Chinese gold consumption: Far higher than most analysts and media tell us

Edited version of article which first appeared on news.sharpspixley.com on Feb 15th

Once again we are indebted to Koos Jansen for crunching the numbers on China’s gold imports in 2016.  He has added together direct imports to mainland China from the following nations/areas which publish detailed export statistics – namely Hong Kong (771 tonnes), Switzerland (442 tonnes), Australia (53 tonnes up until September – October to December figures not yet available) and the UK (only 15 tonnes, although most UK gold exports to China now seem to be being routed via Switzerland where the refiners take good delivery gold bars from the UK and re-refine them to the sizes and purities demanded in the East).  Jansen sees little more going directly into mainland China from other sources and allowing for around 20 tonnes going in from Australia for the final quarter of the year comes up with a grand total of Chinese gold imports at approximately 1,300 tonnes. (See: CHINA Net Imported 1,300t Of Gold In 2016)

In addition – the USA will have exported around 4.5 tonnes direct to the Chinese mainland, and Jansen also comments that South Africa doesn’t break down its gold export figures so he may well suspect that some is going in from there too – but the amounts will be relatively small so we can stick to 1,300 tonnes as a nice round figure.

Add to that China’s own gold output, estimated by Jansen at 453 tonnes and there will also have been a scrap gold element to be taken into account.  This suggests that China ‘consumed’ around 2,000 tonnes of gold in 2016, which equates quite closely to the Shanghai Gold Exchange (SGE) gold withdrawals figure for the year of 1,970 tonnes – (See: 2016 SGE gold withdrawals lowest for four years).  This would seem to confirm Jansen’s oft-made assertion that SGE gold withdrawals are equivalent to total Chinese gold demand – a premise largely dismissed (perhaps without any adequate reason) by the major gold consultancies which virtually all put Chinese demand at less than 1,000 tonnes.

In part, this discrepancy relates to what the major consultancies label as ‘demand’.  They tend to ignore what Jansen labels as institutional demand which he puts at at least 778 tonnes plus, depending on the amount of supply from scrap sources.

In terms of Chinese gold flows though, all the above figures ignore Chinese central bank demand.  While this, at least in terms of reported additions to its gold reserves, appears to have slipped in 2016, it still came to a little over 80 tonnes – so overall gold flows for China last year look to have been in excess of the 2,000 tonnes noted above, although not by much.  This equates to 60% plus of the total of global new mined gold in 2016.

One other point from the latest statistics is the continuing reduction of the proportion of gold flows into the Chinese mainland via Hong Kong.  Too often we still see media headlines suggesting Chinese gold demand has risen, or fallen, purely based on the stats coming out of Hong Kong.  Based on the gold import figures alone, Hong Kong now accounts for less than 60% of the gold going into mainland China.  Thus the Hong Kong figures can no longer be considered a proxy for total Chinese gold imports.  As Jansen points out in his article:

Most likely Hong Kong’s position as the largest gold exporter to China will slowly fade in the coming years, as the State Council is stimulating gold freight to go directly to Chinese cities (hoping the Shanghai International Gold Exchange will eventually overtake Hong Kong’s role as the primary gold hub in the region). Consequently, gold exports to China are increasingly bypassing Hong Kong.  In December 2016 we got a preview of what is about to come: Switzerland net exported an astonishing 158 tonnes directly to China, up 418 % from November 2016, up 168 % from December 2015, and 106 tonnes more than Hong Kong did.”

See our own take on the Swiss December figures: China 154, Hong Kong 39.  Swiss Dec gold exports show remarkable gold flows.  We have long been pointing out the decline in importance of exports from Hong Kong to the mainland in the overall Chinese gold import figures.  Perhaps our message will eventually get through to much of the mainstream media – and some ‘expert’ commentators and analysts – who continue to ignore this point and continue with headlines which appear to collate Chinese total gold imports with those coming in from its Special Administrative Region!

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