It was just over one month ago that we noted that the Shanghai Gold Exchange had replaced publishing weekly gold withdrawal levels in favour of only reporting these monthly (See: SGE IS publishing gold withdrawal figures – but only monthly), and it has just published its figure for the month of February. While it is always difficult to compare figures at this time of year with other months, due to the impact of the week-long Chinese New Year holiday when markets are closed for a week, it does indeed appear that Chinese gold demand, as represented by SGE withdrawals, may indeed have cooled off. Whether this may have been because of the market closure, a reduction of confidence in the domestic economy amongst Chinese gold buyers, or because of the rising gold price, is too early to say. We probably need to wait for a few more monthly figures to come in before we can detect any significant trend developing. In the event, the February figure came in at 107.6 tonnes as compared with 156.4 tonnes a year earlier and 225.1 tonnes in January.
Be this as it may, comparing combined January and February 2016 withdrawals from those for the same two months of 2015 when withdrawals levels hit a huge new record, this year’s figures are indeed substantially lower at 332.7 tonnes as against 411.8 tonnes for the first two months of 2015. This is a fall of 19.2% over a period which should iron out any differences in the actual New Year holiday dates (this year’s New Year holiday fell nearly two weeks earlier than in 2015). Because of the holiday period one could thus expect figures to fall away in February anyway – but last year the later holiday may well have seen any buying surge ahead of the holiday extend further into February than during this year thus increasing last February’s figures. So the fall of 51% from January to February this year may not be as significant as the high fall level would suggest, nor the fall in the February year on year level of 31%. Roll on March for the next indicator probably due out during the week ending April 8th. However, we would be surprised if March doesn’t also show some year on year downturn. Anecdotal evidence does indeed suggest Chinese gold buying has been weaker so far this year.
However, to set against this, the big demand as represented by the increase in investment in the major gold ETFs does mean that any surplus physical gold not finding its way into India (where demand was also weak ahead of the budget at the end of last month) and China has been finding its way instead into the bank vaults where the ETFs’ gold holdings are stashed. Without this it would have been remarkable that the gold price would have risen so far so fast this year in the absence of a good percentage of Asian demand.