August 11, 2014

Everyone who is following the gold market for more than a year remembers how gold demand in China exploded when the gold and silver price came down in Q2 of 2013. Since then, Chinese gold demand has been consistenly massive.

One of the gauges of Chinese gold demand has been the import quantity through Hong Kong. Since a couple of weeks, it appears that gold imports from Hong Kong to China has been collapsing. The following chart makes the point. We released  in this week's gold market roundup (written by Frank Holmes from USFunds.com):

Hong Kong gold net exports to China fell to a seventeen-month low. Even if there is evidence that some of the volumes are now entering through Shanghai and Beijing, the magnitude of the drop still points to softening of the Chinese gold retail and investment market.
.

But is China's hunger for gold really falling down?

Let's examine another chart which was created recently by gold analyst Koos Jansen from In Gold We Trust and released on BulionStar. The chart shows that total imports to China in the first half of 2014 are already as high as total imports in 2013. Moreoever, official Chinese gold reserves have increased compared to a year ago.

Clearly the two charts seem conflicting, at least at first glance. In his daily gold and silver newsletter (subscribe here), Ed Steer explains why he thinks otherwise. He notes:

Imports through H.K. are falling precipitously, as China is now hiding its tracks by importing more through Shanghai and Beijing.  Unless something changes before year's end, it's my opinion that this chart will no longer serve any useful purpose.
.Indeed, a very plausible explanation of the drop of gold imports from Hong Kong to China could be that these figures became way too transparent given the Chinese intransparent culture. All international mainstream media have been featuring these statistics in the last year. It could be that they are coming to the wrong concusions lately if they continue to focus only on the Hong Kong imports.