According to figures released by the China Gold Association (CGA), China’s annual gold output fell, albeit by a paltry 0.4%. in 2015, down to a still comfortably world leading 450.05 tonnes. While the actual amount of the fall is insignificant, the fact that it has declined at all, is not so. Over the past 10 years China’s gold output has been growing at an average annual rate of around 11% bringing it far and away to being the world’s top gold mining nation – producing 1.6 times more gold than the world’s second and third largest gold miners – Australia and Russia, and more than double that of No.4, the USA – See: World’s Top 10 Gold Mining Nations and Peak Gold for consultancy GFMS’s most recent report on production from the world’s top 10 global gold mining nations – which incidentally had suggested that China’s gold output rose last year, but as we pointed out these figures were only estimates. One would hope that the latest CGA figure is definitive.
The CGA also reckoned that Chinese gold ‘consumption’ last year ‘rose’ 3.7% to 985 tonnes. However the CGA apparently subscribes to the World Gold Council’s ‘consumption estimates’ (there is an association between the CGA and the WGC). which we reckon hugely underplays the amounts of gold flowing into China by ignoring gold held by the Chinese commercial banks (See: How does one calculate the huge gold flows into China now SGE no longer publishing withdrawal data). Known imports of gold into China last year were very significantly higher than the CGA figures for ‘consumption’, and to which has to be added the aforementioned mined gold output, plus scrap. Such gold absorption by China would thus be comfortably more than double the CGA’s ‘consumption’ estimate. Be this as it may, the CGA does say that it expects Chinese gold demand to keep on growing in the years ahead along with the growth in the Chinese middle classes with their buying power. (Latest estimates put the numbers of Chinese with middle class status now exceeding the number of U.S. middle class citizens and continuing to grow with China’s GDP. Don’t be fooled into believing that China is in recession. Even though there are doubts expressed about the actual level of GDP growth, it IS still growing, and at a faster rate than western economies.)
What this means, if the Chinese gold production decline continues, is that its citizenry will need to replace the shortfall in China’s own gold output by buying more from outside. Thus higher import levels (We have already seen a big surge in gold imports from Hong Kong in December). This can only exacerbate the ever continuing gold flows from West to East. This physical gold has to come from somewhere – or will lead to substantially higher gold prices which could even overcome the COMEX futures market pricing based on paper gold transactions. How long this will take is anyone’s guess, but the day must be drawing closer.
See also: China gold output falters for first time in around 20 years on sharpspixley.com