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LAWRIE WILLIAMS: Is Chinese gold demand just beginning to pick up?

We always equate the true level of Chinese gold demand with the monthly reported level of gold withdrawals from the Shanghai Gold Exchange (SGE) as this figure tends to correlate far more closely with known Chinese gold imports, plus te nation’s annual gold production, plus a small allowance for gold scrap conversion and gold imports from unknown sources.  This metric is usually disputed by the major gold analytical consultancies, which tend to come up with far lower overall demand figures despite considerable evidence that these figures are too low, which suggests they are missing an important element of Chinese demand – perhaps from the financial sector.  Thus we tend to stand by our figures as providing a more accurate representation of the true demand form mainland China.

The monthly SGE gold withdrawal figures for the current, and prior two years, are set out in the table below and it is worth noting that this year’s figure for August gold withdrawals, as announced by the SGE, is the first month this year when gold withdrawals actually exceeded the level of the same month in 2019, although they are still well behind the 2018 gold withdrawal levels.  Could this be the long-awaited sign that Chinese gold demand this year is just beginning to pick up a little, although still remaining particularly weak in overall historical terms?

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





% change 2019-2020

% change 2018-2020





























































Year to date**






Full Year






 Source:  Shanghai Gold Exchange.

*Months incorporating Golden Week holidays when SGE closed

** Cumulative figure as reported by SGE (Figs don’t tally with month by month figs. as reported by SGE in 2020 suggesting an unreleased monthly correction in H1 2020)


While the August figure might be seen as marginally encouraging in terms of global gold demand, it still suggests that mainland Chinese gold demand for the full year could well fall below 1,000 tonnes for the first time since 2010, thus undoing the huge impact of Chinese demand on gold supply/demand fundamentals.  However if Chinese demand really is beginning to recover – and there appear to be signs that demand from the No.2 consumer nation, India, is beginning to pick up too despite the huge coronavirus impact in that country – it may be happening in the nick of time regarding the stabilisation of the global gold market. 

Up until very recently the drop off in traditional Asian demand has been counterbalanced by huge continuing inflows into the big gold ETFs and buying demand from central banks.  This also appears to have been supported by an uptick in physical gold demand in North America and Europe and a likely coronavirus-related downturn in production from some major gold producing nations, despite apparent production growth in the world’s No. 2 and 3 producing nations (Russia and Australia).  But the ETF inflows appear to have been stuttering a little recently and central bank buying has fallen, despite a big uptick in Turkish buying, with Russia and China (previously the two biggest gold-buying nations) both apparently cutting their gold purchases to zero.

Overall we anticipate that most of the above factors will cancel each other out and lead to perhaps a marginal increase, or decrease, in the global gold supply/demand balance in the current year – but insufficient either way to have much influence on the global gold price.  This is, in our view, likely to be more influenced by continued safe haven demand in the light of COVID-19 based uncertainties and the huge downturns being experienced in global GDPs and economies in general.  All in all we anticipate the trend in the gold price will remain upwards in the short to medium term until the global effects of the coronavirus play out, which will likely not be for some months, if not years.  Gold has hugely outperformed equities so far this year, having risen in price by around 28% year to date (although it has itself been outperformed by the much more volatile silver – up over 50% so far this year).  We anticipate gold’s performance continuing to be positive this year and next, although we do feel the huge increases predicted by some commentators may remain well out of reach.

07 Sep 2020 | Categories: Gold

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