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LAWRIE WILLIAMS:Chinese gold demand up 3.5% on 2016 ytd but way down on 2015

The latest gold withdrawal figures from the Shanghai Gold Exchange(SGE) suggest that demand is up on last year’s figures by 3.5% in the seven months to July, but even further down on the record 2015 figure which was almost 23% higher at this time of year.  We would expect this gap on 2015 to widen further through the current quarter as month by month SGE gold withdrawal figures were particularly strong at this time two years ago.

While SGE withdrawal figures are contentious as far as Chinese gold demand estimates go, they do equate to demand as delineated in the Chinese Gold Yearbook and the annual total is far closer to the sum of known Chinese gold imports (from official data from gold exporting entities) plus China’s own gold production, plus a small estimate for recycled gold, than estimates of Chinese demand by the major precious metals consultancies which seem to be restricted to certain demand parameters.  In other words, the SGE gold withdrawal figures are far closer to known gold flows into the Chinese mainland.

Table: SGE Monthly Gold Withdrawals (Tonnes)

Month

2017

2016

2015

% change 2016-2017

% change 2015-2017

January

184.41

225.08

255.42

- 18.1%

 -27.8%

February*

148.24

107.60

156.36

+37.8%

-5.2%

March

 192.25

183.24

213.35

 +4.9%

 -9.9%

April

 165.78

171.40

195.45

 -3.3%

 -15.2%

May

 138.08

147.28

162.15

 -6.2%

 -14.8%

June

 155.51

138.51

195.67

 +12.3%

-20.5%

July

 144.71

117.58

285.50

 +23.1%

 -49.3%

August

 

144.44

265.27

 

 

September

 

170.90

259.98

 

 

October

 

 153.25

176.29

 

  

November

 

 214.72

202.71

 

  

December

 

 196.37

228.21

 

    

Year to date

1128.98

1090.39

1463.90

+3.5%

- 22.9%

Full Year

 

 1,970.37

2,596.37

 

 

Source: Shanghai Gold Exchange, Lawrieongold.com

Overall, given the second half of the year tends to be stronger in terms of demand than the first, it looks as though Chinese full year demand this year will be in the order of 2,000 tonnes, based both on SGE withdrawal levels and known gold flows plus domestic supply.  With India perhaps heading also for inwards flows of 1,000 tonnes plus (if one includes smuggled gold, which is thought to be significant), we will again be in the situation where China and India alone will account for virtually all new mined gold production, which looks like coming in this year at perhaps 2% below last year’s estimated annual total of around 3,250 tonnes (See: Top 20 Gold Producing Nations See Small Gain in Output in 2016)This all means that the remainder of global demand needs to be satisfied by recycled gold or from above ground stocks including gold ETFs, central bank holdings and hoarded gold, although the latter tends to be in strong hands and needs a very substantial price increase for any of it to be released.

In the context of supplies from ETFs, the recent sales of gold out of GLD, the world’s biggest gold ETF without leading to lower gold prices, may be significant suggesting perhaps a shortfall of physical gold needed to meet Eastern demand. (See: GLD bleeds 71.58 tonnes of gold in just over a month).

Thus overall, the latest figures coming out of the SGE, suggest that Chinese demand, which is hugely significant in the global gold demand and pricing scenario, is holding up well in relation to a year ago – indeed may even be a little stronger, although well short of the 2015 calendar year when the full year total for SGE withdrawals totalled nearly 2,600 tonnes – or around 80% of global new mined supply that year.  Gold flows into China have been the most significant factor in global supply/demand fundamentals over the past several years.  If they continue at current, or higher, levels, as looks likely, they are bound to lead to a significant supply squeeze which will eventually overwhelm the forces which seem to be trying to restrict the yellow metal’s price rises.  We suspect that this means gold prices will overall move onwards and upwards, but not without the occasional stutter as has been the case in recent years.

04 Aug 2017

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

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