Russia adds another 21.8 t gold and 46t more drawn out of China’s SGE

London (Dec 20)  Friday saw two announcements demonstrating that physical gold demand remains at a strong level as the year draws to a close.  The Russian central bank continued to expand its gold reserves by just under 22 tonnes in November, while in China another 45.99 tonnes of gold were withdrawn from the Shanghai gold Exchange.

The Russian Central Bank has been the main purchaser of gold for its reserves this year if one disregards China’s announcement of a leap of 604 tonnes in July – but as this was China’s first reported increase in six years we could assume that it had thus been only buying at the rate of eight or nine tonnes a month over the period,  However there remain doubts about this rate of buying with many assuming that China’s actual purchases may have been three or four times this amount, maybe more, and that the country’s total holdings are far, far higher than the figure of a little over 1,700 tonnes reported to the IMF, with the balance held in unreported government accounts.

Russia has so far added around 187 tonnes into its reserves this year, while China has added around 70 tonnes since it started announcing monthly increments to its reserves in August.  Between them Russia and China are adding to reserves at a rate of close to 400 tonnes of gold a year.

With regard to withdrawals from China’s Shanghai Gold Exchange (SGE), total withdrawals year to December 11th reached 2,451 tonnes – with almost three more weeks to be reported on until the year end.  Assuming similar withdrawal levels from now until the New Year the full annual total will likely be in the high 2,500 tonne levels – around 18% higher than the previous record of 2,181 tonnes achieved in 2013 when a further 107 tonnes were taken out of the Exchange over the same period.

While some equate SGE withdrawals to total Chinese gold demand, others disagree coming up with often conflicting reasons why this may not be the case, but as an overall indicator of the strength of Chinese demand the figures have to be revealing.  It does indeed look as though the centre of gravity of the global gold market is indeed moving east – and to China in particular and with the latest reports suggesting the SGE will have its own benchmark price setting system in yuan in place by April next year, to rival that of the dollar denominated LBMA Gold Price set in London, this speed of this process will likely be further increased.  What this will actually do to the gold price itself obviously remains uncertain, but with the SGE dealing very much in physical gold, while London and New York are primarily paper gold markets, one suspects true supply/demand fundamentals for physical gold may serve to play a bigger role going forwards.

Source: Lawrence Williams via SharpsPixley