August is always a weak month for physical gold moving through China’s Shanghai Gold Exchange – or rather it has been up until now. The big months for SGE withdrawals are normally at the beginning and the end of the year ahead of The Chinese New Year holidays, while trading in the summer months is usually thin.
But not this year! Gold moving through the Exchange this August has totalled a phenomenal 301.96 tonnes bringing the year to date total to 1,718.2 tonnes, some 219 tonnes more at the same time of year than in 2013 when China consumed a record amount of gold by even according to the consistently much lower consumption estimates by the major precious metals analytical consultancies.
The chart below from Nick Laird’s www.sharelynx.com website sets out the current picture comparing cumulative SGE withdrawals at this stage of the year in comparison with previous years:
This all flies in the face of media reports and estimates from the major gold analysts who all tell us that Chinese consumption, by their estimates, has been significantly lower so far this year than last year, let alone compared with the record 2013 year’s figures.
The question thus is where on earth is the physical gold moving through the SGE coming from – or going? The Chinese themselves tend to obfuscate on what really represents domestic demand. One official element from the Peoples Bank of China/SGE tells us that SGE withdrawals represent the true demand position while the China Gold Association tends to quote the considerably lower World Gold Council figures, which in the past have been produced first by precious metals consultancy GFMS, and most recently by Metals Focus. The differences between these latter figures and SGE deliveries seems to be ever increasing. China gold specialist, Koos Jansen, sets this all out in considerable detail in an article published earlier this year: The Mechanics Of The Chinese Domestic Gold Market. This addresses the demand metrics used by GFMS, and demand as represented by the SGE withdrawal figures, which differ enormously.
But, as pointed out before, whether physical gold deliveries out of the SGE equate to total Chinese demand or not – depending on the metrics used – they have to represent an overall indication of the trend, and on that basis demand would appear to be running way higher than the reports from the consultancies and in the media would suggest. If SGE withdrawals continue at the average rate recorded so far this year, full year deliveries though the Exchange would come to around 2,580 tonnes – and this is certainly not an impossibility given that demand during the final quarter of the year usually runs strong. This figure is equivalent on its own to around 80% of global annual new mined supply.