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LAWRIE WILLIAMS: China’s SGE gold deliveries down 17.7% ytd

As yet another indicator that Asian demand for gold so far this year has been slipping significantly, May gold deliveries out of the Shanghai Gold Exchange (SGE) came in at only 147.3 tonnes – down from 171.4 tonnes in April.  The year to date figure is thus 834.6 tonnes – a very significant 17.7% fall on last year’s total at the end of May of 982.7 tonnes.  Admittedly 2015 was a huge record year for SGE gold withdrawals, and the current levels, if the average to date continues for the remainder of the year, would put the year-end figure at just over 2,000 tonnes – still a huge amount in terms of global demand.

There is continuing disagreement among analysts and observers of the Chinese gold market over the relationship between Chinese gold demand and SGE withdrawals.  Some equate the two figures as representing true Chinese demand, whereas others claim a degree of double counting and round tripping as being inherent in the SGE data.  However, the SGE figures do serve as an excellent indicator of overall Chinese gold demand trends and thus there is little doubt that demand this year will be lower on any count.  Known gold exports to China have been lower and the latest Swiss gold import and export data showed a reverse flow from Hong Kong, indicating traders there may have overstocked in the light of lower consumer demand so far.

Of course, as we have pointed out here before, the lower Asian demand has been more than matched by inflows into the Western gold ETFs, so overall global demand is still probably running at record levels.  ETF inflows, though, seem to have slowed down along with the latest gold price stutter, but then could pick up again if gold resumes its higher trajectory.  It is other factors driving gold at the moment – interest rates, currencies and global economics.  The possibility of a Brexit vote looms large in people’s minds, particularly in the UK and Europe, with all the uncertainties that would bring.  But ultimately supply/demand fundamentals are likely to win out in the end and the lower Asian demand from China and India, by far the world’s two largest gold consumers, should thus be something of a long term worry for gold bulls.

But, much as Asian demand appears to have weakened so far this year, it could also recover in the second half of the year and should gold ETF inflows continue this would be extremely positive for the fundamentals picture.  These Chinese statistics will thus continue to be watched extremely closely for clues in this respect.

08 Jun 2016 | Categories: Gold

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