The Chinese gold consumption mystery – where’s it all going?

chinagoldThere is a large disparity between apparent Chinese total gold imports, and its ordinary domestic consumption. Is this yet another sign of the nation’s government building up its gold holdings?

What is the real level of Chinese gold consumption – and what is included in the announced statistics? There is a host of seemingly conflicting information which is becoming ever more difficult to interpret.

The latest figure for 2013 Chinese gold demand has come from the China Gold Association, which should perhaps know best. The Association stated on its website that the country’s gold consumption grew to 1,176 tonnes last year – with demand for gold bullion rising a massive 57% to 375.7 tonnes and jewellery demand up 43% to 716.5 tonnes over 2012 figures.

Total Chinese gold imports via Hong Kong reached close on 1500 tonnes last year – 1139 tonnes net – a new record and probably comfortably in excess of India for perhaps the first time. December’s net gold imports by Mainland China via Hong Kong bounced back to hit around 95 tonnes from 77 tonnes in November, but still way below the 131 tonnes recorded in October.  For some reason Reuters and Bloomberg figures for Chinese gold imports seem to vary – despite both reporting statistics received from the same source – The Hong Kong Census and Statistics Department – but overall both sources confirm record net and gross import figures for the year and the variations are not important – it’s the trend that counts most.  Reuters puts the total at 1158 tonnes while Bloomberg at a rather lower 1109 tonnes.  Mineweb, which has been monitoring the announced Reuters figures month by month puts the total somewhere between the two at 1139 tonnes – the differences rather more than can be accounted for by rounding monthly figures up and down – but be this as it may it suggests that Chinese gold imports through Hong Kong probably more than doubled in 2013 over 2012.

Since Hong Kong is actually a Special Administrative Region of China, the gross figures (i.e. not discounting re-exports from  Mainland China back to Hong Kong) – suggests China as a whole (i.e. Including Hong Kong) will have imported a little under 1500 tonnes of gold in 2013.

But again, China also imports gold through other land, sea and air border points, which are not officially quantified by the Chinese, and we suspect total imports may well have been in excess of 2,000 tonnes for the year.  Taken with China’s own gold mine and smelter by product output (currently estimated at around 430 tonnes for 2013) this brings China’s total gold consumption to say 2,430 tonnes in 2013, representing around 85% of last year’s global mined gold output – quite probably higher!

Now the most of the world’s media seems to have taken this at face value, without querying the figures in any way – but they just don’t seem to tally with any other figures for known net gold imports via Hong Kong – for which stats are published monthly – of around 1,150 tonnes (close to the China Gold Association’s total demand figure), to which should at the very least be added a further 428 tonnes of China’s own gold production.

But does this tell the whole story? We think not as our understanding is that Chinese gold imports have actually been substantially higher than those to the mainland via Hong Kong alone (and indeed what constitutes Chinese gold imports. Should Hong Kong itself be included – after all it is a Special Administrative region of the PRC.  If so imports via Hong Kong, including those which stay, or are re imported from mainland China, total perhaps around 1,500 tonnes.)

But even this does not represent the full story. It is apparent that there are other gold import points for bringing gold into China – notably via Shanghai and over the land border with Russia and if one goes by Shanghai Gold Exchange 2013 gold consumption figures the likely number for Chinese gold imports (excluding those which stay in Hong Kong) is more like 2,000 tonnes.  (We can probably discount the Hong Kong imports as we do not believe Hong Kong demand is incorporated in the China Gold Association figure.)

But, assuming the total Chinese mainland gold consumption figures as quoted by the SGE are correct, and to this added the Chinese gold production figure, we come up with a total of say 2,400 tonnes of gold consumption. If we take the Chinese Gold Association figure as that consumed by the Chinese general populace then this leaves a huge gap of some 1,250 tonnes!  Where indeed is this excess volume of gold going?

The obvious answer is into a government holding of some kind which will, at some politically expedient stage, be moved into the Chinese Central Bank’s gold reserves and reported to the IMF. This suggests a far bigger and faster build up in Chinese gold reserves than suggested by some other research looking at the disparity between imports and apparent total consumption, and could lead to China surpassing the presumed U.S. gold reserve of 8,133.5 tonnes in say perhaps four years assuming that it carries on accumulating at at least the current assumed rate and has also been building its holdings since its last announced change in its official gold reserve to 1,054 tonnes five years ago.

Chinese officials and academics all seem to see the country’s gold holdings as a key to expressing its global financial position and as a strong help in perhaps dictating the terms of any new global reserve currency that may be considered in the years ahead. China’s long term strategic planning is something of which the West should be extremely conscious. In historic terms the U.S. domination of world finance may be shortly due to come to an end anyway and China, with its enormous population and economic growth is the almost inevitable successor – and the way things are going this could well happen sooner than later. Caveat draconem!

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