The World Gold Council recently predicted that China and India will each consume 1000 metric tonnes of gold this year, which equals 75% of global gold production. China, which is the world’s #1 gold producer, never lets any of it out onto the international market, keeping it all to itself. In addition, it has traditionally been the world’s second-largest gold importer. The WGC, among others, predicts that China will move into the #1 spot for gold purchases this year, thanks in part to draconian import restrictions on the part of the Indian government.
New Delhi is desperate to curb a current-accounts balance that is weighing on the economy, and its two biggest imports are gold and oil. However, the Indian public’s demand for gold continues unabated, and is now being channeled into the black market, which is running rampant. WGC analysts believe that 200 metric tons or more of illegal gold will flow into India this year. This will make the official data on gold imports less reliable.
The real numbers for China have always been cloudy, as the regime in Beijing is loathe to reveal anything that may tip their hand regarding national policy, but it is well-known that officials are growing increasingly unhappy with the amount of U.S. Treasury debt they are holding. The last official mention of gold reserves was in 2009, at 1054 tonnes, which most analysts believe was grossly under-reported. What Western observers can do, is watch gold imports into Hong Kong that are destined for China. The latest data shows that net gold imports through Hong Kong was 110.5 tonnes in August, marking 4 months in a row of imports over 100 tonnes. This of course does not include Chinese gold imports through other avenues.
China’s domestic gold production has been increasing, with an estimated 1,200 tons produced since 2009. (Remember, none of this is leaving China.) Already the world’s leading gold producer, Beijing is pouring money into increasing capacity. The official China Gold Association reported that production increased 8.2% in the first eight months of 2013, compared to last year. At that rate, Chinese gold mine production is estimated to hit 405 tons this year.
China has also been moving aggressively to take advantage of the recent drop in gold prices in another area, by increasing its control over foreign gold production. Chinese companies have been buying gold mines and entire mining companies to gain control over the supply the nation desires. Most acquisitions have been in Western Australia, though substantial moves have been made in Africa, and more recently in Latin America. In fact, as other Australian gold mines were reducing production and laying off workers, neighboring Chinese-owned mines were ramping up production. Dianmin Chen, operator of the recently bought-out Norton Gold, Ltd. in Australia, was quoted by Reuters in August as saying he was told to double production by parent company Zijin Mining Group. A recent article on Bloomberg, titled “China Gold Mine Deals At Record After Price Plunge” notes: “Takeovers and asset purchases by producers based in China and Hong Kong rose to a record $2.24 billion this year, beating last year’s record $1.96 billion, according to data compiled by Bloomberg.” The article reports that gold consumption in China has reached 4 metric tons a DAY. That’s over 1400 tons a year.
If you’ve wondered where all the gold being dumped by ETFs in the U.S. and Europe are going, I think we’ve found it. The question for the West might soon be, “Where are we going to get more gold?”