Is it a coincidence that just as gold breaks through the key mark of $1225, the World Gold Council releases their latest report on Q1 global gold demand– indicating a decrease of 1%? If the price of gold is going up so much, and supply is dwindling, why would global demand be declining?
Is Global Gold Demand Really Down 1%?
Gold is taking off, so it must be time for some anti-gold propaganda. The primary problem with the WGC’s numbers is that the major media outlets always report them as gospel. But as we have pointed out time and time again, the WGC’s numbers are almost always drastically under the actual numbers and that for some reason the World Gold Council seems to have an agenda to continually suppress the price and downplay demand– notably Chinese demand.
Actual Chinese Gold Demand
The report states that Chinese gold demand fell to 273 tons, a decline of 7%. But a closer look at the withdrawals on the Shanghai Gold Exchange and you can see that the total amount of gold purchases was 625 tons! Going by the SGE numbers, just like last year, the WGC is undershooting Chinese demand by more than 100%!
The WGC even admitted in the fine print of one of their earlier reports that China doesn’t just move gold through the SGE.
There is a large amount of “shadow gold” that enters the country via the black market and secret or unreported transactions.
With a vibrant black market for gold in China and tunnels between Hong Kong and the mainland that can facilitate large scale smuggling, accurately determining true gold demand is nearly impossible.
Chinese tourists are also notorious for purchasing gold abroad and bringing it back home and in 2009, gold hoarding was publicly encouraged by the Chinese government. It is not known how much gold is surreptitiously moved into the country, but even banks and some jewelry brokers are not required to report purchases. The Chinese Central Bank is also widely believed to have been making gold purchases via proxy banks to obscure who is behind the transactions.
The numbers for India are likely under reported as well. Import duties on the metal have led to increased black market trade– the highest in 20 years– and as such, the true amount of gold moving into India is impossible to determine.
India and China account for up to 70% of global gold consumption and both countries have dramatically ramped up their buying in recent years.
China is looking to add the Renminbi to the IMF’s Special Drawing Rights reserve currency, or SDR, later this year and many are expecting the country to abandon the currency’s peg to the U.S. dollar and at least partially back the currency with gold. With the Renminbi’s value left to freely float, it is likely that the country will finally reveal their true gold holdings to provide some stability to the currency’s value. Naturally, that would have a major impact on the price of gold.