The Gold Report: In mid-January the Chinese stock market plunged almost 10% and the world barely blinked. You spend a lot of time looking at China and how that market influences the gold price. What are your thoughts on China’s massive market correction as it pertains to gold?
Brien Lundin: I don’t think the performance of Chinese equity markets greatly affects physical gold demand in China. But as a backdrop of general uncertainty, the correction did nothing to hurt gold demand.
TGR: Nonetheless, you believe China is the story in gold.
BL: The big story for gold is China and Asia in general. We saw Chinese gold demand spike in 2013 after an orchestrated attack on the gold price earlier that year. We all thought that level of physical gold demand from China would eventually abate, but it never did. Then we thought physical demand would fall off in 2014, but it did not. The World Gold Council reported that gold demand in China was off some 50% in 2014, but in reality it was running close to the record rates of 2013, as gauged by deliveries from the Shanghai Gold Exchange, a little known metric that few gold market insiders follow.
Chinese gold demand in 2014 was about 2,100 tons (2.1 Kt), roughly 4% off record-setting 2013 levels. More important, Chinese demand was running over 50 tons per week throughout most of the fall and into 2015—a rate that projects to about 2.6 Kt/year. Only about 3 Kt gold is mined each year. If you combine, say, 2.2 Kt from China and about 0.8–0.9 Kt from India, those two nations alone would consume more than all the newly mined gold …read more