LAWRIE WILLIAMS: Jan SGE gold withdrawals hold up in short month
January’s Shanghai Gold Exchange gold withdrawals totalled 184.4 tonnes, admittedly down on the high 2016 figure of 225.1 tonnes which was the biggest monthly total of last year, and also well down on 2014 and 2015 figures, but…… This year the Chinese New Year fell early – on January 28th which meant the SGE effectively ceased trading on the 26th and restocking by traders and fabricators would have been running down by then anyway, so the 184.4 tonne figure suggests that gold demand during the month was reasonably strong – borne out by the exceptionally high export figures for Swiss gold flowing into the Chinese mainland in December of 154 tonnes (See: China 154, Hong Kong 39. Swiss Dec gold exports show remarkable gold flows. Together with Hong Kong net gold exports to the mainland of 47 tonnes, these two countries/regions alone exported over 200 tonnes of gold into the Chinese mainland during December, while China’s own gold production will have added around a further 35-40 tonnes and there will also have been other direct imports from gold producing/trading nations around the world. China’s gold demand remains high.
For now the jury remains out as to whether Chinese gold demand, as represented by SGE gold withdrawal figures, will rise or fall this year. With the Chinese on holiday until last Thursday (Feb 2nd), February will also be a short month for SGE gold withdrawals too, but not as short a trading month as last year when the Lunar New Year fell on February 8th and SGE gold withdrawals totalled 107.6 tonnes. We should, however, be able to get an indication of current relative demand strength by the end of February by adding the first two months’ figures together and comparing those with previous years. We suspect withdrawals may well prove to be at least on a par with 2016 figures, but probably still well down on those for the record 2015 total. However what kind of anti-China stance President Trump may take, given his campaign rhetoric, may well influence Chinese gold purchasing levels through the year with uncertainty of the economic effects of any anti-China trade moves driving Chinese investors into gold as the ultimate safe haven..
So far, President Trump has surprised many political commentators by sticking pretty rigidly to his campaign promises, which doesn’t bode well for U.S./China relations. We could thus see political, economic and military confrontations none of which would do anything for global stability. Indeed that particular scenario has to be one of the more worrying potential aspects of the Trump Presidency, and could be, if it eventuates, as damaging for the U.S. economy as for the Chinese in that it would likely see an acceleration of counter moves by the latter to further enhance the positional status of the yuan in global trade at the U.S. dollar’s expense.
China has already been setting up bilateral trade agreements accepting payments in yuan, thus bypassing the dollar and most worrying for the U.S. in this respect will be oil trade deals with Saudi Arabia and Russia – the first real challenges to the petrodollar which has reigned supreme in global oil trade for over 40 years. If you wanted to buy oil you had to pay for it in U.S. dollars which meant that all net oil consuming nations needed to hold major reserves of U.S. dollars or treasuries to pay for the black gold. We are now reportedly already seeing net liquidations of U.S. dollar assets by China, Russia and Saudi Arabia and if China accelerates it bilateral trade agreements other nations may follow suit – nervous about the U.S.’s enormous debt position. This could bring about a serious dollar devaluation against other currencies – and in particular against gold which could be the major beneficiary.
All the above is speculation, of course, but forewarned is forearmed and it may well be worth holding some gold as insurance – the Chinese are likely doing this already!