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LAWRIE WILLIAMS: China gold demand picks up in March but still hugely down y-o-y

The latest gold withdrawal figures for March have been announced by China’s Shanghai Gold Exchange (SGE) and they show that China’s gold demand, as expected, remained subdued that month, although considerably in excess over that for February.  March is usually a strong month for Chinese gold demand coming when things are mostly back to normal after the country’s New Year celebrations, which normally include a week-long holiday during which time the SGE remains closed.  This year, the holiday was extended given February’, in which most of the New Tear official holiday took place, saw the peak of the Covid-19 virus shutdown in that country, with things only beginning to get back to anywhere near normal in late March,  With parts of the country then still in lockdown it is hardly surprising that gold demand suffered badly then too.  We anticipate gold demand remaining depressed in China for some time to come and while it should pick up in forthcoming months we are doubtful it will get back to anywhere near normal levels at any time this year.

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

 151.89

212.64

May

 123.11

150.58

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**

235.60

536.34

534.61

-56.04%

-55.93%

Full Year

 

 1642.01

2,054.54

 

 

 Source:  Shanghai Gold Exchange.

**Note – 2020 cumulative figure does not match month-by-month totals probably due to unrecorded adjustments.

The fall in demand as suggested by SGE gold withdrawals supports figures from elsewhere – notably from Switzerland and Hong Kong, both of which have reported very sharply reduced gold exports to mainland China so far this year.  In our assessments SGE gold withdrawals are a relatively accurate measure of total Chinese gold demand, although this is not considered as such by some of the consultancies which publish usually much lower figures for China’s annual consumption.  However we would maintain that SGE gold withdrawals equate far more closely to known Chinese annual gold flows as represented by known gold imports from countries which publish a country-by-country analysis of their gold exports, plus China’s own gold production plus allowances for gold scrap conversion and for a small amount of unrecorded imports.  The consultancies tend to come up with figures which are far lower than the sum of known imports and Chinese domestic production, but this may well be because they tend to ignore gold going into the financial sector, which can be a substantial amount.

We have suggested in the past that these finance sector gold imports are actually being held on behalf of the Chinese government as one of the mechanisms for building the nation’s gold reserves without having to report them as an integral part of the nation’s gold reserves to the IMF.  After all, most of these financial institutions which import gold are wholly state-owned.

13 Apr 2020 | Categories: Gold, China

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