LAWRIE WILLIAMS: China gold demand still slipping this year

May gold withdrawals from the Shanghai Gold Exchange will have disappointed gold bulls yet again.  They came in below the withdrawal levels for the same month in both 2018 and 2017 and the cumulative year to date figures are now lower than they were for the first five months of 2018 and 2017 too.  Indeed they are down nearly 10% on the 2018 five month total.

The latest figures should really not come as a surprise.  Chinese growth appears to be slipping in comparison with previous years and President Trump’s tariff impositions are also likely to be having a negative effect on Chinese exports.  No doubt the U.S President will see this as a victory for his policies, but he is likely to ignore the adverse effects these policies may be having on U.S. domestic prices.  Trade wars seldom do anyone any good and, as we have stated here before, the U.S. is paying the price for its many years of dollar dominance in global trade and in its position as the world’ principal reserve currency with all the other positive effects these position have afforded the U.S. in international business.

We have, controversially perhaps, tended to equate SGE gold withdrawals with China’s true gold demand and gold flows.  This is because the cumulative SGE withdrawal figures work out as being close to China’s known recorded gold imports, plus the country’s own gold production from its mines and smelting/refining plants plus an allowance for unknown imports and scrap conversion.  Indeed China’s own gold yearbook has equated China’s total gold demand to the SGE withdrawal figures, although the principal Western-based gold consultancies tend to disagree with this assessment.  But in part we suspect that this is because of a strict adherence to what they define as demand/consumption which seems to ignore gold going into the banks and financial institutions which we rate as an integral part of China’s gold demand.  It certainly is a representation of total gold usage by the Chinese.  The latest SGE monthly gold withdrawal figures for the past three years are shown 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

 

140.59

155.51

 

 

July

 

137.41

144.71

 

 

August

 

190.59

161.41

 

 

September

 

188.12

214.24

 

 

October*

 

142.94

151.54

 

 

November

 

179.08

189.1

 

 

December

 

178.04

185.21

 

 

Year to date

811.34

897.83

828.76

-9.63%

 -2.10%

Full Year

 

2,054.54

2,030.48

 

 

Source:  Shanghai Gold Exchange.  Lawrieongold.com

* Months which include week long New Year and Golden Week holiday periods when the SGE remains closed

Extrapolating the latest Chinese figures for the full year the country could well be headed for the first sub-2,000 tonne year since 2012.  However any potential shortfall in global gold demand should be countered by the high levels of gold accumulations by the world’s central banks which seems to be remaining at a high level.  Because of this factor, coupkled with global gold production only growing marginally – if at all – then the yellow metals supply/demand fundamentals remain pretty much in balance.  No cause for a gold bull panic yet!

11 Jun 2019

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).

e: lawrie.williams@sharpspixley.com