LAWRIE WILLIAMS: Chinese gold buying slips sharply in March

There’s no certainty in the global gold supply/demand pattern.  Asian demand had seemed to be almost always supportive of the gold price with consumption remaining strong in India and China in particular.  Indian imports of gold are appearing to continue at a high level, but we  had been beginning to note a month ago that Chinese consumption, as represented by gold withdrawals from the Shanghai Gold Exchange (SGE), were possibly beginning to tail off a little. The February2022 figure was almost identical to that of a year earlier, after a stronger start in January. 

Now the March 2022 SGE gold withdrawals figure has been announced and it has come in sharply lower year on year suggesting a sharp fall off in monthly demand.  However the figure is still rather higher than the 2020 count which was hugely affected by the coronavirus outbreak, and the draconian measures being taken to control its spread.

Table: China SGE Monthly Gold Withdrawals 2020-2022 (Tonnes)

 Source:  Shanghai Gold Exchange, Sharps Pixley.

*Months incorporating Golden Week holidays when SGE closed for a week

 So far we do not know if this is but a temporary blip, or if it is indicative of a more consistent, and longer term, downturn in demand.  There has been what appears to have been classified as a serious coronavirus outbreak in Shanghai itself – again with extremely strict measures being taken to try and control it  This may well be having a direct impact on Chinese internal gold flows given how important a centre Shanghai is to the Chinese economy.

We had been predicting that China’s annual gold demand might well regain the 2,000 tonne level again this year for the first time in almost four years, but this latest withdrawal amount for March throws this into doubt.  However, there is also a strong chance that China may substantially increase gold imports from Russia this year, and into the future, which could boost figures going forwards. 

China is not supporting the economic sanctions being imposed on Russia, and as an ally is unlikely to do so.  The sanctions will adversely affect the latter’s gold trade with the West but China could well become a significant market for any Russian gold not bought domestically, or by the Russian central bank which is, apparently, resurrecting its gold purchase programme after an almost 2-year hiatus. 

China and Russia are the world’s biggest gold producers so there is certainly scope for the Middle Kingdom to up its imports of Russian gold, although whether this would appear in open market statistics is not so certain.  Russia produces around 310-320 tonnes of gold a year and when its central bank was buying gold regularly it was taking in around 200 tonnes annually.  Assuming it reverts to buying in gold for its reserves at a similar level again, that would leave well over 100 tonnes of Russian gold needing to find a purchaser and with the West imposing sanctions, China may well be one of the few countries that can fill the breach.

11 Apr 2022 | Categories: Gold, China, Russia, India

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