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China Gold Import Demand Still Worlds’ Biggest

10 October 2019


There have been multiple reports that the Chinese government has been curtailing gold imports by reducing the number of licenses issued to prospective gold importers – mostly financial institutions and fabricators of gold jewelry and artifacts.  However this only appears to have been a temporary restriction and, according to the latest import figures published by China, gold imports are already beginning to get back to more normal levels, but still remain substantially down year on year.  The increased quotas are not before time as fabricators in particular tend to need to build stocks ahead of increased demand for Chinese New Year artifacts and in 2020 the country’s New Year (a rat year)falls on January 25th – a week earlier than in 2019.  Stocks may also be somewhat depleted by apparent strong demand during the Golden Week holiday following China’s October 1st 70th Anniversary.


Gold Import by China

So far this year (to end-August), China has imported a shade under 700 metric tons (a metric ton is equal to 2,024 pounds – all the following tonnage figures are metric tons) of gold as against 1,126 tons to August 2018 and 864 tons in the first 8 months of 2017, but as the graphic above shows, August gold imports do seem to be picking up again this year, and monthly imports may well rise further as the year progresses.  The country thus still looks to be on track for gold imports over the full year to exceed 1,000 tons.  Together with the country’s own domestic gold production, plus an allowance for gold scrap recycling, this will put China’s annual gold absorption at around 1,600 to 1,700 tons, which is considerably higher than the figures publicized by major consultancies like GFMS and Metals Focus in London and the CPM Group in New York, which all seem to limit their consumption estimates to only some relatively restricted demand categories.


These latest figures would still leave China as comfortably the world’s largest annual consumer of gold, despite the apparent slowdowns implemented earlier in the year.  These lower figures to date are also supported by a marked reduction in Shanghai Gold Exchange gold withdrawal figures published so far this year - see table below:


Gold Withdrawals Table

While China remains by far the largest global gold consumer, one might expect that the far lower import figures we are seeing so far this year would suggest a big downturn in gold demand, and thus adversely affect gold’s supply/demand balance.  This might well be the case should other demand statistics have remained unchanged, but the year has also seen a big pick-up in global gold ETF inflows.


According to data published by the World Gold Council, Gold ETFs added some 292 net metric tons of gold up until end-August, and the figures have risen further since.  The biggest gold ETF of all, GLD in the USA, has alone added 126 tons of gold to its holdings since the beginning of the year, and as a guide to global inflows, has in September, added around 31 tons.  Assuming global totals rose at a similar rate to those of GLD, global ETF holdings will have risen by around 360 tons of gold year to date – countering most of the fall-off in Chinese imports.


Global gold output is close to a peak (Peak Gold), if it hasn’t reached it already, with production falls in some major producing nations like China and South Africa being offset by rises in the world’s No. 2 and 3 gold mining nations, Australia and Russia among others.  According to estimates from the major gold consultancies, global gold output may still be rising, but only by a tiny amount – probably less than 1 percent.  Peak gold may thus not quite be with us yet, but it is close, so we are not expecting any big supply increases, National demand reductions, like those we are seeing this year in China, remain the primary supply/demand balance factor – but as we have pointed out above, this is largely being counterbalanced by ETF gold inflows, plus continuing central bank purchases, so the actual supply/demand fundamentals are little changed by the Chinese gold import curtailment, big though it may be.  This will thus have little direct impact on the gold price.


Overnight trade and activity in Europe early last week saw a further sharp gold price downturn, although silver was less affected.  It seems that every time gold looks as if it might approach the $1,550 mark, as it did, it is brought back down very sharply driven by activity in the COMEX futures market.  However it has picked up rapidly and was back above $1,500 again by the end of the week – geopolitical events continue to create uncertainty, and some of the latest U.S. PMI and employment data tended to belie the Trump Administration’s oft-stated mantra that the U.S. economy is stronger than ever.  Well a Presidential election is coming up in just over a year’s time after all.  Gold may thus well be consolidating at, or close to, $1,500 which could be forming a solid base from which to jump upwards when the markets are aligned.  The writer is predicting that the equities markets may be brought down sharply by a tech stock crash, which would broaden the appeal of gold as a (relatively) safe haven and wealth protector.


What is really positive for gold though is that the world remains an uncertain place.  There are potential U.S. domestic (Trump impeachment moves and possible recession) and global (Middle East. North Korea and China to name but three) potential flare-ups ahead and then the likelihood of more U.S. Fed interest rate cuts.  These are precious metals positive – particularly for gold and silver.  Now could well be an opportune time to stock up as when the precious metals do start to rise they could move up fast.