The latest gold withdrawals figure out of the Shanghai Gold Exchange of 52.83 tonnes for the trading week ended 25th December brings total withdrawals year to that date of 2,555 tonnes, with four trading days to go until the year end. Given that this tends to be a strong time of gold demand in China in the runup to the Chinese New Year, which this year falls on February 8th, and if we assume similar delivery levels over the final few days of 2015, total gold withdrawals out of the SGE for the full year should end at between around 2,590 – 2,610 tonnes. While some analysts reckon that SGE withdrawal figures do not represent actual Chinese demand (mainly due to interpretations of what actually constitutes demand), others disagree. And the Peoples Bank of China, in its own statistics, does indeed seem to equate SGE withdrawals with national consumption.
We were predicting a full year SGE withdrawals total of around 2,650 tonnes back in September. See: Latest SGE gold deliveries suggest enormous 2015 total of over 2650 tonnes! In the event the figure is not going to be quite this high as withdrawals from the Exchange have slowed a little over the final quarter of the year – although have still remained very strong, but not as high as the exceptional figures being reported in Q3. Nevertheless, as we have been reporting all along, the full year total is going to be a massive new record – over 400 tonnes higher than in 2013, previously the highest year ever for SGE gold withdrawals. This annual figure also equates to around 80% of global new mined gold output.
If Chinese demand holds up in 2016, along with central bank purchases – mostly by China and Russia – and Indian imports, we anticipate gold prices coming under pressure as the supply/demand balance looks like being in deficit given scrap sales and divestment out of the gold ETFs are both falling and new mined production will likely be flat, or perhaps beginning to decline.
It should be noted though that the decline in global new mined gold output has not so far materialised to the extent that many analysts had suggested, largely due to the gold price not falling nearly as much in many major producer currencies as it has in the US Dollar. With mining costs mostly incurred in the local currency, but with the media fixated on the gold price fall in the US Dollar alone, gold mining economics are not quite as dismal as the media, and some analysts, would have us believe. See the Table below for what has happened to the gold price in the top 10 major gold producer currencies over 2015.
||Gold output 2014 (tonnes)
||Gold Price change over year (%)
Source: 24hgold.com, lawrieongold.com
With only two of the top 10 gold producing nations seeing any kind of significant gold price decline, and seven actually seeing a higher gold price in their own currencies over the full extent of the year, yet receiving their revenues in US Dollars, all is not quite as many analysts predicted. While this might suggest that gold output will carry on rising instead of falling, this is not the case either as capital expansion programmes and new project developments have been severely curtailed through lack of availability of finance, while many older mines seeing reserves depleted, or ore grades falling, will still be closing down due to the aging process. These are not going to see new projects or expansions coming on line to replace them. Up until around now, new projects which were already well into the production pipeline had been adding more output thus replacing the aging assets which have had to close. But these new projects and expansions are now mostly at full production levels so the downturn in global new mined output is now only just beginning.
All this suggests a supply squeeze ahead in physical gold. This is already being seen in terms of declining gold inventories in the US and the UK – the sources for most of the gold currently flowing from West to East. The other major source of stockpiled gold, the big gold ETFs, are also seeing slowing outflows. 2016 could see this all coming to a head with a strong positive impact on the gold price by the time this new year comes to an end.