China Gold Buying Dip "Only Temporary"

 

CHINESE demand for Buying Gold "softened" in the three months to the end of June, although the fall in demand should only be a "temporary aberration", according to one senior metals analyst.

Although official customs data from Hong Kong, a major conduit for China's gold imports, show a 700% year-on year rise in gold flows over the first five months of 2012, this may not give an accurate picture of underlying demand says Cameron Alexander, senior analyst at Thomson Reuters GFMS, writing in the precious metals consultancy's latest newsletter.

"Our information collection from various trade sources indicated that these Hong Kong export numbers have been highly inflated by growing round tripping between mainland China and Hong Kong," writes Alexander.

"Local companies [have] used gold to engage in currency and interest rate arbitrage transactions."

Alexander has recently visited China to meet industry figures as part of GFMS's ongoing gold market research, and found signs of diminished appetite for Buying Gold.

"[We] found that the gold market had in fact softened in the second quarter of this year, with both jewelry and investment demand likely to deliver year-on-year declines for the period," he writes.

"Central to this has been a lack of direction in the Gold Price in recent months which has negatively impacted on consumer sentiment."

Spot market prices for Buying Gold have traded between $1550 and $1640 per ounce for most of the period since the start of May, alternating between up weeks and down weeks.

"We believe that the fall in demand in the second quarter is only a temporary aberration rather than the start of a declining trend," says Alexander.

"If Gold Prices regain upwards momentum in the second half of 2012, we would expect a recovery in consumer confidence in gold."

Alexander adds that China's ongoing economic development could also boost Gold Buying.

"Despite recent downgrades to the economic outlook, China is still set to deliver healthy GDP gains this year, along with further growth in disposal income...as such, Chinese demand for gold in the former of jewelry, bullion products and for industrial applications...is likely to approach 900 tonnes in 2012."

Data from the World Gold Council show that China overtook India as the world's biggest Gold Buying nation over the six months to the end of March, with Chinese gold demand totaling 255.2 tonnes in the first three months of 2012.

Looking at 2012 as a whole, Alexander says there is "a fair chance that [China] will overtake India to become the largest gold consumer this year."

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