Shanghai Gold Exchange
China (FXI) is the number one gold consumer in the world. That’s why it’s vital for gold investors to track the demand in China. In this part of the series, we’ll learn about how withdrawals from the Shanghai Gold Exchange are progressing. This indicator points toward the underlying gold demand in the country, as 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 of Chinese demand.
Withdrawals are strong
In the week ended June 26, a total of 46.2 tons of gold were withdrawn from the SGE. Year-to-date, withdrawals are a hefty 1,161.9 tons, up 22.8% from the same period last year.
Although this shows continued strong demand for physical gold in China, investors need to consider that the gold withdrawals could come from any of three sources:
- recycled gold
- domestic production
Historically, China’s and India’s physical gold buying have boosted gold prices. Strong withdrawals from the SGE should support gold prices (GLD) and help gold stocks like Agnico Eagle Mines (AEM), AngloGold Ashanti (AU), and Royal Gold (RGLD). It also affects the VanEck Vectors Gold Miners ETF (GDX). Agnico Eagle Mines and AngloGold Ashanti form 9.8% of GDX’s holdings.
Although the current withdrawals are strong, they are still lower than what the market would have expected in a scenario where the Chinese equity market is so weak.
Precious metals ETFs are large holders of physical bullion, so it’s important to track their buying and selling behavior. In the next part of this series, we’ll discuss precious metals ETFs and their holdings.