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LAWRIE WILLIAMS: Chinese gold demand hugely down on a year ago

The Shanghai Gold Exchange (SGE) has just announced its latest monthly gold withdrawals figure for July, which came to 117.6 tonnes, making withdrawals for the year to end July 1,090.7 tonnes, suggesting a full year total of perhaps north of 1,800 tonnes.  Given the PBoC equates SGE withdrawals to its calculation of Chinese gold demand, despite this being hugely in excess of consumption as calculated by the main precious metals research consultancies – in part due to their rigid categorisation as to what should actually be included in their figures -the latest SGE figure might be seen as pretty respectable given they would seem to represent somewhere between 50 and 60% of global new mined gold output.  That is until one compares the latest figures with last year’s SGE gold withdrawals at the same time!

To put it in perspective, last year in July the SGE reported gold withdrawals out of the exchange for that month at a massive 285.5 tonnes, comfortably more than double this year’s statistic.  The year to end July figure in 2015 was 1,463.9 tonnes – which means Chinese gold demand, as expressed by the SGE reports, is running 25% below the levels of a year ago.  Admittedly 2015 was a huge new record year for SGE gold withdrawals – almost 2,600 tonnes for the full year – and the July withdrawals figure was also a record for a single month.  Even so, the latest July figure is the lowest since February this year when the SGE was closed for a week for the Chinese New Year holiday and does suggest that the weak Chinese demand noted by many observers is still in full swing.

However one looks at Chinese demand figures SGE withdrawals are certainly indicative of the general trend and this year it is certainly downwards moving – quite strongly.  Whether it will pick up in the second half remains to be seen.  The downturn may be because of the reduction in the pace of growth of the Chinese economy, but most observers put it down as mainly price-related.  Chinese demand seems to surge when buyers think they are getting a bargain, but the price upturn this year has definitely coincided with the fall in apparent demand.  That this is cause and effect looks increasingly likely.

Interestingly the gold price itself seems to move completely independently of Chinese and other Asian demand.  Gold ETF sales or purchases seem to be the more significant factor.  When there were massive sales out of the gold ETFs from 2013-2015 in particular, Chinese demand soared, yet the gold price was apparently unmoved drifting ever downwards for the most part.  Now the ETFs have been adding metal at a high rate, the gold price has been rising – yet Chinese demand falls sharply.  In terms of statistics it could be said that therefore the movement in the gold price is inversely proportional to the level of Chinese demand.  Surely a contradiction in fundamentals!

05 Aug 2016 | Categories: Gold

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