LAWRIE WILLIAMS: China‘s 2019 gold demand headed for 20% drop

We have always monitored China’s Shanghai Gold Exchange (SGE) gold withdrawal totals as one of the best estimates of the country’s gold demand position.  The latest figures certainly give the gold market some cause for concern and were it not for the huge pick up in gold ETF sales this year and the continuation of strong central bank gold buying, the apparent fall-off in demand from the world’s largest consumer of gold would surely be having a major adverse impact on the global supply/demand situation and the gold price!

October SGE gold withdrawals as recorded by the SGE have come in at the lowest monthly total so far this year at 91.15 tonnes, only the second month for some years showing a monthly total below 100 tonnes.  The other such month was February this year where the withdrawals total was 99.77 tonnes.  It should be pointed out that February and October tend to be anomalous months though as they both normally contain week-long Golden Week holidays during which time the SGE is closed, thus reducing the withdrawals totals for these months.  But even so, this year’s totals have been unconscionably low compared with the years immediately prior suggesting that individual’s demand for gold may have been falling sharply – perhaps as a result of falling GDP growth brought on by the adverse impact of the U.S./China trade war.

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

 107.45

140.59

155.51

 -23.57%

-30.87%

July

 129.33

137.41

144.71

 -5.88%

- 10.63%

August

 107.73

190.59

161.41

 -43.48%

 -33.26%

September

 117.08

188.12

214.24

 -37.8%

 -45.4%

October*

   91.15

142.94

151.54

 -36.93%

 -39.85%

November

 

179.08

189.1

 

 

December

 

178.04

185.21

 

 

Year to date

1364.08

1697.48

1504.47

-19.64%

  -9.33%

Full Year

 

2,054.54

2,030.48

 

 

Source:  Shanghai Gold Exchange.  Lawrieongold.com

Thus the year to date totals suggest that Chinese gold demand this year may be as much as 20% down on 2018.  Extrapolating the latest figures across the full year, Chinese gold demand could be heading for a total of only around 1,640 tonnes in 2019 – still comfortably the world’s No. 1 – but well short of the 2,000 tonnes plus recorded over each of the few preceding years.  There may be a bit of a pick-up in the final two months of the year with gold retailers and fabricators stocking up ahead of the Chinese New Year, but the recent disturbances in Hong Kong – to which there seems to be no end in sight – will not be helping.

The latest fall in SGE gold withdrawals has coincided with the People’s Bank of China reporting zero gold accumulation in October as well, although whether figures from the PBoC can be considered accurate given past reporting practices is, perhaps, dubious.  But taken together with the SGE gold withdrawals data, which have appeared to be accurate in the past, this does appear to suggest at least a slowdown in overall Chinese demand.  How this may impact on the trade negotiations with the U.S. remains to be seen though.  President Trump may consider this an apparent justification for the adversarial stance he has taken, but unless he is prepared to be magnanimous in any perceived short term victory, which does not appear to be in his nature, the Chinese may dig in their heels and such a victory could prove to be Pyrrhic, with the Chinese playing for time in either the hope of a Presidential change next year, or an adjustment in trade patterns.  This could see American imports becoming less relevant to China in the face of economic growth elsewhere in the world – particularly if the U.S. economy starts to move into recession as many are predicting.

11 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