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LAWRIE WILLIAMS: Global gold demand looks to be back on the rise?

We have been seeing some negative assessments of demand patterns for gold of late.  Chief among these have been the spate of apparent gold withdrawals from the gold-backed ETF sector, alongside an apparent downturn in demand from central banks with the two biggest contributors to this, China and Russia, apparently withdrawing from the market.  Respectively these are the sixth and fifth largest gold holders in their foreign reserves as reported to the IMF, although the latter relies on what it is told for its tabulation of global gold holdings.  China in particular has tended to be somewhat ‘economical with the truth’ in reporting its monthly gold holdings in the past, but for the sake of argument we’ll assume both nations are currently not enhancing their gold reserve positions.

To assess global demand/consumption patterns we thus need to rely on other reported data, and perhaps some anecdotal evidence.  Historically the world’s two biggest gold consuming nations, at least as far as the past couple of decades are concerned, have been India and China.  The former has recently reduced its import tariffs on gold, which is serving to improve its current ‘official’ gold import statistics by reducing the incentives for gold smuggling.  It may not be that the total amount of gold flowing into the country is rising, but that visible to those collating statistics is, which affects the global assessment of total Indian gold imports – and the visibility of data is how markets tend to draw their conclusions on the true state of the supply/demand balance.

Indian demand also tends to be relatively price sensitive so recent gold price weakness has already reportedly led to a sharp uptick.  A recent Reuters report points to gold price premiums of around 5% being applied suggesting strong demand.  The same report also reports gold price premiums in Singapore, Japan and China, but the latter is probably the most important in terms of global demand – particularly following the exceedingly weak Covid-affected 2020 year.

For China, there is an ongoing demand measure available to us in the gold withdrawal data from the Shanghai gold Exchange (SGE), which is released monthly.  While some China analysts will dispute the gold demand relationship between SGE gold withdrawals and overall national consumption, we have always found that cumulative SGE gold withdrawal data has invariably been a close match with total Chinese gold flows as represented by the sum of domestic gold production, gold import data, plus a small allowance for scrap supply.  The latest SGE withdrawal data for February this year – a month where the figures would likely be low in any case given the SGE will have been closed for a full week for the holiday period around the Chinese New Year, plus comparative data for the prior two years, is set out in the table below:

Table: China SGE Monthly Gold Withdrawals 2019-2021 (Tonnes)





% change 2020-2021

% change 2019-2021

















































Full year





 Source:  Shanghai Gold Exchange, Sharps Pixley.

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

** Cumulative totals as reported by SGE for first two months of the year


As can be seen from the table, gold withdrawals from the SGE over the first two months of the year are up 80% on 2020, although they are still down on 2019.  But that latter year saw a sharp fall-off in demand in the second half so there is a good chance that, if the 2021 improvement continues along with the recovery in the Chinese economy, the cumulative figure for the full year could be at least back to the 2019 level.  That is still well below the peak 2015-2017 years, but it is getting there so subsequent months’ SGE gold withdrawal figures will be followed with particular interest to see if there is continuing growth, and if so how great that growth is likely to be.

This apparent demand pick-up in the world’ leading gold consuming nations is not before time for gold given the offloading of metal from the gold ETFs and the presumed reduction in central bank gold purchases – although Turkey had been making some substantial inroads into central bank gold purchase levels last year, almost replacing prior Russian totals, but whether that is likely to continue in the current year remains uncertain.  According to the World Gold Council, global gold ETFs lost 84.7 tonnes in February, marking outflows for the third time in four months, and the seventh worst historical monthly holdings loss.

07 Mar 2021 | Categories: Gold, China

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