China Gold Demand Up 17% YTD

SGE gold withdrawals have hit 374 tonnes in the first six weeks of the year – a record level in the run up to the Chinese New Year holiday.

With another 59 tonnes of gold withdrawn from the Shanghai Gold Exchange (SGE) in week 6, Chinese demand, as represented by the SGE, is already up 32% on last year at 374 tonnes (as against 320 tonnes a year ago) – and last year’s first six weeks were a previous record, although perhaps not directly comparable as the New Year holiday fell a little earlier in 2014. With this year’s holiday period now in full swing, and with the SGE closed for the week long duration, we are going to see something of a fall-off, which is probably one of the factors adversely affecting the global gold price over the past week. If you take this much gold demand off the market then prices are almost certain to weaken, although it is gold in the pipeline from the West to China and other points East which should be setting the pattern and this will still be substantial.

Gold analysts believe, not without reason, that Chinese demand will now fall off in intensity perhaps through to the beginning of Q3 as it did last year, once the New Year gift giving is out of the way. Thus SGE withdrawals once market activity re-commences effectively in ten days’ time, will be followed particularly closely by those looking to try and assess the likely level of overall Chinese demand in 2015. While the country’s economy is seen as slowing down considerably, it is not considered to be in recession so there has still been a continuing build-up of wealth and in those seen as entering the middle classes who have particularly embraced a gold-buying culture.

As Frank Holmes of US Global Investors puts it in his latest blog post on www.usfunds.com published yesterday in an article titled ‘Mind-Blowing: China Consumes More Gold Than the World Produces’:

“China, along with India, leads the world in gold demand. This Chinese New Year is no exception. Official “Year of the Ram” gold coins sold out days ago, and since the beginning of January, withdrawals from the Shanghai Gold Exchange have grown to over 315 tonnes [with the additional 59 tonnes mentioned above to add to this in week 6 since his article was written], exceeding the 300 tonnes of newly-mined gold around the globe during the same period. China, in other words, is consuming more gold than the world is producing.

“What’s not so well-known—but just as amazing—is that China’s supply of the precious metal per capita is actually low compared to neighboring Asian countries such as Taiwan and Singapore.  The World Gold Council (WGC), in fact, calls China “a huge, relatively untapped reservoir of gold demand.”

“This might all change as more and more Chinese citizens move up the socioeconomic ladder. Over the next five years, the country’s middle class is projected to swell from 300 million to 500 million—nearly 200 million more people than the entire population of the United States. This should help boost gold bullion and jewelry sales in China.”

WGC figures noted that Chinese jewellery and investment demand was down 32% last year, but as we have pointed out here this does not gel with the high SGE withdrawal figures over the year which suggested overall gold demand down only 2% year-on-year with a big surge in Q3 and Q4. The WGC says much of this additional gold flowing into mainland China could be down to demand from commercial banks for financial reasons, but in our view, demand is demand, and wherever it is ending up, and for whatever reasons – in private hands or in bank vaults – this is still gold that is no longer freely available to the market.

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Courtesy of http://lawrieongold.com/