For the second week in a row Chinese gold withdrawals from the SGE have exceeded 70 tonnes – on its own well in excess of global new mined gold supply
The Shanghai Gold Exchange has reported gold withdrawals for the week ending Jan 23rd at 70.62 tonnes – a figure on its own comfortably in excess of global newly mined gold over the same period. China watcher, Koos Jansen, describes the volume withdrawn as ‘staggering’ on his www.bullionstar.com blog but while we might not go as far as that given that it’s only the third largest weekly withdrawal figure from the SGE ever (just surpassing the previous week’s 70.0 tonnes) it’s still well below the April 2012 number of over 100 tonnes following the huge gold price dive of that month.
We are in the long run-up this year to the Chinese New Year which falls on February 19th when gold gift giving tends to be at high levels, thus accounting for the apparent surge in demand among the Chinese public, and there is thus the prospect of withdrawals continuing at a very high rate for the three weeks between the latest report and the Lunar New Year date itself. We would perhaps be surprised if demand remains at the 70 tonne/week level for this period, but with China who knows?
Jansen, comments that in his view the latest figures are remarkable in that they have happened during a period of rising gold prices whereas the assumption had been that the Chinese tend to buy on gold price dips. But, compared with three years ago even the gold price remains relatively low which may well be continuing to make gold purchasing attractive to the Chinese public, which after all has been being encouraged to buy gold and silver by media advertising by the big state-owned banks over the past five years. We reported on this on Mineweb.com back in September 2009 in one of the most read Mineweb articles ever – see: China pushes silver and gold investment to the masses – and ever since then Chinese gold purchasing has soared, although the gold price has not kept up with this demand for the past three years.
Many believe there has been a concerted programme to suppress the gold price through paper gold manipulation on COMEX. Some also believe that China is happy with this given that it has enabled gold purchases at a level which it considers cheap in the long term. This accompanied by the suggestion that China has been surreptitiously using its vast foreign currency related holdings – estimated at over $3 trillion – to quietly build its own gold reserves with the aim of surpassing the U.S.’s reported 8,133.5 tonnes as reported to the IMF, and may only disclose its true gold holding when it has reached, or breached, this level.
The latest reported Chinese buying, though, which has reached 202 tonnes in just 3 weeks, must be significant in global gold supply/demand patterns, although this tends to be hugely downplayed by most mainstream analysts. As we have noted before, we consider SGE withdrawals as representing true Chines gold consumption. We are also given to believe that the Chinese Central Bank does not purchase gold through the SGE, although if it does then that could account for the apparent huge disparity between mainstream analysts’ projections and the SGE withdrawal figures. But either way there is still obviously a huge physical gold flow from the West into China and one wonders how much longer this can go on until shortages of physical metal start to impact the western gold markets in a very big way!
We do expect Chinese gold demand to fall off sharply, though, once the Lunar New Year is past, but China probably only accounts for half global gold demand anyway so there will remain what we see as a big new supply/demand imbalance regardless.