For all of the talk that gold demand from China was waning along with the slowing wheels of manufacturing in the People’s Republic, the country sure seems to be importing a lot of the yellow metal.
The People’s Bank of China added 16 more metric tonnes of gold to its reserve during August, fully a 1% increase to nearly 1,700 tonnes officially held by the central bank.
Even with a considerable amount of domestic gold production being absorbed into the country. Chinese gold jewelers have increased their fabrication volumes, so a bit more gold leaves the country for international markets than it used to; nonetheless, the vast majority of gold mined in China (and, when Chinese-owned South African mines are counter, by China) stays in the country. This is a considerable total when you realize that China has been the planet’s top gold producer for about the past 8 years.
Record Pace of Imports
Despite the hoopla surrounding this summer’s severe correction for stock markets in China and its Southeast Asian neighbors, gold-buying has not suddenly ceased overnight in the People’s Republic. Aside from some individual equities traders or investors recouping losses on stocks by selling some of their privately-held (or institutionally-held) gold, the influx of the metal into the country has remained strong.
Month-over-month, gold imports to China from Switzerland rose by 49%. Switzerland is invariably the source for gold (and financial services) that the Chinese trust most. Gold imports from Hong Kong have also remained robust, doubling (+100%) year-over-year.
Through the first 8 months of 2015, trading volumes were 150% higher on the Shanghai Gold Exchange than during the same period during the previous year. The SGE also saw a sharp 37% increase in its total withdrawals year-over-year despite the talk that demand for gold was finally abating on the Chinese mainland, as well as on the Indian subcontinent. Neither of these predictions have come to fruition as yet: both India and China are projected to bring somewhere in the neighborhood of 1,000 tonnes of gold across their shores by the end of 2015.
There is, however, the possibility that SGE withdrawals (as a proxy for the Chinese gold market) could be double-counting some of the gold that is imported. For the most part, China is purposely secretive about its gold reserves and doesn’t generally report data on its gold imports. Most speculation places actual gold held in China far above official numbers, either due to greater buying in the past then estimated or because current inflows are being understated.
Chinese Gold Policy Changes
Interestingly, the country’s central bank did switch very recently to announcing its total gold reserves each month, like most of its peers do, in order to create an image of greater transparency. At its first such announcement earlier this year, the PBoC revealed that it is now the 5th-ranked country by gold reserves, leapfrogging Russia. The Russians are hardly being left in the dust, however: the Russia central bank has tripled its gold reserves over the past decade, and claims more than 1,000 tonnes on reserve.
China finally liberalized its policies to allow citizens to own and hold gold around 2002—perhaps implying that the state had accumulated a satisfactory amount of gold bullion for itself over the previous two decades. The question is, How much?
Meantime, the gold price was virtually flat in trading on Thursday, sitting idle at $1,116/oz. Spot gold continues its worst streak of quarterly losses (5) since 1997-1998.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.