China gold demand picking up again?

London (Sept 8)  One of the depressing factors with regard to the gold price so far this year has been the reported fall-off in Chinese gold demand, although by world standards it remains pretty healthy. But there are now signs that it is beginning to pick up again. While the full year total is still not expected to match the record 2013 level a recent pick-up in withdrawals from the Shanghai Gold Exchange (SGE) suggests the lower prices may be beginning to stimulate demand again.

Koos Jansen, who is almost certainly the most consistent analyst and follower of Chinese gold demand data, has noted the pick-up and points out on that the latest published weekly gold withdrawals from the SGE for the last two weeks in August have been 46 tonnes and 42 tonnes respectively. This is a significant jump from earlier levels and suggests the beginning of a healthy return to purchases as the final four months of the year approach.

The SGE figures may be the only reliable indicator out there of the true picture of Chinese demand now that Hong Kong is not the only significant entry point for gold into mainland China. Western analysts had mostly followed the regularly published Hong Kong net export figures to the Chinese mainland as a proxy for total Chinese gold demand, but these have dropped off enormously this year as it is believed that other entry points for gold into the nation are becoming more and more significant, and the figures for gold movement through these are not published by the Chinese government. Whether or not this is a deliberate attempt by the Chinese to make life more difficult for those trying to make sense of the country’s gold import data, or an unintended consequence of the widening of import channels, is uncertain. However it perhaps leaves the SGE as the only source of consistent data and the fact that this data is still published weekly does suggest the broadening of the gold import channels may perhaps not be a deliberate move to muddy the waters on overall gold demand assessment by outsiders!

So, in the year to August 29th Jansen notes that the SGE has reported gold withdrawals from the exchange – which he equates to total Chinese wholesale gold demand for the period - as amounting to 1251 tonnes. This is a fall of 17% from the same time last year which tallies pretty well with assumed Chinese demand fall-off, but is not nearly as big a fall as many mainstream media reports, drawing on the Hong Kong figures alone, seem to imply. And if these latest weekly SGE withdrawal figures are maintained for the rest of the year – traditionally a strong period for Chinese gold purchases – then although total China demand for the full year is indeed likely to remain lower than a year ago, the fall-off may end up as even less significant than the 17% drop seen so far. Chinese gold demand has thus not ‘collapsed’ as a total reliance on the Hong Kong net figures might suggest, but remains pretty healthy, albeit at a slightly lower level than a year ago.

Source: Mineweb