Withdrawals from the Shanghai Gold Exchange (SGE) remain exceptionally high despite being expected to drop following the Chinese New Year holiday. In the three weeks of trading since the holiday’s end, withdrawals from the exchange have totalled 149 tonnes which would seem to belie other reports that demand is slipping.

The latest figure from the SGE is for the movement of 53 tonnes out of the Exchange during week 11 (ended March 20), following 51 tonnes a week earlier and 45 tonnes in week 9. Total to March 20 is thus already 561 tonnes. So withdrawals from the SGE appear to be rising week on week at a time when they would normally expect to be falling back after the holiday buying spree has ended. Should the gold flows out of the exchange continue at this kind of rate, then the Q1 total figure will be of the order of 620-630 tonnes – comfortably a new Q1 record.

Even at the lower end of the likely Q1 flow level this would be 10% up on the previous highest Q1 withdrawal amount, which was 564 tonnes (this has almost been reached already with flows for seven working days yet to be announced) recorded a year ago when the full year figure was 2,102 tonnes. QI withdrawals will thus undoubtedly set a new record.

If this increase figure is indicative of the year ahead the China gold flows, as represented by SGE withdrawals, could this year reach a new record 2,300 tonnes or more – getting on for 75% of new mined supply assuming this is flat this year – CPM suggests, though, it will actually be 4.6% higher as recent new projects and expansions reach full capacity.

See: Further downside on gold prices limited – CPM

There are reports, though, that Asian demand has slipped back in the past week as the gold price rose with premiums dropping significantly in India and China. It remains to be seen as to how much this affects gold flows for the past week and in the weeks ahead.

As we noted in the recent article on the CPM Gold Yearbook findings, there is some disagreement over whether the SGE figures represent an accurate picture of total Chinese wholesale demand. CPM reckons there is a significant element of double, or even triple, counting in movements of gold from fabricators in and out of the exchange. But Koos Jansen, who probably follows the SGE figures more closely than anyone and also is something of an expert on the SGE’s rules and regulations, feels that this is incorrect, at least as far as significance is concerned. He does say though that the launch of the international section of the SGE – the SGEI – which can represent gold flows in and out of China without them landing in the domestic market, could distort the figures a little, but reckons this level is very small as his investigations have revealed that most SGEI handled gold is ending up in China in any case.

Indian demand is also said to have surged in the month following the February budget when, contrary to expectations, the import duty on gold was not relaxed from its 10% level. There are also reports that the real Indian flows are much higher as gold smugglers become more adept in getting quantities of gold into the country to take advantage of the duty-induced premiums prevailing on the open market. But again, Indian demand also looks as though it may have slipped as the gold price rose. But with the Akshaya Tritya festival coming up next month, when it is seen as auspicious to buy gold, and with prices falling back below the $1200 level on Friday, this demand could pick up again.