After ending 2022 on an upward trend that continued into January, Chinese gold demand surged again in February as the economy continues to rebound from government-imposed COVID policies.
Gold withdrawals from the Shanghai Gold Exchange (SGE) totaled 169 tons in February. This is a reflection of strong wholesale demand and signals an ongoing rebound in the world’s biggest gold market.
SGE withdrawals in February were up by 30 tons month-on-month and by a healthy 76 tons year-over-year. It was the strongest February for wholesale gold demand since 2014.
The World Gold Council pinpointed two primary drivers of strong demand for gold in February.
- Healthy consumption amid the economic recovery and the release of pent-up demand
- Retailers’ restocking activities after the Chinese New Year (CNY) holiday
The Shanghai-London gold price premium also continued to pick up in February, reflecting strong Chinese gold demand during the month.
After a weak first half of 2022, gold demand in China surged during the last half of the year as the government relaxed COVID restrictions. With demand rebounding last two quarters, China imported 1,343 tons of gold in 2022, the highest import level since 2018. Total gold imports for the year were up 64% over 2021.
A recovery in the Chinese economy after government COVID restrictions strangled it helped drive the rebound in the gold market last year and into 2023. China experienced a COVID peak in December. According to the World Gold Council, Chinese economic activities revived in January.
The recovery in the Chinese economy was evidenced by the official Comprehensive Purchasing Managers Index (PMI) surging to 56.4 in February. It was the highest PMI on record since 2017. Manufacturing activities expanded the most since April 2012, and the service PMI grew at the fastest pace in 22 months.
Also, as we’ve reported, the People’s Bank of China resumed official gold purchases in November. That continued into February, with the Chinese central bank adding another 25 tons to its reserves. Gold now accounts for 3.7% of China’s total reserves.
Over the last four months, Chinese gold reserves have increased by 102 tons, based on official reported numbers.
There has always been speculation that China holds far more gold than it officially reveals. As Jim Rickards pointed out on Mises Daily back in 2015, many people speculate that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE).
If this apparent rebound in the Chinese gold market continues deeper into 2023, it will drive overall global gold demand higher. Gold demand grew by 18% to 4,741 tons in 2022, the highest demand in 11 years.
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