LAWRIE WILLIAMS: Huge YTD 2015 Chinese SGE gold demand will pass full year record in 2 weeks

Full month figures for October aren’t yet available, but announced gold withdrawals out of the Shanghai Gold Exchange (SGE) up to October 23rd have already exceeded last year’s full year total – and last year was the second highest full year ever for SGE gold deliveries.  The record year of 2013 is now in the sights and will almost certainly be surpassed within the next two weeks.  As I have predicted before a full year total of around an absolutely massive 2,600 tonnes of gold  – over 400 tonnes higher than the previous annual record figure (and amounting to some 80% of total global new mined gold output) will pass through the SGE this year.  And this is all physical gold – not paper!

SGE GOLD WITHDRAWALS – YTD AND PREVIOUS 5 FULL YEAR TOTALS

Year

SGE gold withdrawals (tonnes)

2015 (to Oct 23rd)

2,119

2014

2,102

2013

2,181

2012

1,134

2011

1,043

2010

814

Source: Shanghai Gold Exchange, Sharelynx.com

We have already concluded from published export statistics from countries supplying gold to the Chinese mainland that Chinese gold imports this year are almost certainly heading for perhaps 1300 tonnes plus – a very similar figure to that suggested by China gold specialist Koos Jansen writing on www.bullionstar.com - and domestic production will probably be in the order of 480 tonnes for the full year.  Yet the principal mainstream analysts still see China’s consumption as perhaps only around 1,000 tonnes – and latest GFMS figures for Q2 even put China behind India as the world’s biggest gold consumer – although admittedly not by much.  However, they seem to treat India and China totally differently in their assessments.  Indian gold consumption as they see it pretty much equates to the country’s gold import levels (perhaps they include domestic supply too but as this is only 1-2 tonnes a year this is just about irrelevant).  But Chinese consumption is put far behind its new gold supply, which we calculate as imports plus domestic gold production, equating to some 1700-1800 tonnes.  Add recycled gold into the mix and we are probably talking 2,000 tonnes or more – still well short of SGE deliveries.

There are various reasons suggested for the enormous discrepancy between known supply and SGE deliveries.  The latest came in a presentation by Jiang Shu of Shandong Group at the recent LBMA/LPPM conference in Vienna.  He stated that there is about 1,370 tonnes of gold tied up in financial transactions (which the analysts do not count as ‘consumption’ – although Koos Jansen disagrees saying in his most recent posting on this subject that ‘gold leasing can never have ‘swallowed’ a few thousand tonnes of gold from reaching genuine demand’.   Other mainstream analysts have suggested big un-official movement of gold from the mainland back into Hong Kong, or a huge amount of recycling of gold through the SGE as being responsible for the huge differentials, but it does strike the writer that they are having trouble explaining the differences and are coming up with suggestions they think might provide an answer.  There seems to be little correlation between the various theories here so perhaps all can be discounted to some extent or another.  Perhaps it is actually a combination of all?

Be this all as it may.  The simple fact is that SGE deliveries have been enormous this year and if that isn’t some kind of indicator that effective Chinese gold demand remains huge – and almost certainly well in excess of that of India whatever the mainstream analysts may say.  Known gold export statistics support high China gold absorption, while unknown gold movements could swell this – perhaps significantly.  Together with Indian demand running at a relatively high level this year, all this supports continuing gold flows from West to East, but although this is pretty obvious to external observers it is still so far having little effect in driving prices upwards as many would suggest it would.  (See: China's Huge 2015 Gold Demand Is Having Little Effect On Price-Setting).  At the moment prices still seem to be being very much set by the Comex futures markets as they have been mostly for the past several years.  But sooner or later the level of gold flows draining western inventories must have an impact – but perhaps not yet.

01 Nov 2015

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).

e: lawrie.williams@sharpspixley.com