Recent Reuters headline: China’s gold imports from Hong Kong dipped to 7-month low. The brief article which followed implied that Chinese gold demand was also dropping in commenting that Honk Kong imports remain a proxy for Chinese gold demand. They used to be, but not any more!
A more significant article from Bloomberg on Swiss gold exports- probably by far the biggest source of Chinese gold imports – in March noted that 46.4 tonnes was exported directly to mainland China, and only 30 tonnes to Hong Kong. Thus 60% to China and 40% to Hong Kong. This massive change in gold export routes from a year earlier when most Swiss gold going to China was still being routed through Hong Kong, failed to elicit any comment at the time. We had noted earlier here also that U.S. gold exports to China were increasingly being sent direct after virtually all going through Hong Kong in early 2014: 36% of October U.S. gold exports to China went direct rather than via Hong Kong
Now we don’t know exactly what proportion of Chinese gold imports are now going in directly and bypassing Hong Kong, but judging by the Swiss export data it could be as much as 50% or more and while Hong Kong obviously remains a significant route for the gold imports it looks to be becoming less and less relevant – particularly given further restrictions being lifted on the number of banks and companies allowed to import gold directly.
Thus the days of Hong Kong figures being relatively close to providing a very good idea of total Chinese gold imports would now definitely seem to be ending which will make estimating overall Chinese gold imports ever more difficult given that mainland China does not report this data. But on the basis of the latest Shanghai Gold Exchange withdrawal figures which are, if at least nothing else, an excellent trend indicator of overall Chinese gold demand, the Asian Dragon could be heading for a record year for gold demand with around 780 tonnes withdrawn so far this year from the Exchange up until one week ago. While it is far too early to make an annual estimate given these flows out of the Exchange tend to fall off mid-year, before picking up again from September onwards, should withdrawals continue as expected we could well be in for a comfortable new record come the year end.