Shanghai Gold Exchange
China is the number one gold consumer. As a result, it’s vital for gold investors to track the demand in China. However, there isn’t an 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 also come into China through Shanghai and Beijing.
As a result, Chinese (FXI) gold withdrawals from the SGE (Shanghai Gold Exchange) are the best indicator available in regards to 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.
Withdrawals up 20% YoY
For the week ending May 15, a total of 45.5 tons of gold was withdrawn from the SGE. This is 22% higher week-over-week. YTD (year-to-date), withdrawals are 903 tons—up a whopping 20% from the same period last year and 8% higher than two years ago. Although this shows a continued strong demand for physical gold in China, investors need to consider that the gold withdrawn could be supplied through any of these three modes:
- recycled gold
- domestic production
Traditionally, China and India’s physical-gold buying has supported gold prices. Strong withdrawals from the SGE should support gold prices (GLD). This also helps gold stocks including Agnico Eagle Mines (AEM), AngloGold Ashanti (AU), and Royal Gold (RGLD). It also affects gold ETFs like 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 behavior. In the next part of this series, we’ll discuss gold ETF holdings.