China's Gold Imports Jump Sixfold

Anthony Bradshaw | Getty Images

Chinese gold imports from Hong Kong, a proxy for the country’s overall overseas buying, leapt to a record high in September, when monthly purchases matched almost half that for the whole of 2010.

The buying spree follows a sharp drop in the price of the precious metal. After hitting a nominal all-time high of $1,920.30 a troy ounce in September, gold fell to a three-month low of $1,534 an ounce later in the month. Chinese investors snapped up the metal as prices fell.

Analysts expect the September import surge to continue until the end of the year as Chinese gold buyers snap up gold in advance of Chinese New Year, China’s key gold-buying period.

“In September we saw some bargain hunters come back into the market on the price dip,” said Janet Kong, managing director of research for CICC, the Chinese investment bank.

China is the world’s second largest gold consumer and demand has grown rapidly over the past year as Chinese investors buy gold to hedge against inflation and consumers buy more gold jewelry. Beijing does not publicly disclose its gold imports, but analysts consider the Hong Kong import figures a good directional proxy for the country’s total gold overseas buying.

Data from the Hong Kong government showed that China imported a record 56.9 metric tons in September, a sixfold increase from 2010. Monthly gold imports for most of 2010 and this year run at about 10 metric tons, but buying jumped in July, August and September. In the three-month period, China imported from Hong Kong about 140 metric tons, more than the roughly 120 metric tons for the whole 2010.

The last two months of this year are likely to see China’s gold imports surge further ahead of Chinese New Year, supporting gold prices, according to Ms Kong. “We’ve noted a quite strong seasonality in gold prices, typically prices go up in the months before the Chinese New Year.”

Investment demand for gold in China has been particularly strong this year as a hedge against inflation. Chinese bank deposits offer negative real interest rates, and other outlets for investment have been limited as Beijing has curbed property sales and the stock market has performed poorly.

Rising household incomes and a tradition of giving gold have also buoyed China’s gold demand. “Growth in jewelry demand has been over 13 per cent year on year, a very positive number especially compared to the rest of the world,” said Cameron Alexander, senior analyst at GFMS, the consultancy. He puts China’s total gold imports at about 350 metric tons this year.

China has liberalized regulations for importing gold over the past year, widening the number of banks authorized to import gold. “China’s gold demand will continue to increase as per capita income increases,” said Shi Heqing, a Beijing analyst with Antaike. “There aren’t many investment channels available in China other than the stock market, property market and some commodities.”