China’s government is likely the one behind the significant increase in gold imports that has made the country the world’s largest consumer of the precious metal after India, reports the Financial Times (subscription required).
Demand for the yellow metal in China has experienced solid growth over the past four years to the point that analysts predict the nation’s gold demand will beat supply by 2015, making it the world’s largest buyer by year-end.
China is already the world’s biggest gold producer and it has been so since 2007, with an annual output of 403 tons in 2012, a year-on-year growth of almost 12%.
Evy Hambro, chief investment officer of BlackRock’s natural resources equity team, wonders where all that gold is going.
“Is it going onto wrists, ears and necks or is it going into state reserves?” the FT quoted him.
The Chinese government does not publish any gold trade data. The numbers from Hong Kong, a major conduit for gold into the mainland, are used to obtain a realistic estimate of the country’s trade in the precious metal.
And those figures aren’t minor. Imports from Hong Kong climbed to the second-highest level on record in October, as the country bought more than 100 tonnes of gold for a sixth straight month. For the first 10 months of the year, imports totalled about 986 tonnes, more than double the same period last year.
The last official figures on record, provided by the People’s Bank of China in 2009, show the country’s bullion reserves standing at 1,054 tonnes. But based on global trade data, some analysts suspect China’s central bank has bought up to 300 tonnes of gold this year.
“I think we will need some clarity and that will really set the tone for gold in China in 2014,” Hambro told the FT. “If it does start to show that some of it has gone into state hands that will be very supportive for the gold market.”
Support is really what the gold market seems to need. This year, the shiny yellow metal dropped 25% and is steadily heading for the first annual drop since 2000.
Meanwhile, China has been easing rules this year regarding gold trade and investment. In addition to ETF approvals, it has extended trading hours on its bullion exchange and introduced a draft plan to allow more banks to import the precious metal.
Reprinted by permission of MINING.com