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Imports of Gold into China via Hong Kong Surged Last Month

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Imports of gold into China via Hong Kong surged in March, rising 78.67% compared to February.

The amount of the yellow metal moving into mainland China via Hong Kong rose to 59.4 tons in March, up from 33.25 tons in February, according to data emailed to Reuters by the Hong Kong Census and Statistics Department. 

It’s difficult to gauge how much gold is actually moving into China because the country does not release that data. Gold imported to the mainland from Hong Kong serves as an indicator of gold demand in the world’s top consumer of the yellow metal. But Hong Kong data does not necessarily provide a full picture of Chinese gold purchases. The metal is also imported via Shanghai and Beijing.

The resurgence in imports from Hong Kong could signal a significant shift in overall gold demand in China. Imports fell 18.5% year-on-year in 2017 and were down 12.2% in December compared with November. The surge last month could indicate a reversal in the trend.

Commerzbank analyst Carsten Fritsch told Reuters investor demand in China was steady last year. The drop in imports was primarily due to “the complete absence of the Chinese central bank regarding gold purchases.”

The fact that the People’s Bank of China did not buy any gold last year left all domestically mined gold available to private households. As a result, the need to import gold dropped.”

Could the sudden spike in imports indicate the Chinese central bank has once again started buying gold?

In February, Russia passed China to become the world’s fifth-largest gold-holding country. But in 2016, the Chinese were also rapidly increasing their hoards of gold. In June 2015, the Chinese central bank announced its gold holdings had grown by 57% to about 1,658 tons. It was the first official update to China’s gold reserves since 2009. Over the next 18 months, the Chinese aggressively added to their holdings and took other steps to increase their influence on the world’s economic stage.

It remains unclear why China’s central bank put its gold purchasing on hold. In fact, it may not have. Many analysts believe the Chinese have significantly larger gold holdings than they report.

We won’t know for sure if the surge in imports from Hong Kong signals renewed central bank purchases until it releases that information. And it may not. The Chinese are notorious for shrouding their gold purchases and overall gold reserves in mystery.

The rise in imports could also be a factor of decreasing gold output in China. The country ranks as the top producer of gold, accounting for 15% of the world’s total gold production. Chinese mine production dropped by a record 9% in 2017.

Much of China’s gold stays in the country to feed the world’s largest gold market. Even as production dropped off last year, gold consumption in China grew 9.41%, according to information released by the China Gold Association.

Whether increasing gold imports into China are a function of decreasing supply, increasing demand, or both, it could have a significant impact on the global gold market if the trend continues.

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