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LAWRIE WILLIAMS: Chinese 2020 gold demand marking time – big annual fall forecast

Up until the end of July this year we have not yet seen any signs of a pick-up in Chinese gold demand, and if the current trend continues we will likely see around a halving og demand this year compared with last when full year demand, as represented by Shanghai Gold Exchange (SGE) gold withdrawal fogures when the full year figure was 1,642 tonnes – itself a substantial fsll from gold demand achieved over the prior ten years.  To recap, Chinese gold demand has been on a downwards run since it hit a record, according again to SGE gold withdrawal figures, in 2015 of some 2,596 tonnes.  This year it could well total only around 1,000 tonnes or less, perhaps over 600 tonnes less than a year ago.

Table: SGE Monthly Gold Withdrawals 2018-2020 (Tonnes)

 Month

2020

2019

2018

% change 2019-2020

% change 2018-2020

January

110.87

218.54

223.58

-49.31%

-50.64%

February*

 28.99

  99.77

118.42

 -71.14%

-75.52%

March

 82.27

 218.03

192.61

 -62.27%

 -57.29%

April

 95.80

 151.89

212.64

 -36.93%

 -54.95%

May

 69.18

 123.11

150.58

 -43.81%

 -54.06%

June

 85.71

 107.45

140.59

 -20.23%

 -39.04%

July

 82.94

 129.33

137.41

 -35.87%

 -39.64%

August

 107.73

190.59

September

 117.08

188.12

October*

   91.15

142.94

November

 119.43

179.08

December

 158.50

178.04

Year to date**

590.01

1,055.12

1,175.83

-44.08%

-49.82%

Full Year

 

 1,642.01

2,054.54

 

 

 Source:  Shanghai Gold Exchange.

*Months incorporating Golden Week holidays when SGE closed

** Cumulative figure as reported by SGE (Figs don’t tally with month by month figs. as reported by SGE in 2020 suggesting an unreleased monthly correction in H1 2020)

It is not too surprising that demand would have fallen in the first quarter of the year when the COVID-19 virus outbreak was at its peak in China resulting in some severe lockdowns which will have severely impacted industry and earnings, and thus demand for gold.  However there has been some anticipation that the Chinese economy would bounce back relatively quickly, but this has not been the case.  While Chinese businesses are largely back at work, global demand for Chinese goods has likely been impacted adversely by virus control measures being imposed elsewhere.

China’s post-virus experience should thus perhaps provide a wrning on recovery prospects for Western economies too.  It looks like there will be no rapid recovery.  The prospects for a V-shaped economic recovery in the Western industrialised nations seems to receding ever further into the distance.

While China is/was the world’s biggest consumer of precious metals, the massive gold demand shortfall which is thus appearing on the horizon, is being counterbalsnced by a massive increase in investment buying and in particular in bullion flows into the big gold ETFs..  According to research data put out by the World Gold Council, which tends to report totally accurate statistics, s899tonned of gold have been added to the world’s gold ETFs so far this year – more than matching the shortfall in Chinese gold demand to end-July which ,as can be seen from the above table totalled some 465. Tonnes.  Indeed inflows into the gold ETFs so far this year have already considerably exceeded the previous annual record totals.

So far gold ETF inflows have shown little sign of easing off as the gold price has achieved record .  A correction set in ahead of the weekend, but this was hardly unexpected given the recent speed of gold’s price increase.  A slight word of caution though.  Back in the northern summer of 2011 when the dollar gold price hit its previous high point, it all started to come down again after that year’s U.S. Labor Day holiday.  Could history repeat itself?  Labor Day is in less than a month’s time, although the ongoing coronavirus epidemic may be a game changer this time around!

08 Aug 2020 | Categories: Gold

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