A Shift in Gold Demand From East To West in 2016
In 2015, India, China, Russia led the world in gold consumption. India imported over 900 tons of gold in 2015. The Shanghai Gold Exchange set a record for withdrawals with over 2,500 tons. The People’s Bank of China added over 150 tons of gold to her reserves. The Central Bank of Russia added even more than China in 2016, stacking more than 208 tons of gold.
The 2015 gold story, and indeed of the past few years, has been one of gold flowing west to east.
The 2016 gold story is one of gold demand waning in the east and surging in the west.
Through May 2016, Russian gold additions are up 33% over last year. This number is skewed because the Central Bank of Russia did not add any gold to reserves in January and February 2015 due to the financial strain caused by international sanctions. A comparison of gold added to Russia’s reserves during the months of March to May 2015 to March and May 2016, shows that Russia’s pace of gold additions to reserves were down 21% year over year.
A Decline in Indian and Chinese Gold Consumption
The People’s Bank of China began reporting its gold reserves last summer and has cut its gold purchases in recent months and added no gold in May.
Through May 2016, Indian gold imports are down more than 50% in 2016 from last year.
Shanghai Gold Exchange withdrawals of 835 tons through May are down 15% from 2015.
The West Steps In and Fills the Void
Institutional Gold Buying
In 2016, gold demand in the west surged led by western fund managers Paul Singer from Elliott Management, Stanley Druckenmiller former chair of Duquesne Capital and famed investor George Soros. All three upped their bets on gold. The price of gold in 2016 is up about 20% since January. Most western institutional investors have added gold to their portfolios in the form of Exchange Traded Funds, the largest of which is SPDR Gold Fund or GLD. Gold ETFs have tacked on approximately 22 million ounces (or about 700 tons) of gold since January.
Retail Gold Buying
The Brexit vote this month and the uncertainty it engendered led to an increase in retail gold bullion sales all year across Europe, especially in Great Britain. Sales of American Gold Eagle coins at the United States Mint are up 117% through May 2016 over the same time period last year. Gold sales at the Canadian Mint were up nearly 20% in the first quarter of 2016 year over year.
What’s Next for Gold Demand
Indian gold demand has been muted by government tarifs and sales taxes. Any reduction or removal of those taxes should result in an increase in gold imports to India.
The People’s Bank of China added no gold to its reserves in May. It is not expected that the People’s Bank of China will curtain its gold buying and is expected to resume additions in the coming months.
While Russia added just three tons of gold in May, it was the same amount it added last May during its record purchases of gold in 2015.
Shanghai Gold Exchange withdrawals, while down 15% through May from last year, 2015 was a record year. The Shanghai Gold Exchange is still on pace to challenge the second highest total of withdrawals in a year.
Any positive change in gold demand in the east will be met with competition from western demand which shows no signs of abating.
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.