China HK gold imports accelerating - 109 tonnes in Feb
Lawrence Williams

Gold bulls should be heartened by the latest official figures for Chinese gold imports through Hong Kong for February. Not only were net imports some 30% higher than in the previous month, but fully 79% higher than in February 2013 according to calculations from Bloomberg based on the latest Hong Kong official data. The latest figures out of Hong Kong suggest that far from Chinese gold demand slowing down this year it could even be accelerating.

Indeed for the first two months of the year net imports through Hong Kong totalled 192.8 tonnes as compared with 80.6 tonnes in the first two months of 2013 suggesting that imports over the 2 month period have actually risen by just under 140%. Some demand slowdown!! The very fact that China imported more than 100 tonnes in February – normally a weak month for gold imports because of the Chinese New Year holiday – has to be highly significant as a guide to likely ongoing Chinese demand. Indeed the 109 tonnes imported was a comfortable new record for the month.

March Hong Kong figures for net imports into mainland China, when they are released in a month’s time, may bring things a bit more down to earth compared with a year ago. As shown in the table below, March 2013 was a record month for Chinese gold imports – interestingly just ahead of the gold price plummeting in what many believe was a concerted take-down on COMEX by interested parties with huge capital backing who felt threatened by a possible return to the gold bull market prevailing up until August 2012. Thus March 2014 may well see a sharp drop on year-ago figures which will no doubt be trumpeted by those who wish to see gold lower as the beginning of the end of the big upsurge in Chinese demand. But if this happens one needs to look at the cumulative quarterly figure, which will almost certainly still show a decent year-on-year increase, as being more representative of overall Chinese demand.

HONG KONG GOLD IMPORTS

The above table also suggests that the key months for China gold imports are March through to September so it will be important to see how demand in these months holds up this year before making a reasonable assessment on overall Chinese demand levels.

And it has to be recognised that Chinese import figures are for physical metal – not the paper futures which have been driving COMEX prices. Without the constant outflows of physical gold from the big gold ETFs which we saw last year one might wonder where all this gold is going to come from. Should India relax its gold import curbs, which many believe to be likely to happen ahead of, or immediately after the Indian elections next month, then Indian imports could well surge to match those of China with the two Asian nations tieing up virtually all global new mined gold output between them

What is uncertain, as China doesn’t publish the relevant statistics, is how much gold is imported through other ports of entry than Hong Kong. Koos Jansen who is an avid follower of Chinese gold import and demand information, and who uses statistics from the Shanghai Gold Exchange (SGE) to support his arguments – see his website In Gold We Trust - puts Chinese annual gold demand in 2013 at somewhere well over 2,000 tonnes (including China’s own production of some 430 tonnes) and has noted recently (March 21st) that deliveries out of the SGE have already reached 488 tonnes this year, which is tacit confirmation that Chinese demand is indeed running at record levels.

So – so far no slowdown in Chinese demand is apparent. The writer’s view is that if this kind of level of Chinese demand continues through the year, India relaxes its import restrictions and sales out of the ETFs cease, or even reverse, the there is bound to be a squeeze on physical gold developing which could bode well for the gold price. But, never underestimate the capabilities of those who may see an advantage in suppressing the price of so doing. No markets these days are conducted fairly as afr as the average investor is concerned and gold is certainly no exception.

Lawrence (Lawrie) Williams has been involved with both the technical and the financial end of the mining sector for over 40 years, formerly CEO of top mining industry business publisher, Mining Journal Limited, he was Mineweb's General Manager and Editorial Director up until October 2012 and is now Consultant Editor. He has worked as a mining engineer on gold, platinum, uranium and copper mining operations.

Email: lawrie@mineweb.com

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