1,000 Tons, 1,200 Tons Or 1,750 Tons?: How High Are China's Real Gold Imports?

by: Lawrence Williams

Much earlier in the year, GFMS, via the World Gold Council, predicted that China would import around 1,000 metric tons of gold this year. Ever since then this figure has been quoted in nearly all media articles, notwithstanding the rising gold import tally through Hong Kong, suggesting that China will import perhaps over 1100 tons this year through this route alone. No doubt at some stage GFMS and the World Gold Council will adjust their total for Chinese imports to reflect the more recent figures.

But this kind of re-adjustment will still almost certainly not be anywhere near the true figure for Chinese imports. Reuters for example has just come up with a prediction, based on its own research which suggests a higher figure. If we extrapolate figures for gold imports via Hong Kong for this year it looks as though this total will reach more than 1,100 tons - and Reuters reckons that another 133 tons will have been shipped in through other ports - notably Shanghai - giving a total of at least 1,230 tons for the year - see gold pours into China to meet record demand, bypasses Hong Kong. But we would aver that this too represents a substantial under-estimate of the true position and real Chinese gold imports this year will reach between 1,700 and 1,800 tons at least - or about 75% of non-Chinese new mined gold supply. This assumes the global total of new mined gold will be around 2,750 tons of which China will produce around 430 tons leaving the non-Chinese total newly mined gold supply at around 2,320 tons.

How do we arrive at this figure? Quite simple really. Although the Chinese government does not produce any statistics on mainland China gold imports, the country's Central Bank, The People's Bank of China (PBOC), does produce an annual figure for Chinese gold consumption, while the Shanghai Gold Exchange (SGE) reports all gold deliveries via the exchange - and if one adds up all the SGE's monthly figures they tally exactly at the year end with the total consumption figure released by the PBOC. So the amount of physical gold shipped through the SGE is effectively what China consumes in the year. This data has all been gleaned by gold analyst Koos Jansen, who takes a particular interest in China's gold consumption and imports - click here to see how he arrives at his data.

On Jansen's data, taken directly from the SGE, physical deliveries via the exchange to September 17th this year totaled 1,546 tons. If we extrapolate this through to the end of the year, which itself may prove an underestimate in that demand in the second half of the year tends to be higher than in the first half, Chinese gold consumption this year would be around 2,180 tons. Imports would thus be the annual total, less the gold produced in China itself - the aforementioned 430 tons - giving total imports of 1,750 tons - considerably in excess of the GFMS/WGC estimates, but a figure which seems to bear a much closer relationship to reality and hugely emphasizes the flow of gold from the West (largely out of the ETFs, plus mined production) to the East.

But the situation with regard to gold flows is even more significant if one takes into account Indian and other Asian demand and that from the Middle East, notably the Gulf States, and Turkey. Despite the Indian government's draconic clampdown on precious metals imports through tax impositions, most analysts see that nation still importing perhaps close to 1,000 tons in 2013, giving an India plus China, total of 2,750 tons which would mean the total of newly mined supply would be taken up by these two countries alone.

And, of course, should the Chinese Central Bank be buying gold as many suggest - see: Playing The Long Game: How Big Are China's Real Gold Reserves? - this gold would not necessarily find its way into the PBOC consumption figures and if this is indeed the case the huge move of gold from West to East could be even bigger than we all imagine. Interesting times.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.