BullionStar News
Writers Torgny Persson, Koos Jansen
& Hong Kang See

Chinese Gold Market: Still in the Driving Seat

Thursday the 19th of July 2018
With the first half of 2018 now behind us, it's an opportune time to look at whats been happening in the Chinese Gold Market. As a reminder, China is the largest gold producer in the world, the largest gold importer in the world, and China's Shanghai Gold Exchange is the largest physical gold exchange in the world.

For various reasons such as cross-border trade rules, VAT rules and deep liquidity, nearly all physical gold supply in China passes through the Shanghai Gold Exchange (SGE) vaulting network. These flows include imported gold, domestically mined gold, and recycled gold. Therefore, nearly all Chinese gold demand has to be met by physical gold withdrawals from the SGE, and SGE gold withdrawals are a suitable proxy for Chinese wholesale gold demand. Therefore, at a high level:

Physical Gold Supply to the SGE = SGE Withdrawals = Chinese Wholesale Gold Demand

Gold supply includes gold imports, mine supply, gold scrap / recycling and disinvestment. Disinvestment on the SGE is the reverse process of investment. Investment is when any institutional entity or individual purchases gold directly on the SGE. Disinvestment involves selling gold bullion which then goes to a refinery and re-enters the SGE vaulting network.

Wholesale gold demand includes consumer demand and institutional demand (direct gold purchases at the SGE). For a fuller explanation of this gold supply - demand equation as it applies to the Chinese gold market, see 'Mechanics of the Chinese Domestic Gold Market' on the BullionStar website.

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