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Shanghai Gold Exchange Withdrawals Are Strong

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Jul. 27 2015, Updated 10:07 a.m. ET

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 see how withdrawals from the SGE (Shanghai Gold Exchange) are progressing. This indicator points toward the underlying gold demand in the country. 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.

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Strong withdrawals

In the week ending July 10, a total of 61.8 tons of gold were withdrawn from the SGE. YTD (year-to-date), withdrawals are a hefty 1,268.1 tons—a rise of 27.10% 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 the following three sources:

  • imports
  • recycled gold
  • domestic production

Historically, China and India’s physical gold buying has 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 account for 9.80% of GDX’s holdings.

Although the current withdrawals are strong, there was a huge sell-off in the Chinese market on July 20. That was the catalyst for the fall in gold prices. So, going forward, we could see a fall in the SGE withdrawals.

In the next part of this series, we’ll see India’s import trend in May. India is the second largest gold consumer.

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