SGE gold withdrawals an enormous 1464 tonnes so far this year

While physical gold withdrawals from the Shanghai Gold Exchange (SGE) in the latest reported week were lower than the massive 72 tonnes a week earlier at 53 tonnes it remains high for the time of year.  But the key to what has been happening with Chinese demand as represented by SGE withdrawals is where the total for the year to end-July stands compared with previous years.

Looking at this metric we can see from the chart below that SGE withdrawals this year so far have totalled a massive 1,464 tonnes – which is running around 116 tonnes ahead of the huge record 2013 year at the same time and an enormous 370 tonnes ahead of the 2014 figure at the end of July when the annual total came to 2,136 tonnes.  If the average monthly withdrawal level (49 tonnes a month so far) for the current year keeps up we will be looking at annual withdrawals totalling more than 2,500 tonnes for the full year – and with Chinese demand tending to be strongest in the last four months and the first two months of the year this level could indeed be a possibility.

If we compare this potential level of annual demand with the likely total of new mined gold this year, China would account for around 75% of the yearly total on its own!

sge jul

 

Chart from Nick Laird’s excellent sharelynx.com website

These high SGE withdrawal levels do not necessarily mean that the gold price will pick up accordingly, as witness what happened in 2013 when the SGE figure hit a then record 2,186 tonnes, yet the gold price collapsed from $1681.50 at the beginning of the year to $1201.50 by the year end.  However what we are seeing are continuing huge gold flows from West to East (Indian gold imports too are predicted to hit over 1,000 tonnes again this year) which will continue to run down gold inventories in the West, where the price tends to be set.  At some stage any loosely held Western physical gold holdings will be depleted to the extent that the low levels will almost certainly have a positive impact on the gold price – although by that time it may well be China which is setting the price anyway.

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Gold price set by US but buying is in Asia and elsewhere

My latest article on Mineweb looks at  the hugely anomalous situation whereby the gold price is effectively set by the U.S. market, but gold demand is virtually all elsewhere – primarily in Asia where, of course, China and India dominate.  The price currently fluctuates around U.S. economic data and whether this is likely to lead to the Fed raising interest rates sooner rather than later, but where the gold is being bought whether U.S. interest rates may rise a quarter of a basis point in June, September or whenever is a total irrelevance.

China in particular is well aware of this and is making moves to have more control over gold price setting itself, and it is interesting also that many of its recent initiatives – the latest being the setting up of the $16 billion Silk Road gold fund – involve gold.  China certainly sees gold as playing an increasing role in global finance and trade, and here it is aligned with Russia which has been adding to its own gold reserves on a regular basis.  It is widely believed that China is doing so too, but without reporting the additions to the IMF until it deems it politically expedient to do so.

China also feels that the U.S. in particular is trying to sideline it economically, as the former is worried about the latter’s potential impact on the U.S.’s hitherto dominant position in world trade through the dollar’s use as the world’s reserve currency.  China want the yuan to have a much greater role – and if it sees this as being blocked by the U.S. it sets up parallel institutions to rival the U.S. dominated ones – the Asian Infrastructure Investment Bank is a prime example which could grow to rival the World bank and the IMF.  There is also a belief that China may be preparing to set up a rival to the IMF’s super currency – the SDR – if it blocked from becoming part of this currency basket again this year.

Interesting times in the global financial sector.#

To read the Mineweb article click on: Gold: The U.S. sets the price but Asia does the buying

Chinese and Indian growth targets will benefit gold hugely

Julian Phillips’ daily roundup of what is happening in the gold and silver markets and the market forces driving them

The gold price remains under the influence of arbitrageurs working the gold price, the euro and the dollar exchange rates even after the announcement, with details of the E.C.B.’ quantitative easing policies. The immediate impact of this statement and following details was to see the euro continue to fall, as Draghi wants. The process of digesting the statements will continue today and fully impact next week. In the meantime, gold is now sitting just below $1,200 but not so far as to break down.

Please note that the dollar index has jumped this week to 96.80 a new high. But gold has just about kept pace with the rise, taking gold up against all other currencies.

Asia too has been lackluster this morning. The government of China announced yesterday that growth [GDP] will only target 7% this year. This number does not tell the full story at all. The government has built the infrastructure for the nation, now it needs to get its people to use it fully and develop a consumer [demand] driven economy that brings with it sustainable growth. This is the hard part. But from a gold investor’s standpoint this is positive news as it is the new wealth and the growing wealth of the current middle classes that will buy gold. Efforts to increase their wealth, as is the target of the government, will benefit gold hugely. Bear in mind a greater Chinese level of demand for gold will take it beyond the capacity of the gold market supplies to satisfy it.

With Modi’s government in India setting similar goals for his middle classes Indian demand for gold will steadily increase too.

ETFs and Markets

There were no sales or purchases from or into the SPDR gold ETF or the Gold Trust yesterday. The holdings of the SPDR gold ETF are at 760.799 tonnes and at 165.46 tonnes in the Gold Trust.

New York closed at $1,198.00 down $1.40 in a thin market still dominated by currency issues. Asia took the gold price up slightly to $1,198.90 before London pulled it down to $1,194. London then Fixed the gold price at $1,196.50 down $3.25 and in the euro, at €1,090.602 up €4.561, while the euro was at $1.0971 down nearly three quarters of a cent again. Ahead of New York’s opening, gold was trading in London at $1,196.40 and in the euro at €1,093.25.

The silver price closed at $16.21 up 3 cents. Ahead of New York’s opening it was trading at $16.05. We feel that the silver price may well drop much faster than gold if the gold price falls further, but as Asian demand comes in we expect the silver price to recover quickly once more.

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