While we feel that the net gold export figures for Hong Kong gold entering mainland China remain as something of an indicator of the strength of mainland gold imports, they no longer really serve as a proxy for the total Chinese import figure. Chinese gold imports are increasingly coming in directly from other countries and we estimate, perhaps conservatively, that nowadays as much as 40% or more imported gold is entering the mainland from countries such as Switzerland, the UK, the US and Australia, which report detailed data, and from other gold producers that don't. Time was when 85% or more of known Chinese gold imports were arriving via Hong Kong. This is just no longer the case.
Thus, although a weakening of Hong Kong to China net gold exports is something of an indicator of the overall direction of Chinese demand, it is no longer a reliable guide for this. Take the latest Swiss gold export figures for example. Switzerland is a major supplier of gold to Asia as its refineries take in good delivery gold bars of around 400 troy ounces and re-refine them into the smaller sizes that are in demand by Asian investors and fabricators. Of the officially published figures for April Swiss gold exports to Hong Kong and mainland China, which between them took 23.5 tonnes - a low figure historically - more than half went into mainland China directly, thus avoiding transiting Hong Kong altogether. See: Switzerland gold data raises new doubts about London's gold stocks.
Reuters has reported that net gold exports from Hong Kong to China (figures as released by the Hong Kong Census and Statistics Department) fell from 71.8 tonnes in March to 68.8 tonnes in April - a relatively small 4.2% fall - but actually higher than in March and April 2015, a year when, incidentally, Chinese demand as represented by SGE withdrawals subsequently reached a huge new record - so perhaps the figure is not quite as disappointing as some might make out, particularly as Chinese gold demand tends to slip at this time of year anyway. Perhaps more significant is that gold premiums in Shanghai appear to have risen a little (at $2-$3 an ounce, also according to Reuters) suggesting there has been some decent underlying demand.
However, we have pointed out that SGE withdrawal figures are appreciably weaker so far this year (See: China Gold Demand Down Nearly 18% So Far This Year), but this may have been because of the surge in the gold price and perhaps now more price-sensitive Chinese consumers are just beginning to become more comfortable with the higher gold prices and could be re-entering the market again. In 2015, for example, there was a huge surge in Chinese demand mid-to-late year.
Despite the economic slowdown, Chinese GDP is still growing as is the country's middle (purchasing) class, so it is, perhaps, logical that over time purchasing of gold and gold jewelry and ornaments also will see growth, given that gold ownership is etched into the Chinese psyche, as it is in many other Asian nations. Even at the reduced level, we have seen so far this year, Shanghai Gold Exchange deliveries are still on track to reach 2,000 tonnes for the full year - a massive amount, so don't write off 2016 Chinese gold demand yet.
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