Current Macro Factors Driving Gold and Silver Prices
Shanghai Gold Exchange
China is the number one gold consumer. That’s why it’s vital for gold investors to track the demand in China. In this part of the series, we’ll learn about how withdrawals from the Shanghai Gold Exchange are progressing. This indicator points toward the underlying gold demand in the country.
Chinese (FXI) gold withdrawals from the SGE (Shanghai Gold Exchange) are the best indicator available of China’s demand for physical gold. 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.
Withdrawals are strong
In the week ended June 19, a total of 54.2 tons of gold was withdrawn from the SGE. Year-to-date, withdrawals are a hefty 1,115.8 tons—up a whopping 21.3% from the same period last year. Now that the peak festive season is over, Chinese gold withdrawals can’t be compared with the levels reached in January or February. But for the time of year, they’re very strong.
Although this shows continued strong demand for physical gold in China, investors need to consider that the gold withdrawals could come from any of three sources:
- recycled gold
- domestic production
Historically, China’s and India’s physical-gold buying have boosted gold prices. Strong withdrawals from the SGE should support gold prices (GLD). This also helps gold stocks including Agnico Eagle Mines (AEM), AngloGold Ashanti (AU), and Royal Gold (RGLD). It also affects the Market Vectors Gold Miners ETF (GDX). Agnico Eagle Mines and AngloGold Ashanti form 9.8% of GDX’s holdings.
Precious metals–backed ETFs are large holders of physical bullion. So it’s important to track their buying and selling behavior. In the next part of this series, we’ll discuss precious metals ETFs and their holdings.
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