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This month, the Hong Kong Census and Statistics Department reported that China imported 102,779 kilograms of gold from Hong Kong in November, an increase from October’s 86,299 kilograms. Beijing does not release gold trade figures, so for this and other reasons the Hong Kong numbers are considered the best indication of China’s gold imports.
Analysts believe China bought as much as 490 tons of gold in 2011, double the estimated 245 tons in 2010. “The thing that’s caught people’s minds is the massive increase in Chinese buying,” remarked Ross Norman of Sharps Pixley, a London gold brokerage, this month.
So who in China is buying all this gold?
The People’s Bank of China, the central bank, has been hinting that it is purchasing. “No asset is safe now,” said the PBOC’s Zhang Jianhua at the end of last month. “The only choice to hedge risks is to hold hard currency—gold.” He also said it was smart strategy to buy on market dips. Analysts naturally jumped on his comment as proof that China, the world’s fifth-largest holder of the metal, is in the market for more.
There are a few problems with this conclusion. First, the Chinese government rarely benefits others—and hurts itself—by telegraphing its short-term investment strategies.
Second, the central bank has less purchasing power these days. China’s foreign reserves declined in Q4 2011, falling $20.6 billion from Q3. The first quarterly outflow since 1998 was not large, but the trend was troubling. The reserves declined a stunning $92.7 billion in November and December.
Third, the purchase of gold would be especially risky for the central bank, which is already insolvent from a balance sheet point of view. The PBOC needs income-producing assets in order to meet its obligations on the debt incurred to buy foreign exchange, so the holding of gold only complicates its funding operations. This is not to say the bank never buys gold—it obviously does—but there are real constraints on its ability to purchase assets that do not provide current income.
Apart from China’s central bank, there is not much demand from the country’s institutional investors for gold. There are industrial users, of course, but their demand is filled from domestic production—China is the world’s largest gold producer. Most of China’s gold demand from foreign sources, therefore, is from individuals.
So why are individuals now buying gold? The easy answer is that the demand is only seasonal, as Jeff Wright of Global Hunter Securities believes. The Chinese traditionally buy gold presents in the run-up to the Lunar New Year, which started a week ago. Yet gift-giving does not begin to explain the surge in gold purchases that started as far back as July. November was the fifth-consecutive month of China’s record gold purchases from Hong Kong.
A better explanation for the gold-buying binge of Chinese citizens is that they are using the shiny commodity as an inflation hedge, as the Financial Times recently suggested. Yet the buying of gold has increased while inflation has eased. And that means there must be another explanation. The best explanation is that individuals in China are using gold as a substitute for capital flight.
Although indicators showed the Chinese economy faltered only at the end of September, there had been a growing sense of pessimism inside the country for months before then. Beijing, after all, could build only so many “ghost cities” before citizens began to notice. As Joseph Sternberg of the Wall Street Journal Asia said on the John Batchelor Show last Wednesday, “people inside China seem to be losing faith in the Chinese growth story that we’ve been hearing so much about for the past few years.” Estimates of capital flight are sketchy, but it appears there was $34 billion of it in the third quarter of last year and a $100 billion in the fourth.
Not every Chinese citizen is in the position to export cash, so the next best tactic for the nervous is to buy gold, a refuge from plunging property prices and declining stock markets as well as an anticipated depreciation of their currency. “Within China,” notes Michael Pettis of Peking University, “many are going to argue that the rapid decline in the trade surplus, coupled with unmistakable evidence of flight capital, means that the PBOC should devalue the RMB.” And the fact that China’s leaders in public are talking about the adverse impact of the European crisis on China weighs heavily on sentiment.
The worst thing about capital flight and gold purchases is that they drain liquidity out of the Chinese economy just when it is needed most. Beijing can continue to work its magic as long as strict capital controls keep money inside the country. Once they fail to do so, however, all bets are off. The purchasing of gold, of course, results in the exporting of cash.
Chinese asset values have not yet crashed across the board, but the buying of gold—a leading indicator of panic—is an especially troubling sign that they will. Therefore, it is not surprising that gold purchases by Chinese citizens and investors are frightening Beijing’s technocrats. At the end of last month, they shut all of the countries gold exchanges other than two of them in Shanghai.
... Therefore, it is not surprising that gold purchases by Chinese citizens and investors are frightening Beijing’s technocrats. ...
"I know this book. Your conclusions were all wrong, Ryan. Halsey acted stupidly."
The author of that article obvisously isn't aware that the PBOC has been encouraging the public to buy gold. I doubt the author is aware of the Chinese plans involving PAGE either.
It was just the tip of the iceberg. We're talking about last week's move by Zijin Mining Group to launch a $299 million bid for Norton Gold Fields, which operates the Paddington goldmine near Kalgoorlie.
There was some surprise expressed at this. While Chinese companies have been snapping up bulk and base metals projects around the world, it was generally thought they had little interest in picking up gold projects.
Think again. A very reliable source close to several gold companies tells us Chinese interests are not only taking stakes in explorers and miners, they are also buying gold directly from producers and shipping it home.
There is much talk in gold bug circles in the United States that the recent purchase by the Bank of International Settlements of more than 4 tonnes of gold may have been wholly or in part on behalf of the People's Bank of China.
Our source is quite clear on one thing: The move on NGF is just the beginning. China wants more gold and it doesn't want to pay full market price for it (as it doesn't for any mineral) so it will be looking to pick up more Australian gold producers and add the yellow metal to its existing central bank gold pile.
Not something the Perth Mint will be happy to hear.
Chinese interests took control last year at Laverton-area goldminer A1 Minerals, now renamed Stone Resources after its Hong Kong parent.
That parent took an unsuccessful lunge also at Crescent Gold. Last year a Chinese consortium spent $US79 million on a 17.7 per cent holding in Gold One International.
Chinese interests spent $80 million to buy the controlling stake in Australian-owned Zara gold project in Eritrea and Yunnan Tin owns 12.3 per cent of YTC Resources, which is developing the Hera goldmine near Cobar in New South Wales.
And Sovereign Gold, which featured here two weeks ago for uncovering long lost shafts on the Rocky River-Uralla goldfield in northern NSW, has subsequently signed up partner Jiangsu Geology & Engineering to pay $4 million to buy 30 per cent of two tenements.
China and India know that gold and silver is the thing to own.
...
China is bypassing the paper markets. Stealth mode activated.
Main takeaway from #GoldSymposium in #Sydney: Chinese are buying gold mines in Western Australia faster than lawyers can write the contracts
From Jim Rickards on location in Australia:
http://mobile.twitter.com/JamesGRickards/status/260730224310878208
China’s Ministry of Industry and Information Technology announced that it expected Gold consumption in the country would be running at more than double national gold production by the end of 2015, more than double Chinese gold consumption forecast for 2012.
According to the MIIT statement, domestic demand is set to surpass 1000 tons by the end of 2015. It said this would ‘widen the fundamental market shortage’ and noted that the shortage of supply will persist in the coming few years as domestic gold supply ‘might only reach 450 tons by that time.’
Official gold policy
The ministry promised: ‘In order to strengthen the gold industry the government will increase gold mine investment, speed up industry consolidation and international cooperation. It also said it would ‘develop gold trading platforms and investment variety (presumably meaning ETFs).
...
Gold imports into mainland China from Hong Kong surged 94 percent to an all-time high last year as rising incomes in the world’s second-largest economy underpinned increased demand and helped the metal to post a 12th annual gain.
Mainland China imported 834,502 kilograms (834.5 metric tons), including scrap and coins, compared with about 431,215 kilograms in 2011, according to Bloomberg calculations based on data from Hong Kong’s Census and Statistics Department. Imports in December rose to a monthly record of 114,405 kilograms, according to data from the department yesterday.
China was expected to displace India as the world’s biggest gold consumer last year, according to a forecast in November from the producer-funded World Gold Council. ...
Booming demand for gold as a store of wealth among Asian investors is driving physical gold bars and coins out of the United States and into Asia.
A growing number of gold vaults for affluent Asians and new precious metals investment products, particularly exchange-traded funds, have led to an exodus of gold owned privately from the United States into emerging economic powers such as China.
On Friday, Commerce Department data showed U.S. exports of nonmonetary gold, which excludes central bank transactions, soared by 43 percent to $4 billion in December from the previous month.
That's the highest total and the biggest month-on-month jump in U.S. private gold exports since September 2011, when gold rallied to a record high over $1,920 an ounce. Prices are currently about 14 percent below the peak at $1,643 per ounce.
Hong Kong accounted for around $2 billion, or half of the nonmonetary gold exports for the month.
...
http://www.mineweb.com/mineweb/content/en//mineweb-fast-news?oid=185408&sn=DetailHong Kong’s Feb net gold flow to China more than doubles
Data showed on Tuesday that net gold flow from Hong Kong to China stood at 60.958 tonnes, after excluding 36.148 tonnes of imports from China.
Author: Reuters
Posted: Tuesday , 09 Apr 2013
SINGAPORE (Reuters) -
Hong Kong’s net gold flow to mainland China rebounded last month from three-month lows in January, reflecting increased demand ahead of the Lunar New Year holiday and as buyers took advantage of weaker prices, data showed on Tuesday.
Gold exports from the former British colony to China, the world's No. 2 gold consumer after India, climbed to 97.106 tonnes in February from 51.303 tonnes the previous month, data from the Hong Kong Census and Statistics Department showed. (www.censtatd.gov)
The net gold flow from Hong Kong to China stood at 60.958 tonnes, after excluding 36.148 tonnes of imports from China, based on the data. In January, the net flow hit a three-month low of 27.336 tonnes.
"People were shifting gold to the mainland ahead of the start of the second quarter," said a dealer in Hong Kong, adding that a drop in bullion prices also spurred buying from China.
China’s rising affluence has buoyed the country's demand for the precious metal, with the net gold flow from Hong Kong to China hitting a record high of 557.478 tonnes in 2012.
Spot gold traded at around $1,573 an ounce on Tuesday, down 6 percent so far in 2013 after a 12-year rally, as investors shifted funds to better-yielding equity markets.
(Reporting by Manolo Serapio Jr. and Lewa Pardomuan; Editing by Clarence Fernandez)
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