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LAWRIE WILLIAMS: Is Chinese gold demand picking up? Plenty of positives for gold and silver regardless.

The latest figure for gold withdrawals for November from the Shanghai Gold Exchange (SGE), which we have always reckoned is the most accurate indicator of fluctuations in true Chinese gold demand, is up for the fourth consecutive month in comparison with a year ago.  But the increase is fairly marginal (around 7%) and still hugely below 2018 levels, which in turn were down on previous years.  Indeed monthly withdrawals have been substantially below those for 2018 every month so far this year. 

Thus Chinese gold demand as represented by SGE withdrawals, could be said to still be running low relative to most years in the past decade and looks likely to end the full year at around the 1,200 tonne level - around half that achieved in the record 2015 calendar year.  For the latest figures, and comparisons with the prior two years, see table below.

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

 Month

2020

2019

2018

% change 2019-2020

% change 2018-2020

January

110.87

218.54

223.58

-49.31%

-50.64%

February*

 28.99

  99.77

118.42

 -71.14%

-75.52%

March

 82.27

 218.03

192.61

 -62.27%

 -57.29%

April

 95.80

 151.89

212.64

 -36.93%

 -54.95%

May

 69.18

 123.11

150.58

 -43.81%

 -54.06%

June

 85.71

 107.45

140.59

 -20.23%

 -39.04%

July

 82.94

 129.33

137.41

 -35.87%

 -39.64%

August

 111.37

 107.73

190.59

 +3.38%

-41.57% 

September

 153.98

 117.08

188.12

 +31.52%

 -18.15%

October*

 94.28

   91.15

142.94

 +3.43%

 -34.04%

November

 127.65

 119.43

179.08

 +6.9%

-28.7% 

December

 158.50

178.04

Year to date**

1,043.03

1,371.08

1,697.48

-23.93%

-38.55%

Full Year

 1,642.01

2,054.54

 Source:  Shanghai Gold Exchange.

*Months incorporating Golden Week holidays when SGE closed

** Cumulative total as reported by SGE

 

Despite the apparent demand fall, China remains comfortably the world’s largest consumer of gold, as well as still being the world’s largest gold producer by virtue of its own gold mining industry plus precious metal byproduct output from its big domestic base metal smelting and refining sector which pulls in concentrates for onward processing from around the world. 

The second largest global gold consumer, India, has also seen a fall in gold demand so far this year.  Chinese demand was hit early on in the year by draconian lockdowns to control the spread of the COVID-19 coronavirus outbreak, while India is one of the countries most affected by the virus at the present time.

However, as the saying goes, ‘it is an ill wind that blows nobody any good’ and despite the apparent big fall-off in Asian demand, this has been counterbalanced by a big pick-up in gold-based ETF purchases - mostly  in the U.S. and Europe.  Indeed according to the World Gold Council (WGC), ETF gold holdings reached a new record high in the third quarter of 2020 with global gold ETFs amassing a total of  3,880 tonnes, with total assets under management of US$235.4 billion  – new record highs in both tonnage and value terms. 

With the recent fairly drastic falls in gold and silver prices, there have been withdrawals from both gold and silver ETFs which have brought holdings down below the previous record levels. But we suspect that they may rise again given precious metals prices seem to be on an upwards path for now, with gold looking that it may make another tilt at the $1,900 level again before too long. 

There are rising hopes of a stimulus package to alleviate the economic problems caused by COVID-19 in the U.S. which could stimulate gold and silver prices again.  We would not be too surprised to see  gold hit perhaps $1,950 and silver $26 before the year end and move higher again early next year if, as seems likely Joe Biden assumes the Presidentship of the U.S. in January, despite the Trump campaign’s best efforts to prevent this.  Joe Biden’s Democrats are in favour of more economic stimulus. Although they may be thwarted by a Republican-controlled Senate if the two remaining Senate seats to be decided remain in GOP hands, but we do feel that a Trump-less Republicab party may be more willing to make some minor concessions.

With demand seemingly beginning to pick up in Asia, albeit very cautiously, the apparent return of central banks to resume small gold purchases – another positive noted by the WGC - and the potential for gold and silver to renew flows into the precious metals ETF sector, things may again be looking marginally stronger for gold and silver prices.  We suspect that next week’s FOMC meeting may also call for increased U.S. stimulus, amidst some dire warnings on the state of the U.S. economy, although we don’t see any change in interest rate policy forthcoming for the moment. 

An announcement of coronavirus vaccine approval in the U.S. – vaccine rollout is already under way in the U.K. and Russia and we doubt the U.S. will be far behind - may prove to generate a temporary hiatus in precious metals price rises, but when the realisation strikes home of how long it may take for a vaccination programme to have any serious positive impact on the U.S. economy, any euphoria generated by such an announcement will likely rapidly dissipate.

In short we thus expect gold and silver to resume their upwards path pattern into the New Year, albeit the speed of progression may well be more muted than we had been predicting earlier.  Hold the faith!

08 Dec 2020 | Categories: Gold, Silver

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