By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) — China’s gold imports are on track for a sharp increase this year, with data for the first 10 months showing bullion shipments up more than four times amid rising interest among investors seeking out a hedge against inflation.
Bullion imported into China in the January-to-October period totaled 209.7 metric tons, compared to 45 metric tons in all of 2009, according to reports
Thursday citing figures announced by Shanghai Gold Exchange Chairman Shen Xiangrong.
If current trends hold, China’s gold imports could rise nearly sixfold by the end of the year, according to calculations based on monthly averages.
The figures offer a glimpse into China’s growing appetite for gold, reflected by the rush of new investment vehicles designed to satisfy interest in the precious metal, even as the government has yet to adopt the practice of releasing official statistics on the nation’s gold trade.
Shen reportedly said the volume of gold traded on the Shanghai Exchange totaled 5,014.5 metric tons, an increase of 43% from the same 10-month period a year earlier.
“Uncertainties in domestic and global economies, and increasing anticipation of inflation, have made gold as a hedging tool very popular,” Shen was cited by Reuters as telling a Shanghai conference Thursday.
Chinese investors are piling into gold, many analysts believe, amid rising inflation concerns, with consumer prices expected to be 5% higher in December than they were a year earlier, according to a recent forecast by Bank of America-Merrill Lynch.
Tyche Group financial adviser Martin Hennecke in Hong Kong said Chinese investors were by rattled by concerns over inflation and the prospect European central bankers could opt for a new round of quantitative easing, similar to the Federal Reserve’s recently announced plan, known as “QE2”
“Gold and silver are increasingly sought after as an inflation, and as a general financial crisis hedge,” said Hennecke.
Chinese securities regulators this week approved the nation’s first mutual fund based solely on gold-backed exchange-traded funds, seeking to feed off demand for the metal, as most bank deposit rates now offer negative returns when adjusted for inflation. See report on China’s gold fund of funds.
In Asian midday trading, spot gold rose to $1,391.60 an ounce, a gain of $5 from the New York close, according to Kitco data.
Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.
Gold Imports by China Soar Almost Fivefold as Inflation Spurs Investment
China’s gold imports jumped almost fivefold in the first 10 months from the entire amount shipped in last year as concern about rising inflation increased its appeal as a store of value, said the Shanghai Gold Exchange.
Imports gained to 209 metric tons compared with 45 tons for all of 2009, Shen Xiangrong, chairman of the bourse, told a conference in Shanghai today. China, the world’s largest producer and second-biggest user, doesn’t regularly publish gold-trade figures and rarely comments on its reserves.
Bullion soared 27 percent this year as the dollar dropped on concern that the trillions of dollars governments are pumping into the global economy may debase the value of currencies. China has pledged to use price controls and may raise interest rates a second time this year to slow inflation that has gained to the highest level since 2008.
“The central bank may now be approving all gold import” applications, Albert Cheng, managing director of the World Gold Council’s Far East department, said in an interview. “The government hasn’t officially said that China is encouraging private gold investments, but we in the industry suspect it. And you can see the big jump in the delivered gold imports through the exchange has to be approved by them.”
Gold demand in China gained in the first half as government measures to cool the propertymarket and falling equities spurred investment, the gold exchange said July 7. About 70 percent to 80 percent of the imports in the first 10 months were made into mini-gold bars, which Chinese investors like to hold, the exchange’s Shen said.
“Given China is the world’s biggest gold producer, the sharp increase in its imports is a big surprise,” said Hiroyuki Kikukawa, general manager of research at IDO Securities Co. in Tokyo. “People there need to buy gold to hedge against inflation as the country’s tightening monetary policy drives investors from stocks and properties to gold.”
China’s consumer prices jumped 4.4 percent in October, the fastest pace in two years, and above the government’s full-year target of 3 percent. China’s central bank raised interest rates in October for the first time since 2007 and ordered banks on Nov. 10 and Nov. 19 to hold more money in reserve.
“The expectation for higher inflation has fueled great interest among investors to hold physical gold, which led to higher imports,” the gold exchange’s Shen said. The exchange traded 5,014.5 tons of gold in the first 10 months, up 43 percent from a year ago, Shen said.
Bullion for immediate delivery rose 0.3 percent to $1,392.07 an ounce at 5:36 p.m. in Shanghai after yesterday touching $1,397.50, the highest price since Nov. 12. The metal reached a record $1,424.60 an ounce on Nov. 9 and is set for a 10th annual gain.
China’s investment gold demand may reach 150 tons this year, up from 105 tons last year, the World Gold Council’s Cheng said. That compares with 3 to 4 tons 10 years ago, Cheng said.
“The investment demand we estimate already reached 120 tons in the first three quarters, and it usually spikes in the fourth,” Cheng said. Global investment demand for gold of 1,901 tons last year exceeded jewelry consumption of 1,759 tons for the first time in three decades, according to London-based researcher GFMS Ltd.
China’s gold market may double in the next decade as retail investment and jewelry demand gain, the World Gold Council said Nov. 3. Consumption may climb to 800 tons to 900 tons in the next ten years, said Wang Lixin, the council’s Greater China general manager. China’s jewelry and investment gold demand was 428 tons in 2009, according to the council.
Sales of gold products such as bars by China National Gold Group Corp., owner of the country’s largest deposit of the metal, jumped as much as 40 percent in the first half, Song Quanli, deputy party secretary at the company, said July 7.
China’s central bank in August said that it would let more banks import and export gold and allow overseas companies more access to trading. Gold demand growth in China will likely be supported by rising disposable income levels and the country could surpass India as the world’s biggest bullion consumer, Deutsche Bank AG said Aug. 6.
China’s plans to relax gold-trading rules may boost demand and increase trading volumes on the Shanghai Gold Exchange, the bank said. Demand will continue to grow, making China one of the top importers together with India, IDO’s Kikukawa said.
Gold imports this year by India have already exceeded 2009 levels as consumers boost jewelry purchases, the World Gold Council said Nov. 17. Imports totaled 624 tons by the end of the third quarter, compared with 559 tons in all of 2009, according to the council.
China’s gold output may rise to 340 tons this year, from 314 tons last year, solidifying the nation’s position as the world’s largest producer, Zhang Fengkui, section chief of the raw materials department at the Ministry of Industry and Information Technology, said on Oct. 16.
The country should raise its gold holdings and its 1,054 tons of reserves are inadequate compared with the 8,133 tons held by the U.S. and 3,408 tons by Germany, Meng Qingfa, a researcher at the China Chamber of International Commerce, said on Oct. 27.
Gold accounts for 1.6 percent of the reserves held by the People’s Bank of China, according to the World Gold Council. The country increased reserves by 454 tons to 1,054 tons since 2003, the State Administration of Foreign Exchange said last April.