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China ‘Major Factor’ In Gold Market; Sept. Net Imports Remain Above 100 Tons

By Allen Sykora Kitco News
Friday November 1, 2013 11:04 AM

(Kitco News) - China’s net gold imports from Hong Kong declined marginally in September but overall are considered strong, with one investment bank citing this as an example of the continued shift toward more demand in Eastern nations than in the West.

Shipments to China from Hong Kong were 116.3 metric tons in September, with exports to Hong Kong of 6.9. This left net imports of 109.4 metric tons, down 0.7% from 110.2 the prior month, according to news reports.

“Month-to-month data that show small changes are not really that meaningful. What counts is the trend over a longer period…,” said Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic consultant for Rosland Capital. China “has become in recent years perhaps the major factor in the physical market and it’s likely to remain so or become even more-so in the years ahead.”

The Chinese government does not release actual statistics for imports into mainland China. As a result, analysts monitor data from the Hong Kong Census and Statistics Department in an effort to measure the flow of the yellow metal into China.

“This was…the fifth consecutive month to show net imports in excess of 100 tons,” said Commerzbank. News reports peg net imports at 826 tons so far this year, double the first nine months of 2012.

Commerzbank said Chinese imports so far have exceeded the outflows from global gold exchange-traded products, which it lists at just shy of 703 metric tons in the first nine months of the year.

“This is further evidence that gold demand is shifting from West to East,” Commerzbank said.

Several analysts said the data confirm ideas that China will overtake India as the world’s largest consumer of gold in 2013. While Chinese demand has been strong for most of the year, Indian imports have been reported softer in response to government efforts to limit inflows of the metal to curb a large current-account deficit.

“With what is happening in India right now, China would be by far the biggest importer,” said Afshin Nabavi, head of trading with MKS (Switzerland) SA. “Don’t forget, they (the Chinese) also have production themselves internally that is consumed by them.”

Traders will be closely watching the October data when it is released to see whether there is slowing of Chinese imports. The Chinese market was closed for a one-week stretch for the Golden Week holidays, Nabavi pointed out. Also, several analysts said activity in China was more lackluster at the end of October, with premiums softer than earlier in the year.

“It will be interesting to see what figures we have in October,” Nabavi said.

Nichols pointed out, however, that lower premiums may not necessarily be an indicator of reduced domestic demand in China.

“The government has taken steps, in a sense, to provide more supply to the domestic market, increasing the number of banks and financial firms that are licensed to import gold,” he said. “They’ve sort of greased the wheels a little bit more in order to ameliorate the possibility of big premiums again.”

He said Chinese supplies are likely rising, both mine production and scrap recovery. This means especially strong consumption if the country is importing metal at the same time.

Further, there is likely more metal than reported flowing into the country via smuggling through “large and porous” borders, especially when premiums are high, Nichols said. And, he continued, the country’s central bank is thought to be adding to its gold reserves, and some of this may be held in depositories of other central banks and therefore not included in the import data.

Nichols suggested the government is likely trying to encourage private investment demand while at the same time minimizing the impact of its consumption on prices in the world marketplace.

“It wants low prices to acquire gold rather than prices that would certainly be higher if people were giving adequate recognition to the strength of Chinese demand,” Nichols said.

He later added: “Intuitively, I have to feel that Chinese demand is very strong, will remain strong over the long run and will become an increasingly important factor in setting the price in world markets.”

By Allen Sykora of Kitco News asykora@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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