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Chinese Gold Demand Picks Up before Lunar New Year

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Lawrence Williams reports for Mineweb that the Shanghai Gold Exchange (SGE) reported more than 2,100 metric tons of gold withdrawals in 2014. The last three trading days of the year alone saw 29 tons of withdrawals. Many analysts have turned to figures from SGE as a better gauge of Chinese consumer demand, because the Chinese government does not release official physical gold import figures.

15 01 13 china gold

The Chinese Lunar New Year isn’t until February 19th this year, which means there’s still a lot of time for Chinese consumers to stock up on gold in advance of the holiday. This is one of the strongest times for Chinese gold demand and often sets the tone for the rest of the year, which some think might approach record levels again in 2015. As Williams writes:

Anecdotal reports suggest that this is already the case with high demand levels already being seen at the beginning of the month. Reuters reports, for example, a Shanghai trader as saying ‘We saw consistently strong buying this week, premiums and volumes are better than what we saw in the last month.’ As confirmation SGE premiums for gold have risen to $7 an ounce as demand grows.”

The Wall Street Journal has also reported on this surge in Chinese demand and premiums in a story published this morning:

Still, the rise in Chinese demand is providing a floor at a time when the plunging price of crude oil has eroded the precious metal’s appeal as an anti-inflation hedge and a strengthening U.S. dollar has increased pressure on prices. China accounts for around a third of global demand.

“The pickup in Chinese buying, combined with stronger demand due to worries over Greece and expectations of monetary easing in Europe, has pushed up the price of gold by 9% since it hit a four-and-half-year low in early November.”

The Wall Street Journal article plays down this astounding amount of demand by immediately juxtaposing it with demand numbers from 2013. It’s a common tactic in mainstream news. “Yes,” reporters quibble, “Chinese demand is strong, but it could be stronger.”

What articles like that from the Journal fail to do is remind the reader of the broader picture. These demand figures are astronomically high compared to demand just 6 years ago. 2013 saw a record amount of Chinese gold demand, totaling nearly 400 metric tons of the yellow metal. Compare this to 2009, when demand totaled just over 100 tons. Prior to 2008, those figures were nearly always under 25 metric tons. Talk about a renaissance in gold demand.

15-01-13-china-gold-demand

While demand was down in 2014 compared to 2013, it’s still hovering up at these stratospheric levels, thanks to ongoing liberalization of the Chinese gold market by the government. This isn’t going to go away anytime soon, as Chinese officials continue to broaden import rules and encourage gold investment. The World Gold Council estimates that by 2017, yearly Chinese demand could reach 500 tons.

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