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 discuss 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.

Are Shanghai Gold Exchange Withdrawals Set to Break the Records?

Withdrawals are surging

For the week ending July 24, a total of 73.3 tons of gold were withdrawn from the SGE. This is the highest amount of gold withdrawn in a week in about the last 18 months and the third highest on record. For the week ending July 31, the withdrawals were a strong 53.3 tons. This brings the withdrawals to 1,463.9 tons YTD (year-to-date). This is up 33.80%—compared to the same period last year. The important thing to note here is that this period of the year isn’t typically a gold buying period in China.

Price-sensitive customers respond to the fall in prices

Gold prices fell to a five-year low level in June. They’ve continued to hover in that range due to expectations of an impending Fed rate hike. Low prices have attracted the physical buyers back to physical gold bullion in China. Asian consumers are known to be price sensitive.

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.

Like SGE withdrawals show the demand trend in China, US Mint coin sales show the trend of physical metal demand in the US. In the next part of this series, we’ll discuss how the physical precious metals demand is panning out in the US.

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