Shanghai gold premiums stagnate, SGE withdrawals hit another 1-yr high

Otmane El Rhazi from The Bullion Desk.

Physical gold premiums in Shanghai have stagnated despite a surge in demand ahead of the Lunar New Year, with SGE withdrawals once again hitting another one-year high.

The premium in Shanghai was reported at $2 over the spot price, a level that it has maintained throughout the week.

Despite the fall in premiums from $3 last week and $6 in the previous week, demand remains robust ahead of the Lunar New Year, which has been a key driver of the 10-percent climb in gold prices this year.

SGE withdrawals – a useful barometer for Chinese domestic demand – in the third week of 2015 were 70.62 tonnes, this highest since the start of January 2014, according to data released by the exchange. This was also the second successive week in which more than 70 tonnes were withdrawn.

Withdrawals have now surged to 201.75 tonnes in just three weeks from just short of 250 tonnes in the whole of January 2014.

Year-on-year comparisons are complicated by the fact that Chinese New Year falls 19 days later in 2015 than it did last year. January is a key period for Chinese consumers to acquire gold ahead of the New Year.

Importers are currently bringing less metal into the country to ensure they do not exceed their quotas, sources said – China strictly controls how much gold its banks can import through a quota system.

The spot premium in India also continues to fall amid dwindling demand, reaching a discount of $2-3, with importers said to be keen to offload metal rather than hold onto it.

In December, India imported just 29 tonnes of gold, down sharply from 150 tonnes in the previous month – a drop in demand and confusion over changes to the country’s legislation governing imports led to a dramatic fall in the amount of metal coming into the country.

Importers were said to be awaiting clarification on import duties and were thus reluctant to bring in metal following the abolition of the 80:20 rule at the end of November. Buyers are also likely to be well stocked after the strong run of imports in the second half of last year.

January import figures look set to be similar to the December total and far short of the 2010-2013 average of 90 tonnes, albeit in line with the 33 tonnes that were imported across the whole of January 2014.

Elsewhere, the Hong Kong premium was down to $0.70, which sources suggested could be the result of a build-up of material in the region. In Singapore, the rate is down slightly at 1.20, while the Dubai premium remained lower at $0.50, as did Bangkok at $1.50-2.

(Editing by Mark Shaw)

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