Shanghai Gold Exchange withdrawals
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 China. While gold imports from Hong Kong provide a directional sense of China’s demand, they offer incomplete data because additional shipments come into China through Shanghai and Beijing as well.
China’s (FXI) Shanghai Gold Exchange withdrawals are the best indicator available of China’s demand for physical gold. All 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.
Year-to-date, there have been gold withdrawals totaling 1,062 tons from the SGE. This is a gain of 20.2% from the same period last year. For the week ended June 12, 2015, withdrawals were a healthy 46.2 tons, which was a weekly gain of 41%.
Although this shows continued strong demand for physical gold in China, investors need to consider that the gold withdrawn could be supplied through any of these three modes: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
Historically, physical gold buying from Asia has supported gold prices. Strong withdrawals from the 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 see the import trend in May by gold’s second largest consumer, India.
On June 11, ETF holdings for gold were 1,588.1 tons. Since then, gold holdings have fallen even more. As of June 19, known gold holdings were 1,586.8 tons.
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