We are continuing to monitor Shanghai Gold Exchange withdrawals following the Golden Week holiday and they do seem to be a little down from their peak, but still remain at an impressive 53.4 tonnes delivered in the week ending October 16th – week 40 – the first full week after the holiday.  The year to date figure is a fraction short of 2,062 tonnes.

Looking at past years, demand does tend to fall off by a little at this time, but then picks up again as the year-end nears and stocks are built up ahead of the Chinese New Year buying spree.  Next year the Chinese New Year  – a Monkey year under the Chinese zodiac – falls on Monday February 8th, suggesting strong gold demand in December and January In Chinese astrology, the Monkey is a symbol of health and wealth and those born under the influence of this sign are said to be intelligent, quick-witted and adventurous.

Already the UK’s Royal Mint and Australia’s Perth Mint, in expectation of Chinese gold coin demand, have announced limited edition ‘Monkey’ gold coin mintings aimed at Chinese gift givers.

On the figures to date, we stand by our prediction that Shanghai Gold exchange withdrawals for the full 2015 year will likely reach 2,600 tonnes or more – a huge new record, probably over 400 tonnes more that the previous record year of 2012 when 2,181 tonnes were withdrawn from the Exchange.  The year to date figure will probably already surpass last year’s full year total of 2,102 tonnes by the time next week’s SGE figures are announced – and last year was the second highest year ever for SGE withdrawals.  Chinese demand, as represented by SGE withdrawals thus remains enormous.

As we have noted before there is considerable disagreement over what actually constitutes Chinese gold demand, with figures calculated by mainstream analysts hugely lower than the SGE withdrawal figures might suggest.  The big difference is that the mainstream analysts do not take into account the vast volumes of gold used in internal financial transactions mostly in gold leasing activities.

We recently put forward the viewpoint that a significant proportion of this may be being used by Chinese entities using gold as collateral for obtaining low cost dollar loans and utilising the money so borrowed to take advantage of significantly higher Chinese rates for interest bearing notes.  However, according to a presentation at the recent LBMA meeting in Vienna by Jiang Shu, Chief Analyst of the Shandong Group, while this may be true of using iron ore and base metals as such collateral, it was not so true of gold due to export restrictions on bullion, but that huge amounts of gold were indeed tied up in internal gold leasing transactions – and quoted a figure of around 1,370 tonnes so employed.  With the analysts not counting this as consumption, this would therefore almost wholly account for the differences between the analysts figures and those of the SGE.

Whichever way you look at this though, this all represents gold flows from West to East, despite which it remains the Comex gold futures market which is largely setting the gold price.  But the more and more the Chinese become involved in the nitty-gritty of the gold pricing mechanism the more their influence will rise in determining the actual price given these massive gold flows.  Perhaps we will just see the determination of the price by the big money-manipulated Comex futures market replaced by a gold price capable of being manipulated by the Chinese to their own benefit.  Whether this would be positive or negative for the gold investor we do not know.  However we would err on the side of the former given the huge amounts of gold held by the Chinese public and the moves by the Chinese to switch from an export dominated economy to one which relies on internal domestic demand, which will itself be determined by public wealth.