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The gold market just lost its best measure of Chinese demand

MARKETWATCH 9:20 AM ET 1/28/2016

Shanghai Gold Exchange halts publication of gold vault withdrawal figures

The Shanghai Gold Exchange has stopped publishing its weekly gold withdrawal figures, forcing the market to lose its " best measure of Chinese wholesale demand," according to Koos Jansen, precious-metals analyst and blogger for Singapore- based bullion dealer BullionStar.

Jansen, well known for his analyses on the Chinese gold market, pointed out in a blog Jan. 26 (https:// www.bullionstar.com/blogs/koos-jansen/china-stops-publishing-sge-withdrawal-figures/), that the SGE's Chinese Market Data Weekly Reports on the first two trading weeks of this year don't list gold vault withdrawal figures. He said the SGE told him those figures will no longer be published.

"SGE withdrawals provided a unique transparent metric for Chinese gold demand and [they're] gone," said Jansen in his blog. They provided a "spy-hole" to track the Chinese gold market.

There are rules and tax incentives in China that "push all physical gold supply to be sold over the SGE. The amount of gold that is withdrawn from its vaults equals physical gold demand," he told MarketWatch, by email.

The market can only guess why China decided to stop publishing the data. But Jansen suggested that with the withdrawals from the vaults of the SGE being watched by an increasing number of analysts around the world, "the Chinese judged these figures had become too sensitive and discontinued publication since January 2016."

Similarly, Julian Phillips, founder of and contributor to GoldForecaster.com, said the "significance of the hiding of accurate figures in China" is to prevent that picture of the gold market "from inciting speculators and investors outside of China from buying gold on the back of Chinese demand."

Read:China wants to steal gold-market 'reins' from New York, London (http://www.marketwatch.com/story/china-wants-to- steal-gold-market-reins-from-new-york-london-2015-07-09)

It's an "attempt to muddy the waters of the gold market, while China takes control of that market," said Phillips.

China has a history of holding back gold data. Back in July, the People's Bank of China published figures on its gold reserves for the first time since 2009. Read: China finally says how much gold it has, but nobody believes it (http:// www.marketwatch.com/story/china-finally-says-how-much-gold-it-has-but-nobody-believes-it-2015-07-17)

Whatever the reason for the lack of SGE withdrawal numbers (http://www.sge.com.cn/xqzx/xqzb/index_19.shtml), the fact that China stopped publishing the data "once again strongly confirms the importance of these numbers from the past," Jansen said.

Here's what the withdrawals looked like over time, as of the end of December, versus the Chinese yuan prices for gold in grams, according to BullionStar:

Brien Lundin, editor of Gold Newsletter, pointed out that mainstream industry groups like GFMS, Metals Focus, CPM Group and the World Gold Council "never recognized this data in the first place so this will, in essence, be a nonevent for them."

Koos explained in a blog last year (https://www.bullionstar.com/blogs/koos-jansen/the-mechanics-of-the-chinese-gold- market/) that figures on Chinese gold demand from Western consultancy firms differ from the SGE vault withdrawals because of "contrasting metrics."

Even so, "for those of us who placed great confidence that SGE withdrawals reflected domestic Chinese demand, it will be a great loss," said Lundin.

-Myra P. Saefong; 415-439-6400; [e-mail]


(END) Dow Jones Newswires
01-28-160920ET
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