China’s very strong gold demand start to 2015 - 61 tonnes in week 1

Lawrence Williams

The SGE has reported a very strong, but perhaps not exceptionally so, start to Chinese gold demand in 2014 with 61 tonnes withdrawn from the Exchange in the year’s first trading week. Article submitted to

Gold withdrawals from the Shanghai Gold Exchange (SGE)  have been picking up even further ahead of the Chinese New Year, but at 61 tonnes in the first full week of 2015 (January 4th to 9th) cannot be described as exceptionally high – not compared with last year for example when withdrawals in the week from January 5th to 10th came to a shade under 80 tonnes.  But, as we’ve pointed out here before, the date of the Lunar New Year falls over 2 weeks later this year than it did last, so the build-up of gold buying ahead of the actual holiday could well prove to be a little lower week-on-week anyway being spread over the additional 19 days compared with a year ago when the Lunar New Year fell at one of its earlier possible dates (January 31st).  Chinese domestic demand may even be a little lower than the SGE figures suggest at about 58 tonnes as an estimated 3 tonnes was moved through the International section of the SGE, the SGEI, which handles gold trade which is not part of the domestic market.  (The SGEI only came into being later last year.)

What effect the recent rise in the gold price will have on Chinese demand over the remaining runup to the actual New Year date remains to be seen.  Shanghai gold premiums were running at a highish level – around $7/ounce – ahead of the recent price rise.  Week-on-week demand may now thus fall back a little if current gold price levels are maintained while the higher prices are digested by the Chinese buying public.  But overall we would expect purchases to remain at an elevated level over the next four weeks ahead of the holiday when it is traditional to give gold, gold jewellery and gold trinkets as gifts.

While China is seen to be in something of an economic downturn, it should be remembered that the nation’s GDP is actually still growing, but at a much slower rate than during its massive growth phases of a few years ago.  The official target is for a little over 7% GDP growth this year and even if this level is not achieved, growth will remain which suggests the accumulated wealth of the Chinese people will be growing too with more people being drawn into the potential gold purchasing arena.

It sometimes seems that the true extent of Chinese gold demand, as represented by withdrawals from the SGE, is just not fully understood by the Western gold markets.  Koos Jansen, who probably follows the Chinese figures closer than anyone, has just published a chart on of Chinese monthly gold demand set against global new mined gold production.  The chart is appended below – I think Mineweb readers will find it interesting as it demonstrates how dominant China is in terms of soaking up much of annual total global new gold supply.  It does not take scrap supply into account, but this has been falling back over the past couple of years due to the lower gold price – and of course China on its own only accounts for around half of total global gold consumption!

Actual gold imports are obviously a separate element from total domestic demand.  Chinese imports are estimated to be around 1,200 to 1,300 tonnes last year, while production from its own mines may come out to be as much as 450 tonnes, with the balance being taken up by domestic recycling of scrap.

 Chart published courtesy of

The other thing the above chart shows is the almost inexorable growth of gold demand within China over the past 5 years and further demonstrates what has to be a huge flow of gold from weaker hands in the West to what are deemed to be far stronger hands in the East.  Jansen in his latest article on bullionstar delves rather further into this gold flow examining statistics on gold exports to China from the world’s major gold trading countries.

If we add some of the other major gold importers into the picture – notably India which on several months last year showed imports actually exceeding those of China – the figures suggest a huge drain of physical gold into Asia.  This thus shows a draining of supplies that are not being replenished by new mined global gold – the balance being provided by scrap and, over the past couple of years, by liquidations from the major gold ETFs held in the West.

In 2013 the supply of gold to the markets from the ETFs was substantial, at as much as 880 tonnes by some estimates, while net sales out of the ETFs last year fell to perhaps less than a quarter of those seen in 2013.  The prospects of further sales out of the ETFs are diminishing unless there is a major gold price crash as more and more the gold ETF holders remaining are seen as being there for the long term with the weaker holders having mostly liquidated their positions.


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