China’s Unstoppable Gold Imports Continue Virtually Unchecked (Oct 2013)

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Source: Mineweb – China’s unstoppable gold imports continue virtually unchecked

People have been predicting that imports of gold into China would slow down – well August figures suggest they may have, but only by a minute 3 tonnes compared with a month earlier, and the country remains on track to comfortably exceed 1,000 tonnes of known net gold imports for the year, with a total of 723 tonnes imported via Hong Kong for the first eight months.

Extrapolating this over the full year would give a total import figure (via Hong Kong alone) of 1,084.5 tonnes.  On the evidence of the past six months’ import figures, the full year total could be quite a bit higher if recent momentum is sustained – and there’s no real sign of it slowing down, at least not yet – it seems more likely that the full year figure could well end up at more like 1,150 tonnes.  Certainly, in past years, imports have tended to rise as the year progresses, which means that even this number could be a conservative estimate.

China net gold imports from Hong Kong 2013

                                (tonnes)

January         20

February        61

March          136

April              76

May             106

June            101

July             113

August         110

Total ytd        723

But, as we have pointed out in these pages before, these figures are all based on net imports through Hong Kong alone as these are the only official figures available and are a throwback to British bureaucracy and obsession with trade statistics dating back to when Hong Kong was a British colony.

The Chinese have largely kept the old British system intact – even down to driving on the left, while the rest of China drives on the right!  The old British system seems to have worked in terms of Hong Kong remaining a major global financial centre, and rather than dismantling this when they took over in 1997, the Chinese enhanced it, while using it also as a template for rebuilding their own financial centres like Shanghai, which is now rapidly overtaking the former British colony.

But the Chinese Government itself does not publish import and export statistics for gold so we rely on the Hong Kong figures to obtain a picture of how much foreign gold is entering the country – but this is perhaps not the whole picture.  After all prior to 2010 gold imports through Hong Kong were virtually non existent.

It thus does seem unlikely to the writer that Hong Kong is the only import route for gold into China.  There are plenty of other major ports of entry for trade into China – not least Shanghai and Beijing, and in the Shanghai Gold Exchange and the Shanghai Futures Exchange, China has rapidly built up the world’s most active physical gold exchange and the second most active gold futures market in just a few short yearsIndeed the amount of physical gold traded there at times gets close to total global mine production!

China does play its gold cards very close to its chest.  Few believe that China has not been increasing its gold reserves quite substantially since it last announced their virtual doubling to 1,054 tonnes just over four years ago.  There have been some outspoken statements from people in China close to government and gold policy who have called for China’s gold reserves to be increased substantially – and in China few will make statements of this nature without state sanction.  Although to be fair, on the converse side, there have also been those in high places who say China’s reserves are actually unchanged.  But this may just be a matter of semantics and dependent on which particular government account, or warehouse, holds the gold.  That is what happened four years ago with the increase in the gold reserve just being transferred from another government account in which it had previously been being accumulated.  Such is the way of politicians and statistics.

Recently, in a measured article on Chinese gold, Jan Skoyles of the Real Asset Company, commented as follows:  “A 2012 paper, ‘A Study on Optimal Scale of China Gold Reserves’ co-authored by the Vice-President of the China Gold Association recommended that by 2020, China’s optimal reserves should be 5,787 – 6,750 tons. If the State Council has followed this recommendation then the PBOC should currently hold between 2,947.2 tons and 3332.4 tons of gold in reserve.” With its own gold production perhaps reaching 440 tonnes this year, this suggests Chinese gold consumption alone so far this year is already over 1,000 tonnes – and accounts for around 55% of global new mined gold output.  Perhaps more if imports other than through Hong Kong are significant.

Tyler Durden of Zero Hedge reckons China may actually even have far more than 3,000 tonnes in its reserves, as do a number of others, and is only waiting until it sees the time as right before announcing yet another gold reserve uptick.  But would this then even be accurate?

All this of course is surmise – and after all China is not the only country to be evasive on its true gold reserve status anyway.  Even the U.S. Fed won’t allow its gold reserves to be audited, which would not seem to be an unreasonable request if the gold is really there.

But, the fact remains that China is still bringing in gold at a high rate, and the momentum of this is being maintained so far.  Indeed Bloomberg inferred that the August figure might have been higher, but some of the banks and institutions able to import gold had come up against quota limits.  China has just relaxed its gold import restrictions opening it up to more companies or individuals.  Might this give a further fillip to gold imports through the rest of the year?  We will have to wait and see.

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