UPDATE: SGE Q1 gold withdrawals at new record – ca. 623 tonnes

It now looks as though Q1 gold withdrawals from the Shanghai Gold Exchange (SGE) will have reached around 623 tonnes – a 10.5% increase on last year’s record figure of 564 tonnes.  The actual figure for the week ending March 27th (no Easter holiday in China) was just under 46 tonnes and that for week ending April 3rd 40 tonnes making the Q1 figure around 623 tonnes (assuming even daily figures across the week).

While mainstream analysts seem to discount SGE withdrawals as being a true representation of actual Chinese demand – although China gold watcher Koos Jansen is adamant from his questioning of Chinese officials that SGE withdrawals and Chinese gold demand are in effect the same.  The argument continues.  But be that as it may SGE withdrawals, whether the same as total Chinese demand or not, are very certainly a strong indicator of year on year Chinese gold flows, so it is very apparent from the latest figures that Q1 demand is very likely to be substantially higher than a year earlier.

It should be recalled though that last year, although Q1 SGE withdrawals reached the previous record level for the period, full year figures fell short of those for 2013 as demand tends to dip through the middle months of the year and in 2014 the mid-year dip was far greater than a year earlier, although the tail end of the year was particularly strong.  It had been thought perhaps that the higher gold prices of the week of March 27th might have put a bit of a dent in Chinese demand, which can be affected by gold price levels, but it obviously still remained strong.

Gold today has pulled back from the latest rise which appears to have resulted from poor U.S. non-farm payroll figures which were well below expectations.  These are seen as an indicator of when the U.S. Fed will start to raise interest rates with most observers now seeing June as unlikely – although there’s always the chance that the Fed will make the move then, but at the minimum level of 25 basis points, to test the waters.  However some see the latest payroll figures as suggesting a rate rise will now not occur until late in the year, if then.  And again, as suggested by metals consultancy Metals Focus in its Gold Focus 2015 report (see: End of bear cycle for gold in 2015 – Metals Focus , even if and when the Fed does make the move, although there may be a knee-jerk downwards reaction in the gold price, this will be shortlived.

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Will Asia take the gold price higher?

Julian Phillips’ latest daily commentary on what is happening in the gold and silver markets and geopolitical factors affecting the prices of gold and silver.

Ahead of London’s opening Asia made the play once again, as the gold price was lifted over $1,214 ahead of London’s opening. When we look back to last week, we saw the gold price unwilling to fall below $1,200 and that was in the absence of Chinese demand. Technical buying in the States was sufficient to hold it there, as the rest of the world was unwilling to push it down, despite the temporary resolution of the Greek bailout crisis. Now that robust demand is back in China and ahead of the Indian budget in the next week we are watching to see if Asia is simply buying at bargain prices or willing to take the gold price higher.

The Greek bailout issue in 4 months can blow open completely again, when the postponement ends. The yoke of oppressive debt will stay with Greece for a very long time unless it takes action to break free and turn its economy around by returning to the Drachma. The Greek Finance Minister has scotched such a possibility saying Greece will do all it can to stay in the Eurozone. So, right now, the Greece issue will no longer have an impact on the gold price, for at least 4 months.

Our attention now turns to India for news that will directly impact the gold price. Smuggling gold is almost institutionalized there for the history of disobeying government and its bureaucrats on gold and the dark side of Indian finances goes back more than a generation. It therefore now makes sense for the government of India to lower duties back to 2% from 10% because the volume of smuggled gold into India will now revert to ‘official’ routes and reflect on the Balance of Payments. With the much lower oil price reducing India’s trade deficit dramatically gold imports can reflect on the B of P without impacting the Rupee, indeed such action may restrain the appreciation of it. So, all eyes are now on Mr. Modi, to see if he lowers duties on gold and boosts gold imports to the country.

Markets and SPDR ETF

New York closed yesterday at $1,204.60 up $2.50. London Fixed the gold price at $1,220.00 up $13.50 and in the euro, at €1,073.660 up €11.6, while the euro was almost unchanged at $1.1363. Ahead of New York’s opening, gold was trading in London at $1,217.00 and in the euro at €1,071.87.

The silver price closed at $16.54 up 22 cents. Ahead of New York’s opening it was trading at $16.82. We suspect that the silver price will not stop following the direction of the gold price.

There were no purchases or sales into or from the SPDR gold ETF but there was a sale of 1.5 tonnes from the Gold Trust on Wednesday. The holdings of the SPDR gold ETF are at 771.249 tonnes and at 166.43 tonnes in the Gold Trust.

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com