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Track the Shanghai Gold Exchange for short-term demand in China

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Mar. 29 2015, Updated 1:04 a.m. ET

Shanghai Gold Exchange

Chinese gold withdrawals from the Shanghai Gold Exchange (or SGE) are a good indicator of China’s demand for physical gold. According to many gold experts, it’s close to the actual demand.

All the mined and imported gold in China can only sell through the Shanghai Gold Exchange. By tracking the data, investors can get a good idea of the short-term direction for demand in China.

The Shanghai Gold Exchange also points to the short-term direction for gold prices (GLD). This impacts gold stocks such as Goldcorp (GG), Barrick Gold (ABX), and Newmont Mining (NEM). It also impacts gold ETFs such as the VanEck Vectors Gold Miners ETF (GDX). GG and ABX form 18.8% of GDX’s holdings.

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The weekly data

The Shanghai Gold Exchange releases gold withdrawal data every week. In 2014, SGE withdrawals amounted to 2,102.4 tons. While demand was strong, the figure was 95 tons lower than it was in 2013.

So far, 2015 has seen strong gold demand in China. In the first two months of 2015, gold withdrawals tracked by the SGE reached 411 tons. Withdrawals for the two-week period ending February 27 were 37.9 tons. While this figure is quite low compared to withdrawals over previous weeks in 2015, it reflects the break for the Chinese New Year. According to Bullion Desk, this figure only covers February 16, 17, 25, 26, and 27.

Investors need to keep watching China’s withdrawal trend now that the Chinese New Year is over. Investors can then decide if the demand is actually strong in China, particularly after gold prices fell in the wake of Fed rate hike jitters as the US dollar strengthened. Chinese consumers are known to stock up on gold after any weakness in prices.

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