The Shanghai Gold Exchange’s announcement of the full year figure for gold withdrawals for calendar 2015 show that a huge new record of 2,596.4 tonnes was taken out – 19% higher than the previous record of 2,182 tonnes recorded in 2013. This is just short of the 2,600 tonnes we had been estimating. In the four days of trading in the final week of the year 40.94 tonnes were withdrawn – suggesting around 50 tonnes for a full 5-day week including Jan 1st – which is pretty much on par with other recent weekly withdrawal figures despite any minor disruption from the big Christian Christmas holiday period which has little, but possibly some very minor, impact on Chinese domestic trade. This time of year does seem to see strong gold withdrawal levels from the SGE in the buildup to the Chinese New Year – a traditional time of gift giving in the Middle Kingdom of which gold ornaments and jewellery tend to figure strongly. This year the Chinese New Year falls on February 8th.
Here’s Nick Laird of Sharelynx’s chart setting out the SGE withdrawal figures for the past eight years, which demonstrates nicely the huge (and very consistent apart from a blip in 2014) upwards trend in withdrawals as China’s economy has continued to grow and individual purchasing power has grown with it. The growth in the economy may be slowing down, but it is still growing at a rate which any Western Government will envy enormously.
While the Chinese central bank – the People’s Bank of china (PBoC) – seems to equate SGE withdrawals to total Chinese demand, Western analysts tend to suggest that the actual figures are considerably lower and come up with various, and differing, reasons for the possible discrepancy. Indeed their consumption estimates may well prove to be around 1,500 tonnes lower than those the SGE withdrawals figure might suggest.
As we have noted before, a significant proportion of the difference is down to how the analysts estimate ‘consumption’. Demand categories such as gold used in financial transactions tends to be ignored by the analysts, yet this is still gold flowing into China and in terms of gold movement from West to East remains hugely relevant.
But these same western analysts also seem to ignore the evidence of known Chinese gold import figures and China’s own gold production. Together these look as though they will have totalled just short of 2,000 tonnes in 2014. It seems strange that in the age old argument as to which country is the world’s largest gold consumer – China or India – that the analysts pretty well equate India’s reported gold imports as that nation’s consumption, while not applying the same principle to China’s known gold imports plus its own domestic gold output (reckoned to be around 470 tonnes in 2015).
Whatever the analysts may suggest, SGE withdrawal levels in comparison with previous years, have to be a good indicator of total Chinese demand (excluding Central Bank purchases which apparently don’t go through the SGE). Thus it appears Chinese gold demand remains very strong indeed despite the sharp fall in the country’s GDP growth over the past year.