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LAWRIE WILLIAMS: Chinese gold demand beginning to pick up again?

The latest figures for gold withdrawals out of the Shanghai Gold Exchange (SGE) for June show that post-COVID-19 gold demand in the world’s largest gold consuming nation may just be beginning to pick up a little.  However it still remains hugely below that for each of the previous seven years at the half year stage.

The latest figures put H1 2020 gold withdrawals at around half those seen at the half year points in 2019 and 2018, themselves well below those recorded in the recent peak 2015 year.  Chinese consumer gold demand is highly dependent on the incomes of the previously rapid-growing ‘middle class’ element in Chinese society and the initial draconian lockdowns imposed by the Chinese government in response to the virus spread will certainly have impacted demand levels in the first four months of the year in particular.

The latest SGE figures, though, suggest that the Chinese recovery may be more fragile than claimed or predicted.  As we pointed out when the hugely disappointing May SGE figures were released (See: China: 2020 gold demand more than halved after 5 months) not only has Chinese domestic activity been adversely impacted by the virus control measures, but the massive Chinese export sector has seen global demand diminish as economies around the world have been in recession, thus hugely impacting the global supply chain.  The apparent trade negotiation impasse with the U.S. Administration will not have helped either.

We have always equated the published monthly Chinese SGE gold withdrawal figures with the nation’s gold consumption. This is because the overall totals appear to be close to the country’s gold imports from sources which publish this data, plus China’s own domestic gold production, plus a relatively conservative allowance for scrap conversion as citizens convert some of their accumulated gold wealth to meet short term debt problems – presumably necessitated most recently by tghe coronavirus-related lockdowns.  Our views tend to be contested by some of the professional analysts out there, but they have never been able to explain satisfactorily the huge anomalies between their published consumption figures and the known Chinese gold flows.  Past Chinese gold yearbooks have also equated SGE gold withdrawal totals to Chinese demand!  The latest SGE figures month-by month for the past three calendar years are set out in the table below:

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





% change 2019-2020

% change 2018-2020























































Year to date**






Full Year






 Source:  Shanghai Gold Exchange.

** Cumulative figure as reported by SGE

Assuming that Chinese gold demand continues to remain weak this year compared with previous years we should probably anticipate the annual total for 2020 to fall back to only 1,000 tonnes or less – the lowest for around 10 years.  Assuming a 1,000 tonne total this would suggest a plus 600 tonne shortfall in Chinese demand over the full year, compared with a year ago.  We may see, though, a small pickup in demand in the second half of the year as Chinese industry, and the domestic marketplace, continues to recover assuming there is no second virus wave in the country.  With an autocratic government willing to impose draconian city, or area, lockdowns at the slightest suggestion of a renewed virus hotspot, and a compliant populace, we think such a second wave unlikely to occur.

But, the big problem facing the Chinese economy, is the effect the virus is having on its principal global export markets, the U.S. in particular, which is seeing a big COVID-19 resurgence across its southern states, which makes a rapid nationwide economic recovery less likely.  The Trump Administration’s continuing anti-Chinese rhetoric may also adversely impact the take-up of Chinese manufactured goods.

We thus anticipate a year-on-year shortfall in Chinese gold consumption this year at around 500 tonnes or more.  Providing gold flows into the gold ETF sector continues to remain strong (See: Gold Continues To Flood Into ETFs Boosting Pricethen there may be little direct overall price impact.  This would, in effect, be the reverse of what happened earlier in the last decade when huge outflows from the gold ETFs were counterbalanced by a massive gold demand increase from China!  Payback at last! 

As things are with the coronavirus impact remaining very worrying in many parts of the world, notably in the U.S., there has been something of a positive impact on the global gold price and demand.  It is sitting at over $1,800 an ounce as I write with some analysts predicting $2,000 gold this year.  It seems to be fulfilling its purpose as a safe haven with the major economies mired in debt and equities markets nervous at the very least.

09 Jul 2020 | Categories: Gold

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