GOLD ANALYSIS

China Q1 gold imports up six-fold YoY

China's imports of gold through Hong Kong have risen six times in the first quarter of the year compared with a year earlier - with March 59% above February's figures on a month on month basis.

Author: Lawrence Williams
Posted: Tuesday , 08 May 2012

LONDON (MINEWEB) - 

China looks as though it could be well on the way to overtaking India as the world's largest gold consumer this year as the import data through Hong Kong  - seen as a proxy for China's total imports, which may be far higher - have continued to surge, growing six-fold from the same quarter a year ago.

According to figures published yesterday, Q1 imports through Hong Kong totalled 135.5 tonnes from 19.7 tonnes a year earlier - and month on month imports increased by 59% for March in comparison with February.  However it should be noted that Q1 2012 Hong Kong imports are running well below Q4 2011 figures - although the past pattern is for imports to rise as the year progresses - and to rise sharply on gold price dips, which could well lead to a big April!

India's gold imports so far this year, however, appear to have been slipping - although this has been exacerbated by government moves to increase taxes on gold and a subsequent jewellers strike which adversely affected imports and sales in the first quarter, alongside a weakening of the rupee against the dollar which has been making gold more expensive to the buyer there.

Back to China - the Hong Kong figures are the only ones normally officially available with imports via other routes not reported.  Add to these China's own domestic production - the world's largest - which is all consumed, or hoarded, internally, it would appear that China's overall consumption may well - at the current rate, account for more than a third of global mine production which amounted to 2,809 tonnes last year according to the World Gold Council - with a further 1,612 tonnes coming from scrap.

There is ever-continuing speculation as to whether China is indeed building its domestic gold reserves in an attempt to reduce the proportion of its huge Forex holdings in US dollars.  If historical precedent is being followed, a significant proportion of Chinese government-held gold may be being held in a secondary account which is not reported in the official reserve figures.  Last time China actually reported an increase in its official reserves was three years ago when an accumulation over the previous five years was admitted.  Assuming the same pattern is being followed there is a good chance that, assuming all, or most, Chinese mine production is now being kept by the government, that the amount of gold in Chinese reserves could well already be around 1,000 tonnes higher (maybe much more if it is buying on the world market on dips as well as many suspect), than the last reported figure of 1,054 tonnes- but this would still see China languishing in 5^th place among countries' official reserve figures, behind the U.S., Germany, Italy and France.  The theory is that China is building its gold reserves as a prerequisite for the renminbi (yuan) becoming the world's reserve currency, replacing the dollar, with all the trade benefits that brings, at some time a number of years ahead (and China can be very good at long term planning).

Table - Top ten countries' official gold holdings by tonnes of gold

Rank	Country	Gold Holding (Tonnes)	% of Total reserves
1.	USA	8,133.5	77.1
2.	Germany	3,396.3	74.0
3.	Italy	2,451.8	73.8
4.	France	2,435.4	73.3
5.	China*	1,054.1	1.8
6.	Switzerlan4	1,040.1	18.6
7.	Russia	879.2	9.7
8.	Japan*	765.2	3.3
9.	Netherlands	612.5	62.5
10.	India	555.7	10.5

Source: World Gold Council

*Countries seriously underweight in gold on present reported reserves

But, as we have pointed out here before, China tends to tell the world only what it wants the world to know.  There is speculation in the West that both Chinese production and consumption of gold are higher than any official figures show see China's gold output and demand could be far greater than ‘official' data suggest.  Indeed the huge import figures recorded towards the end of last year (when the gold price fell back sharply) would seem to be far higher than could be supported just by growth in internal demand which suggests some official purchases at the time. However demand will almost cerainly have been climbing as rising incomes and curbs on property speculation have boosted purchases by the general public.

Even with what Western analysts seem to see as a significant fall to ONLY! an 8% growth rate this year this is growth nonetheless and as China gets richer gold consumption - which the general population is pre-disposed to see as a store of wealth - is likely to increase further.

But what about China's attitude to the gold price?  The Chinese government knows that it would only take a statement that it is indeed increasing its gold reserves to give the global gold price a huge kick upwards.  It would probably consider this an adverse move given the paucity of its gold holdings vis a vis those of say the USA.  But then it has also been persuading its citizens to buy gold too and it may not want to preside over a continuing gold price decline either.  China always plays its cards close to its chest.  Whether it becomes more overt with regard to its gold dealings will remain a matter for its politicians - but be aware that it almost certainly has the capability of moving the price to wherever it sees it as most advantageous to go.