China Stimulates Gold Demand, Becomes World’s Largest Gold Importer

It was only a week ago when Adrian Ash reported that “India this year looks very likely to be eclipsed by Chinese demand possibly by as much as 100 tonnes when all areas of fabrication (and hoarding) are taken into account,” quoting SocGen analyst Robin Bhar.

China has seen an incredible rise in physical gold demand in 2013. The following chart shows the Chinese import data until July of this year. We wrote earlier that, between January and July of this year, China imported a staggering  633.94 tonnes of physical gold. The country is on its way to reach 1,000 tonnes of imports over the whole year, as forecasted by the World Gold Council. Chart courtesy: Goldchartsrus.

China_Gold_Imports_July_2013

At the end of the second quarter of this year, India was still holding the highest number of gold imports worldwide. Chart courtesy: USFunds.com.

india_china_gold_imports_Q2_2013

With exactly 15 restrictive measures in 18 months (see overview) by the Indian government contrasted by an increasingly stimulative policy in China, this year’s gold biggest importer is becoming China. Reuters wrote today:

China’s central bank is planning to increase the number of firms allowed to import and export gold and will also ease restrictions on individual buyers of the precious metal, according to a draft policy document issued on Monday. The proposed policy change could boost imports by China, which is expected to overtake India this year as the world’s top gold consumer, and where gold normally trades at a premium to London spot prices.

“If it comes into effect, supply into China could increase and (local) prices could ease depending on demand,” said a Hong Kong-based precious metals trader, who declined to be named.

The People’s Bank of China said on its website (www.pbc.gov.cn) that the new rules would allow bank members of the Shanghai Gold Exchange, as well as gold producers with an annual output of more than 10 tonnes, to apply for import and export licenses.

Trade is currently restricted to just nine banks, while the exchange has 25 bank/financial institution members. The central bank did not say when the new rules would take effect. In a statement accompanying the policy document, it said the draft rules were designed to “standardize and promote the development of the gold and gold product import and export business and protect the legal rights of practitioners.”

All transactions will need to be registered with the exchange, and license holders have a responsibility to ensure that domestic supply and demand remain balanced, the draft document said.

The central bank would continue to maintain control on overall gold export volumes “in accordance with the requirements of state macroeconomic policy adjustments,” it said. “It is part of the new tide of financial deregulation,” said Jiang Shu, a gold analyst with Industrial Bank in Shanghai. “In the long term, this is a natural process of relaxing gold import regulations.”

Read the moral of the Indian gold story in The Lesson Of India’s Gold Saga

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