Shanghai Gold Exchange
China is one of the most important markets as far as gold consumption is concerned. Yet there’s no official data source to pinpoint the exact level of demand for gold in the country. While gold imports from Hong Kong provide a directional sense of China’s demand, they offer incomplete data because additional shipments come into China via Shanghai and Beijing as well.
Given this fact, Chinese (FXI) gold withdrawals from the SGE (Shanghai Gold Exchange) are the best indicator available of China’s demand for physical gold. All of the mined and imported gold in China can only sell through the SGE. By tracking these data, investors can get a good idea of the short-term direction for demand in China. According to many gold experts, withdrawal levels are close to the actual demand.
In the week ending May 8, there were 37.09 tons of withdrawals. This is almost in line with the previous week’s figure of 38.35 tons. However, YTD (year-to-date), withdrawals have increased by 18.9% YoY (year-over-year). That’s an impressive figure. So far this year, a total of 857.68 tons of gold has been withdrawn from the Shanghai Gold Exchange.
Traditionally, China’s physical-gold buying has supported gold prices. Strong withdrawals from SGE should support gold prices (GLD). This boosts gold stocks including Agnico Eagle Mines (AEM), AngloGold Ashanti (AU), and Royal Gold (RGLD). It also affects gold ETFs such as the VanEck Vectors Gold Miners ETF (GDX). Agnico Eagle Mines and AngloGold Ashanti form 9.8% of GDX’s holdings.
Gold-backed ETFs are large holders of physical gold, so it’s important to track their buying and selling. In the next part of this series, we’ll discuss gold ETF holdings.