Despite Higher Gold Price Chinese Demand Still Surging

The latest SGE withdrawal figures show withdrawals of 70 tonnes for the week ending January 16th – the third highest weekly figure ever.

The recent rise in the gold price, now standing at just below the $1300 mark, does not yet appear to have put a dent in Chinese gold demand as represented by withdrawals from the Shanghai Gold Exchange (SGE).  Indeed it appears to be picking up even further in the weeks ahead of the Chinese New Year which falls on February 19^th this year.  If demand continues at the current rate, January will be a very strong month indeed despite the loss of a few trading days at the beginning of the month for the calendar New Year.

The SGE thus reports withdrawals for the week ending January 16^th at 70 tonnes – well ahead, for example, of the weekly average level of global newly mined gold output which is around 58 tonnes.  Nick Laird’s www.sharelynx.com website – see chart below – notes that this is the third highest weekly SGE withdrawal ever, only being exceeded by a single huge demand week of well over 100 tonnes in the record 2013 year and also exceeded strongly in the first week of 2014 which will have been boosted by pent up demand from late December holiday market closures, and ahead of a Chinese New Year which fell at a much earlier date (January 31^st) meaning that sales ahead of the Lunar New Year date will have been concentrated into a shorter period.

Section of SGE Withdrawals chart showing weekly volumes over past six years

Chart courtesy of www.sharelynx.com and www.goldchartsrus.com

The above chart gives us an excellent graphical indication of the overall strength of demand in China over the last four to five months, following a fairly weak period (for China) in the second and third quarters compared with a year earlier.  But it is also notable that Q4 demand running into the beginning of the current year was at least as high – indeed higher overall – than it was in the same period of the record 2013 year!

Add to this a rise in Western demand over the first few weeks of the year (the SPDR gold ETF has been seeing inflows in the U.S. and there is anecdotal evidence of renewed safe haven demand in Europe and the likelihood of so far unreported (it’s too early to see any official figures yet) central bank purchases and gold demand is running substantially ahead of new supply at the moment, even if Indian gold demand seems to have slipped back after its strong Q3 and Q4.

But it’s probably not the supply demand balance which is driving the recent gold price surge, but a confluence of geopolitical factors which is creating a change in attitude towards gold, generating short covering which is currently overtaking any other machinations in the gold markets.  Should the spate of unforeseen events which have already occurred this year – see: 2015 Black Swans abounding – Safe Haven gold to benefit – diminish and once the Chinese New Year is behind us, it remains to be seen whether the recent gold price momentum falters.  As I write the Greeks are going to the polls and if the left wing, anti-austerity, Syriza party gains a majority sufficient to rule on its own that will unleash another period of uncertainty over a possible Greek default and perhaps exit from the EU.  As we said in an earlier article – Interesting times!

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Courtesy of http://lawrieongold.com/