The widely followed GFMS precious-metals consultancy just issued an update to its Gold Survey 2015 report, and its bullish-leaning conclusions about bullions prospects depend highly on future gold consumption in China.
Now is good time to be confident about Chinese gold demand because much of Asia is buying bullion and jewelry ahead of the Lunar New Year holiday in early February. Gold is purchased on a wide scale for the celebrations, so January historically is a strong month for price gains.
Depreciating yuan to boost gold: But GFMS has more entrenched reasons to be bullish. The firm is predicting that the Chinese government will be forced to maintain its recent yuan-devaluing measures in order to bolster its slowing economy and plunging stock market. There remains a common view in the Chinese market that it is very likely that the yuan will continue to depreciate over the course of 2016, its analysts wrote. Once it becomes clear that the yuan is on a depreciating trend, Chinese people are likely to start buying more physical gold to preserve their wealth.
If Chinas recent import figures from Hong Kong are any measure, gold demand in the worlds top consumer alongside India is alive and well. Chinas imports of gold from Hong Kong surged 67% to the highest level in more than two years in December as stock market turmoil and anticipation of a further weakening in the nations currency spurred demand for a haven, Bloomberg reported.
Purchases increased to 111.3 metric tons in December from 66.8 tons in November and 58.8 tons in December 2014. But Hong Kong gold import data are just one metric used to gauge overall Chinese demand, and its an imperfect one at that.
China sucking up global mining output: In the past couple of years, analysts have placed increased scrutiny on the withdrawals and deliveries on the Shanghai Gold Exchange. That major bourse reported withdrawals at 2,596.4 tons overall in 2015, up from the record set in 2013, when 2,197 tons were withdrawn. Withdrawals, it has been argued, are a true measure of demand.
As Jesses Caf Americain blog recently noted, the Shanghai Gold Exchanges total withdrawals in 2015 now account for 91% of annual global gold production.[However, amid new concerns that China has stopped publishing Shanghai Gold Exchange statistics in 2016, its unclear whether outside analysts will have access to this window in the future.]
Meanwhile, another key demand figure exports of gold to China from Switzerland, an important global refinery hub jumped to 59 tons in December from 16.5 tons a month earlier, Bloomberg also noted, citing Swiss customs figures.
China maintains discreet gold flows: And Hong Kong and Shanghai are not the only access points for the gold trade. As a Reuters story from April 2014 revealed, China also has been importing gold into Beijing.
China has begun allowing gold imports through its capital Beijing, sources familiar with the matter said, in a move that would help keep purchases by the worlds top bullion buyer discreet, the news agency reported.
Meanwhile, other media agencies have suggested that China is acquiring gold through unofficial channels that go unrecorded in official trade statistics. In an article about a Chinese militarized unit tasked with exploiting the nations gold reserves, PopularMilitary.com quoted from a book by noted gold expert and author Jim Rickards. According to the passage, Rickards wrote:
A senior manager of G4S, one of the worlds leading secure logistics firms, recently revealed to a gold industry executive that he had personally transported gold into China by land through Central Asian mountain passes at the head of a column of Peoples Liberation Army tanks and armored transport vehicles. This gold was in the form of the 400-ounce good delivery bars favored by central banks rather than the smaller one- kilo bars imported through regular channels and favored by retail investors.
The point of all these details about possible Chinese entry points for gold imports is to say that if one or two facets of Chinese gold demand are already off the charts, then true bullion consumption there could likely be much greater than we can get our heads around.