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LAWRIE WILLIAMS: China gold demand way down year to date

11 September 2019

 

It has been reported that China has been restricting gold imports from April through to July and this seems to have been confirmed by a sharp fall in gold withdrawals from the Shanghai Gold Exchange (SGE) from April through to August.  In the year to August withdrawals of gold from the exchange are running over 15% below those of the comparable months in 2018 when full year withdrawals totalled 2,054 tonnes and over 10% below the first eight months of 2017 when the full year total was also a little over 2,000 tonnes.  Indeed the August figure of 107.73 tonnes was over 40% lower than for the same month last year.  As we noted here back in June 2019 looks like being the first year since 2014 when the total of gold withdrawals out of the SGE has fallen below 2,000 tonnes for the full year.  The latest figures suggest that this year’s gold withdrawals total may well come in at less than 1,800 tonnes.

 

It certainly looks as though the U.S.-instigated trade war is beginning to bite with the Chinese consumer.  We have always measured Chinese gold demand by the reported gold withdrawal figures from the SGE.  This is a consistent measure reported monthly, so does provide comparative figures direct from source rather than estimates of consumption from the major precious metals consultancies, which seem to hugely underestimate known gold flows (published gold import figures from major sources) into the Middle Kingdom plus the nation’s own production.

 

The latest monthly gold withdrawal figures for the past three years are set out in the table below and would seem to confirm that Chinese gold demand this year will be substantially less than in the recent past.  Indeed reports out of China have indicated the gold imports restrictions have cut deliveries of gold into China this year by perhaps close on 400 tonnes, which would serve to confirm our past analysis that SGE withdrawals bear a close correlation with Chinese gold demand as calculated from known imports from countries which report these figures, China’s own gold production plus allowances for scrap conversion and for unknown direct imports.

 

Table: SGE Monthly Gold Withdrawals 2017-2019 (Tonnes)

Month

2019

2018

2017

% change 2018-2019

% change 2017-2019

January

218.54

223.58

184.41

-2.30%

18.51%

February*

  99.77

118.42

148.24

-15.75%

-32.70%

March

 218.03

192.61

192.25

 +13.19%

+13.41% 

April

 151.89

212.64

165.78

 -28.57%

 -8.38%

May

 123.11

150.58

138.08

 -18.24%

 -10.84%

June

 107.45

140.59

155.51

 -23.57%

-30.87% 

July

 129.33

137.41

144.71

 -5.88%

- 10.63%

August

 107.73

190.59

161.41

 -43.48%

 -33.26%

September

 

188.12

214.24

 

 

October*

 

142.94

151.54

 

 

November

 

179.08

189.1

 

 

December

 

178.04

185.21

 

 

Year to date

1155.85

1366,42

1290.23

-15.41%

 -10.42%

Full Year

 

2,054.54

2,030.48

 

 

 

It will be interesting to see how SGE withdrawals hold up for the remainder of the year.  We suspect there will be some more month-on-month shortfalls compared with the recent past.  However, there could be a slight pick-up in December given next year’s Chinese New Year falls a little earlier – on January 25th – and dealers are likely to start building gold stocks in December ahead of the New Year gifting rush.

 

Before the gold follower becomes too despondent over the impact of a fall-off in Chinese demand, it should be noted that this has been more than counterbalanced by a big pick-up in gold ETF investment (see: Gold ETF holdings near record highs. ).  However the recent sharp fall in the gold price might see the ETF inflows reverse again as gainers take profits!

 

Source: https://www.sharpspixley.com