With the latest gold withdrawal numbers for the week ended July 3 from the Shanghai Gold Exchange (SGE) staying up above the 40 tonne mark at 44 tonnes, we can now safely confirm that the half-year total figure has indeed been around the 1,180 tonne mark – comfortably a new record for the period. The previous record was in 2013 at just under 1,100 tonnes withdrawn in H1 and when the full year figure was 2,197 tonnes. Normally Chinese demand falters through the northern summer with a pick-up again from late September, but it seems to have been holding up particularly well so far this year, after a strong start leading up to the relatively late Chinese New Year. This means China is comfortably on track towards a new record full year figure if the stock markets collapses don’t take too much of a toll on investor liquidity and dent retail demands. For the moment at least government intervention seems to have arrested the market falls but it remains to be seen whether markets now will restart the downward move or pick up again.
A word of caution though on the SGE figures. Nowadays these include withdrawals out of the international division, the SGEI, which can move in and out of the Shanghai Free Trade zone without technically landing in China at all. This proportion is thought to be very small in relation to the domestic figures, and some will end up in China anyway, but this does bring a small degree of uncertainty as to the actual total which might be considered as Chinese domestic demand.
As we have pointed out beforehand, Chinese demand as suggested by SGE withdrawals is a far higher figure than the mainstream Western gold analysts attribute to their interpretation of Chinese retail demand figures. In part this is due to categorisation with some elements of what could be considered overall Chinese demand (notably gold bought for financial sector transactions) not being included in the analysts’ consumption figures. But the huge discrepancy between SGE and analysts’ assessments will continue to be argued over. Regardless of this, the SGE figure has to be a very good overall indicator at least of Chinese gold demand trends and it is obvious now that this has been a particularly strong half-year for Chinese gold flows. The question now is whether the flows will hold up going into what is normally a strong second half of the year.