LAWRIE WILLIAMS: Chinese 2019 gold demand still slipping but don't panic

13 August 2019

 

Perhaps the U.S.-instigated trade war is beginning to bite with the Chinese consumer.  As readers of sharpspixley.com will be aware, we measure Chinese gold demand China is still the world's largest gold consumer) by the reported gold withdrawal figures from the Shanghai Gold Exchange (SGE).  This is a consistent measure reported monthly by the SGE, so does provide comparative figures direct from source rather than estimates of consumption from the major precious metals consultancies, which seem to hugely underestimate known gold flows (published gold import figures from major sources) into the Middle Kingdom plus the nation’s own production.  The latest monthly figures for the past three years are set out in the table below and suggest that Chinese gold demand this year will be substantially less than iun the past couple of years – but perhaps more importantly the projected annual total will be the lowest for five years, as we reported just over a month ago on the releas of the June withdrawal figures by the SGE.

 

Table: SGE Monthly Gold Withdrawals 2017-2019 (Tonnes)

Month	2019	2018	2017	% change 2018-2019	% change 2017-2019
January	218.54	223.58	184.41	-2.30%	18.51%
February*	99.77	118.42	148.24	-15.75%	-32.70%
March	218.03	192.61	192.25	+13.19%	+13.41%
April	151.89	212.64	165.78	-28.57%	-8.38%
May	123.11	150.58	138.08	-18.24%	-10.84%
June	107.45	140.59	155.51	-23.57%	-30.87%
July	129.33	137.41	144.71	-5.88%	- 10.63%
August		190.59	161.41
September		188.12	214.24
October*		142.94	151.54
November		179.08	189.1
December		178.04	185.21
Year to date	1048.12	1175.83	1128.82	-10.86%	-7.15%
Full Year		2,054.54	2,030.48

 

 

Source:  Shanghai Gold Exchange.  Lawrieongold.com

 

On the basis of the year to date figures, full year Chinese gold demand, as measured by SGE withdrawals, may struggle to reach 1,800 tonnes as compared with over 2,000 tonnes in 2017 and 2018 – and in particular with the record annual figure in 2015 where full year withdrawals  totalled around 2,600 tonnes.  We speculated a month ago that the assessed drop in Chinese gold demand, coupled with an apparent continuing downturn in the annual Chinese growth percentage might be expected to be a positive factor in the ongoing trade discussions between the U.S. and China but it seems there has been little progress here – indeed trade tensions appear to have escalated with President Trump apparently imposing tariffs on another $3 billion worth of Chinese imports, while the Chinese have apparently allowed the yuan’s currency parity with the dollar to slip further to over 7 – an apparent U.S. ‘line in the sand’.  While the tariff impositions may well be beginning to hurt the Chinese economy, it is also adversely impacting that of the U.S. with higher prices for U.S. manufactured goods which rely on imported Chinese components becoming more expensive.  The 5.5% fall in the dollar/yuan parity since April will also be mitigating the effects of the Trump-imposed tariffs.

 

Despite the apparent disadvantage to China represented by the big trade imbalance in China’s favour, which theoretically should give the U.S. a ‘trade war’ advantage, President Trump is a businessman who believes that financial advantage is the be-all and end-all in monetary trade disputes.  But China is basically a Communist-led nation where economic advantage may well take second place to a long-term global growth plan.  It is also an Asian nation where ‘saving face’ may take priority over a purely monetary agenda.  Trade disputes thus are not necessarily subject to like with like agendas and President Trump may well have substantially over-estimated the likelihood of China capitulating to his demands, whatever the economic consequences.

 

However, as we have pointed out beforehand in this column, although a fall-off in Chinese demand might represent a negative for gold’s supply/demand balance, it is being offset by a pickup in demand elsewhere in the world, increasing gold accumulations by Central Banks and inflows of gold into the world’s gold ETFs suggesting a return of institutional gold demand into the asset class.  This has shown up in a big surge in the gold price over the past few weeks.  It may not have been allowed to end the week above the psychological $1,500 level by those who wish to control the price, but higher futures prices suggest that the $1,500 barrier may be breached permanently in the weeks – or even days – ahead.  General equities may have reached record highs, but markets seem to be increasingly nervous which bodes well for increasing safe haven uptake.  These are indeed interesting times in the markets.  We wait with bated breath to see how it will all pan out!

 

Source: https://www.sharpspixley.com