LAWRIE WILLIAMS: China: sharp falls in gold output and consumption in 2019

According to figures published recently by the China Gold Association, 2019 saw a reduction in the nation’s gold output and estimated consumption, although even the reduced figures keep China as the world’s No.1 producer and consumer of gold.  While we do not argue with CGA’s assessment of overall gold output, we do suggest that gold flows into China are in fact rather higher than the reported consumption figure which may well be because gold set aside for financial transactions between banks and financial institutions does not form part of the estimated consumption figure.  It may also be that some, if not all, of the apparently additional gold is going into the Central Bank to form part of the nation’s gold reserve, although this may be being done without it being announced officially, nor appearing in the gold reserve as reported to the IMF.

According to a Reuters report, quoting figures released last week on the China Gold Association’s website, the country’s gold consumption in 2019 came in at 1,002.8 tonnes – an apparent fall of 12.9% compared with the year previous.  The report put the fall down to higher gold prices, combined with an economic slowdown in the country’s GDP growth – presumably exacerbated by the ongoing trade and tariff war with the USA.

However, as we recently reported – see: China gold demand 20% down y-o-y – although we also saw a sharp fall in gold flows, down perhaps as much as 20% on the 2018 figure, we assessed Chinese accumulations last year at over 1,600 tonnes of gold.  This figure (the total of gold withdrawals out of the Shanghai Gold Exchange)is far closer to the sum of known gold imports from entities which report gold exports to China like Switzerland, Hong Kong, Australia, the UK and the USA plus China’s own gold output, plus allowances for unknown imports from those countries which may not break down their gold exports on a country-by-country basis and for scrap gold conversion.

The Reuters report noted that gold jewellery consumption in Mainland China was down by 8.2% to 676.23 tonnes – in part due to fabricators using less gold in their products to keep prices down. Gold bars and coin demand was seen as being down 27% to 225.8 tonnes.

As to 2019 gold production this was put at 380.2 tonnes – making China still comfortably the world’s leading producer – but down by 5.2% on the 2018 figure.  This was the third straight year of reduced output due to increased environmental regulation and resource depletion.  This was despite a 6.6% rise in secondary gold extraction from the smelting and refining of imported precious and base metal concentrates.  While China remains the world’s No.1 gold producer, other countries like Russia and Australia are catching up and if output continues to fall at the current rate China could lose its world No.1 gold producer tag within the next five years – probably to Russia which is seeing its own production rise year on year.

As to the current year we have to expect that Chinese gold consumption will continue to fall- perhaps sharply should the effects of the Wuhan coronavirus, and consequent domestic restrictions, continue for any length of time.  At the moment infections and deaths seem to be rising exponentially and this could have a huge impact on China’s GDP growth and a consequent big reduction in the buying power of individuals.  This of course could affect global gold supply/demand fundamentals in terms of reduced global demand, but this could be counterbalanced by safe haven buying of gold, particularly if global equities continue to drop.

28 Jan 2020

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com