Despite some talk that India may have re-overtaken China as the World’s largest gold consumer, gold withdrawals out of the Shanghai Gold Exchange (SGE) continue to contradict this enormously. The Chinese themselves have stated that SGE withdrawals – all physical gold which, under SGE rules, cannot be returned to the Exchange for resale – are totally representative of Chinese gold demand. So the SGE figures, which are published weekly, in our view remain as the most readily available measure of true Chinese gold demand. As SGE figures nowadays include withdrawals from the Exchange’s international section, the SGEI, (which are not necessarily landed in China at all) the actual Chinese mainland demand figure may be a little lower than the overall total may suggest, but the SGEI withdrawals are believed to be a very small maximum of up to 5 tonnes, probably less), so the latest overall SGE withdrawals, which are running at a huge level, indicate massive internal demand running up to this year’s Chinese New Year, which is still nearly 3 weeks away (on February 19th).
The latest total withdrawals figure from the SGE, for the week ending January 23rd, was a huge 70.62 tonnes – even larger than the previous week’s 70.00 tonnes which was until now the third highest weekly figure ever. This means that withdrawals from the Exchange for the first 3 weeks of the year have come to over 200 tonnes – and with total global new mined gold production running at around 60 tonnes a week according to the latest GFMS estimates, this shows that the SGE on its own is accounting for comfortably more than this so far this year. GFMS has also seen a fall in global scrap supplies – the other main contributor to the total world gold supply – which it sees as continuing through 2015 so the Chinese SGE withdrawal figures so far are, on their own, accounting for around 85% of ALL new gold available to the market. So where’s the rest of the world’s (including India) gold supply coming from?
January is usually a particularly strong month for Chinese gold demand in the period immediately prior to the Chinese New Year holiday which is accompanied by gift giving in which gold ornaments and jewellery play an important part. But what is particularly significant about this year’s apparent demand is that it has occurred within a rising gold price scenario. That demand remains particularly strong is also shown by the fact that Shanghai gold premiums have stayed positive throughout according to reports, while gold-buying business at Chinese shopping malls has seen some ‘stampede’ situations arising according to the Chinese press.
Demand is certain to slip back once the New Year holiday is past, but the figures to date – as they did at the tail-end of last year when demand was also running strongly – make something of a mockery of prevailing gold price levels dominated as they are by paper gold transactions on COMEX. In any logical market an excess of physical demand over physical supply would lead to strong price increases. Star Trek’s Mr Spock would thus be very confused by today’s gold price logic!