LAWRIE WILLIAMS: Chinese gold demand still trending downwards

 

Latest gold withdrawal figures for November from the Shanghai Gold Exchange (SGE) suggest that Chinese gold demand this year is still trending lower than in any year since 2013.  This suggestion is supported by a recorded fall in Chinese gold imports from known exporters, and the apparent fall in the nation’s growth performance.  Perhaps U.S. trade tariffs are beginning to bite which will lead to President Trump feeling that his policies are in the ascendancy and he may well ramp up his trade pressures accordingly.  However, China is a proud nation, and in Asian culture ‘saving face’ is an even more important attribute than in the West, so we wouldn’t be too surprised to see attitudes in the ‘trade war’ harden, giving support the President Trump’s latest suggestion that no positive outcome is likely until after the Presidential election in late 2020.

 

SGE gold withdrawals this year are already almost 20% lower than in 2018 and if the declining trend continues we could see a full year total of around 1,630 tonnes – a fall of well over 400 tonnes and close to 21% against the 2018 total.  With Indian demand also trending downwards, demand in the current year from the world’s two top consumers of gold could well show a decline of 500-600 tonnes overall.  That’s quite a shortfall and were it not for increasing central bank demand and some substantial growth in gold ETF holdings, gold’s supply/demand fundamentals would be taking quite a knock back.

 

Table: SGE Monthly Gold Withdrawals 2017-2019 (Tonnes)

 

Month

2019

2018

2017

% change 2018-2019

% change 2017-2019

January

218.54

223.58

184.41

-2.30%

18.51%

February*

  99.77

118.42

148.24

-15.75%

-32.70%

March

 218.03

192.61

192.25

 +13.19%

+13.41%

April

 151.89

212.64

165.78

 -28.57%

 -8.38%

May

 123.11

150.58

138.08

 -18.24%

 -10.84%

June

 107.45

140.59

155.51

 -23.57%

-30.87%

July

 129.33

137.41

144.71

 -5.88%

- 10.63%

August

 107.73

190.59

161.41

 -43.48%

 -33.26%

September

 117.08

188.12

214.24

 -37.8%

 -45.4%

October*

   91.15

142.94

151.54

 -36.93%

 -39.85%

November

 119.43

179.08

189.10

 -33.30%

 -36.84%

December

 

178.04

185.21

 -20.95%

 

Year to date

1483.51

1876.56

1693.57

-19.64%

   -12.40%

Full Year

 

2,054.54

2,030.48

 

 

 

Source:  Shanghai Gold Exchange.  Lawrieongold.com

 

However, central bank gold demand this year seems to be running comfortably higher than a year ago and gold ETF inputs, according to the World Gold Council (WGC) has been hugely positive so far in 2019, although there has been a pullback over the past few weeks. Overall some 385 tonnes of gold have been added to gold ETFs so far this year.  North American gold ETFs have added 206 tonnes compared to 171 tonnes in Europe equivalent to 54% of net inflows in 2019.   In Europe, the WGC comments that UK- and German-based funds have grown 15% and 12% respectively, a by-product of Brexit concerns and negative yields in Germany.  Low-cost gold-backed ETFs in the US have seen positive flows for 17 of the past 18 months and have increased their collective holdings by 58% so far this year. 

 

November, however, did see some significant outflows, and without these the overall year to date figures would have been even stronger.  The month saw US$1.3 billion of net outflows across North America, Europe and Asia, decreasing their collective gold holdings by 30.1 tonnes after reaching record highs in October. Global gold-backed assets under management (AUM) have grown 35% this year as a result of increased investment demand and price appreciation, says the WGC.

 

With global gold production just about flat (peak gold is now here, or hereabouts) these ETF inflows and a continued high level of central bank buying means that gold fundamentals are nearly holding their own, although a rise in scrap gold conversion, given the higher metal prices which have been prevailing of late, could swing the balance towards a small supply surplus.  What should be of positive note for gold investors is continuing verbal support for the yellow metal from some key big-name investors and from the heads of some of the world’s biggest – and usually most conservative -central banks (See: GERMAN Central Bank: Gold Is the Bedrock of Stability).

 

 

 

07 Dec 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

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