LAWRIE WILLIAMS: China’s gold demand looks to be slowing this year so far

Shanghai Gold Exchange (SGE) figures for February’s gold withdrawals are now in and using our assumption (contentious in some analyses) that SGE gold withdrawals equate closely to overall Chinese gold demand it looks as though the nation’s voracious appetite for gold may be slowing.  The total of withdrawals for the first two months of the year comes to 318.31 tonnes as against 342.0 tonnes in 2018 and 332.65 tonnes in 2017.  Indeed the February 2019 gold withdrawal figure is the first monthly sub 100-tonne total for over 3 years.

Although the fall in the withdrawal figure as total Chinese gold demand would seem to be confirmed by other available data - notably a fall in deliveries of re-refined gold from Switzerland both to Mainland China and to Hong Kong so far this year, perhaps not too much should be read into the decline at this stage of the year.  The Chinese (Lunar) New Year, which encompasses a week-long Golden Week holiday commenced on February 5th this year so the whole holiday period - over which time government bodies like the SGE were closed - occurred in February thus reducing total gold withdrawal figures that month.  In 2018 the New Year holiday commenced later in the month, but still meant the SGE would have been closed for a full week during February, while in 2017 the New Year holiday commenced on January 28th meaning there will have been a couplke more February trading days in February then.

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

 

192.61

192.25

 

 

April

 

212.64

165.78

 

 

May

 

150.58

138.08

 

 

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

318.31

342.00

332.65

-6.93%

-4.31%

Full Year

 

2,054.54

2,030.48

 

 

Source:  Shanghai Gold Exchange.  Lawrieongold.com

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

So although we say that perhaps not too much sway on overall Chinese demand should be placed on cumulative figures for the first two months of the year because of the week-long February holiday period, the data taken in conjunction with that from other sources does, at this stage, suggest that Chinese demand is indeed turning down along with the slippage in the nation’s GDP growth.  Even so China remains the principal driver of global demand for gold bullion, although the gap that has built up between it and India may be slipping.

According to the latest figures from the World Gold Council there has also been a downturn in the Chinese gold ETF Huaan Yifu which shed 3 tonnes in February - a month which saw the giant GLD gold ETF in the USA see withdrawals of 40 tonnes.  The big anomaly here though is that the second largest gold ETF in the USA - the iShares Gold Trust - added 7 tonnes of gold that month.  European gold ETF withdrawals and additions just about balanced each other out.

(For those who may not have come across my assessments of Chinese gold demand before, we equate SGE withdrawal figures to the nation’s total annual gold absorption as they tend to be far closer to the sums of China’s own gold production plus imports from known sources which publish country-by-country breakdowns of their gold exports plus an allowance for unknown imports plus an allowance for scrap conversion than estimates of Chinese gold consumption by the major Western gold consultancies.  China does not publish its own figures, although, in the past, The China Gold Yearbook has equated demand to the SGE withdrawal figures!  As the Singapore-based bullionstar.com website put it a couple of years ago: Some high-profile precious metals consultancies such as GFMS and the World Gold Council still publish annual Chinese gold demand figures that are far lower (for example 900 tonnes per annum) than the annual SGE gold withdrawal figures. These discrepancies are so large that they call for rigorous analysis and explanation. Note that other bodies, such as the China Gold Association (CGA) do state that Chinese gold demand equals SGE gold withdrawals.)

 

 

08 Mar 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