the seven years since the graduate school started compiling these figures.

Bloomberg notes that the index is based on a survey of CKGSB students and graduates who are executives at companies operating in China. The respondents represent around 300 privately-owned small and mid-sized enterprises across several sectors of the economy. Over the last seven years, Bloomberg comments, the CKGSB index has shown bigger swings than the official PMI gauges produced by China's National Bureau of Statistics.

What is perhaps most alarming in the report is the final commentary by the economics professor who oversees the survey.  "Most surveyed companies are now experiencing unprecedented difficulties and have become increasingly pessimistic about business prospects for the next six months.  For most, business has never been worse." he says.

All this is an indicator that the ‘trade war’ is indeed beginning to bite.  One suspects though that this Chinese experience may also be repeated elsewhere – even in  the U.S. where the tariff impositions on Chinese imports are likely to filter through to the domestic economy in terms of price rises.  The U.S high tech industry, for example,  is hugely dependent on imports of Chinese-manufactured components which can not be replaced in the short’ or even the medium, term by U.S product and if the U.S. industry does gear up to raise supplies these are likely to be at a higher cost to the consumer.  The Fed may be looking to a rise in inflation to help mitigate the country’s enormous debt position but this may well happen due to factors outside its control.  We don’t necessarily think there will be U.S. hyper-inflation, as some commentators have been suggesting, but there certainly could be price rises across the board ahead.

But what of the latest SGE figure for September gold withdrawals?  It’s probably too early to tell if this suggests the start of an ongoing downturn in gold demand – we will need to see another few months’ figures yet to be sure. The September figure was still around 10% up on the 2016 amount and the nine months cumulative total is still up on a year ago, but the lower September withdrawals could be a sign that Chinese gold demand is beginning to turn down with the economy.  Only time will tell.

10 Oct 2018 | Categories: Gold, China

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