We cannot emphasise more strongly that gold followers should ignore the mainstream media reports, based on Hong Kong gold export figures to mainland China, that Chinese gold demand has plummeted by anything between 30% and 50% this year. As we pointed out in an article last week, Hong Kong is now no longer the principal port of entry for gold into the Chinese mainland. When it was still so, gold exports into China were extremely high at the beginning of the year, but since then the Hong Kong figures have tailed off as China effectively opened up gold import routes through other entry points – notably Shanghai and Beijing , resulting in the Hong Kong net gold exports falling back month by month from a peak of 111 tonnes in February to a mere 21 tonnes in August. This is thus no longer an indicator of overall Chinese gold demand.
That this does not represent the overall Chinese picture is apparent from the withdrawals of physical gold from the Shanghai Gold Exchange (SGE). True these withdrawals are also down this year suggesting a more gradual slowdown in Chinese demand, NOT a precipitous fall as suggested by the mainstream media. However, recently SGE gold withdrawal figures have been particularly strong again – a fact apparently ignored by most gold commentators. Indeed the past four weeks’ withdrawals from the SGE have totalled over 170 tonnes – this suggests an annual rate of over 2,200 tonnes although weaker figures from March up until August will mean this level will not be reached for the 2014 calendar year, but it may well get much closer to last year’s 2,197 tonnes withdrawn from the SGE than previously estimated. We would suggest that this year’s figure may well get close to 2,000 tonnes given the lower gold price has been stimulating demand at a time of year when it is traditionally strong anyway. We can thus anticipate continuing demand at high levels and China maintaining its place as the world’s largest gold importer – even disregarding the assumed-probable additional gold imports to swell the country’s gold reserves.
For SGE withdrawal figures we look at those reported by the excellent Koos Jansen who seems to be about the only gold analyst who monitors these on a week by week basis. And significantly his figures for the latest week of withdrawals from SGE published by the Exchange show that just over 50 tonnes of gold were withdrawn in week 38 (Sept 15-19), the latest for which figures are available and that thus gold demand in China is currently accelerating again.
With Indian demand also reported as strengthening substantially with the festival /wedding season now upon us/approaching, and reports of some substantial purchases of bullion by the ‘super rich’ to protect against any significant stock market downturn and continuing turmoil in Ukraine, the Middle East and North Africa, the current weakness in the gold price does not seem justified. This would suggest that the main depressor of the gold price of late has been U.S. dollar strength adversely impacting the dollar price of gold, although the downturn has not been quite so severe in some other currencies.