Herewith my introductory paragraphs for my latest article on sharpspixley.com . China’s SGE has stopped publishing withdrawals data as the nation becomes ever more sensitive about the scale of its gold accumulation. In the absence of SGE figures how does one assess the true level of Chinese gold demand and absorption – what goes in doesn’t come back out and there’s far more to China’s gold inflows than suggested by mainstream precious metals consultancies’ and the WGC’s ‘consumption’ figures. In the article I look at true Chinese gold absorption based on known imports, plus domestic gold output, plus scrap which together are hugely higher than the so-called consumption figures publicised in mainstream media.
There have been two schools of thought regarding the measurement of Chinese gold demand – those who have followed the figures put out by the major precious metals consultancies and the World Gold Council, and the hugely higher figures suggested by Shanghai Gold Exchange (SGE) withdrawal figures.
In truth we find the mainstream consultancy and WGC figures increasingly hard to live with, despite the analysts pouring scorn on the SGE figures which, to this observer, look much more likely if one relates them to known mainland China gold imports alone – let alone adding in the nation’s very substantial domestic new gold output. For example, if one goes by mainstream consultancy GFMS China gold consumption figures you find an annual total under the consultancy’s latest report of something well south of 1,000 tonnes for 2015 and with the added comment that Indian consumption was ahead of that for China for the second consecutive year.
But – and this is a big but – it all depends on how one defines consumption. As far as gold jewellery demand is concerned this is probably all very true. But GFMS also comments that Chinese bank holdings of gold increased by as much as 400 tonnes over the first three quarters of the year bringing total bank holdings to some 1,900 tonnes at that time – and presumably to over 2,000 tonnes by the year end. This is all gold being absorbed by the Chinese market in some form or another. Interestingly if China treated its commercial bank holdings in the same way that Turkey does, then the country’s total gold reserves (Central Bank plus commercial banks) would probably be close to 4,000 tonnes, which does correlate pretty well to some estimates of total Chinese gold holdings, rather than the 1,762 tonnes the Central Bank reports to the IMF. ….
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