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Are Rising SGE Withdrawals a Concern for Gold Investors?

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Sep. 18 2015, Updated 9:15 a.m. ET

Sliding Chinese economy

A sliding Chinese economy in August took over the world in dismay as we saw equities and commodities plummet. Gold gained on safe-haven demand. Silver, platinum, and palladium fell.

Gold, silver, platinum, and palladium are currently trading at $1,109, $14.65, $981.20, and $592.50, respectively, as of the close of trading on September 10. These precious metals trade on COMEX (Commodity Exchange), a division of NYMEX (New York Mercantile Exchange).

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Rising SGE withdrawals

The month of August saw significant gold withdrawal figures from SGE (Shanghai Gold Exchange), scaling up to 65.3 metric tons as of the week ended August 14. It’s a considerable value for an August week when historically Chinese demand is at its lowest.

As of August 28, SGE saw a withdrawal of 254 metric tons for the month. This is remarkably higher than withdrawals for the same week in August 2013. The figure seems to be a new record for SGE, especially amid the suffering economy in China. Such withdrawal data keep the majority of analysts and investors in a state of awe.

To get a better idea about the quantity, Australia, the world’s second-largest gold producer, mined 272 metric tons of gold last year. So SGE saw withdrawals nearly as much as Australian production capacity delivered in just one month. Keep in mind that SGE only deals in physical gold, not paper gold investments.

Swiss gold export data

Of all the key drivers of the gold price, it’s Chinese gold demand that’s the most disputed. China and India are among the world’s two largest gold consumers. Switzerland reports detailed export statistics with most of the gold going to India, Hong Kong, and mainland China. Of its recent exports to Hong Kong and China, around 40% has been going to mainland China directly.

According to Swiss gold export data, global physical gold demand seems to be greater than the supply of newly mined gold. Such data may eventually prove beneficial to mining companies such as Agnico Eagle Mines (AEM), GoldCorp (GG), AngloGold Ashanti (AU), and New Gold (NGD). These companies contribute 19% to the VanEck Vectors Gold Miners ETF (GDX).

Mining ETFs such as the SPDR Gold Shares ETF (GLD) and the Sprott Gold Miners ETF (SGDM) have fallen 0.51% and 11.4%, respectively, on a 30-day trailing basis.

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