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. We saw imports from Hong Kong to China in the last part of this series. Now, we’ll see how the withdrawals from the Shanghai Gold Exchange are progressing for Chinese consumers. This indicator points towards the underlying gold demand in the country.
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 the data, investors can get a good idea of the short-term direction for demand in China.
Withdrawals are holding up
For the week ending May 29, a total of 37.1 tons of gold was withdrawn from the SGE. YTD (year-to-date), withdrawals are 983 tons—up a whopping 20% from the same period last year. Now that the peak festive demand season for Chinese gold demand is over, withdrawals can’t be compared to the levels they were in January or February. However, for the time of the year, they are still quite strong.
Although this shows continued strong demand for physical gold in China, investors need to consider that the gold withdrawn could be supplied through any of these three modes: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.