LAWRIE WILLIAMS: China gold imports still low but counterbalanced

Followers of global gold supply and demand will likely be a little disappointed by the level of the nation’s reported gold imports in September  These totalled only 61.67 tonnes, down below the 79.73 tonnes imported the previous month when monthly totals looked to be beginning to rise after two particularly low months of imports, said in part to be due to a reduction in government import permits.  

So far this year, according to official figures, China has imported just over 760 tonnes of gold, putting it on track for an annual level of only a little over 1,000 tonnes – well below the 1,408 tonnes imported in 2018, but sill very significant for the global gold supply/demand situation..  The final three months of the year may see a pick-up in imports ahead of the Chinese New Year holiday – a time of gift giving – but this is probably unlikely to lift bullion imports much above the projected level.

Despite the fall-off in gold imports, given that China is currently comfortably the world’s largest gold producer,demand from the public may not be affected too seriously. Although amounts taken into official reserves may be.  There is reported evidence too that some Chinese gold investors are switching interest from buying bullion to purchasing gold ETFs instead, an option which had not proved particularly popular when the ETFs were originally set up.

The level of Shanghai Gold Exchange gold withdrawals for October is due to be published in a couple of weeks' time and this may give additional data pointing to Chinese consumption.  Year to date so far SGE gold withdrawals are substantially below those of the previous few years.

As we have pointed out here before, the high levels of accumulations of physical gold by the world’s gold ETFs is more than counterbalancing the apparent fall-off in Chinese demand, while continued central bank buying at an enhanced level will also be helping to keep gold’s fundamental supply and demand in balance, or positive.  Perhaps the biggest disappointment for gold investors though is that global gold production has yet to start falling as had been predicted by many experts.  At the moment it appears to be increasing marginally, or at best plateauing with the current higher gold prices helping keep some older mines, which could have been forced to close, open for another year or so with sufficient production increases in countries like Australia and Russia - the world’s No. 2 and 3 gold miners, continuing to increase, albeit by relatively small amounts;  But eventually the dearth of any new major gold discoveries, reduced exploration expenditures by the gold majors and the lack of new capital availability for new gold mega-projects will, in combination,take their toll and global production will indeed turn down (peak gold), but this taking longer to materialise than many gold followers had expected.

U,S, markets are still driving the gold price and these are not necessarily following what might be considered normal market patterns for whatever reason, so much gold price movement will likely continue to depend on the perceived state of the U.S. economy.  The Administration and the U.S. Fed persist in claiming all is well, and equities continue to rise to unprecedented multiples, but we feel these days are numbered and the house of cards will come crashing down sooner rather than later.  When the inevitable market crash does come it is likely to be severe and gold will have its day, after perhaps a brief connected dip, as the ultimate safe haven wealth protector# as it has over time.  Maybe it won’t climb to the ridiculous heights some are suggesting.  If it does then the global economy will be going through a phase none of us want to experience.  Let’s hope it doesn’t come to that, but the auspices are decidedly worrying.

 

 

01 Nov 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