People's Bank of China "Buying Gold, Supports Prices"

China's central bank seen as a big gold buyer in 2013 by leading analyst...

 

GOLD BUYING by the People's Bank of China may have totaled 300 tonnes so far in 2013, helping "support prices" during the worst drop in 30 years according to a leading precious metals analyst.

 

"We've seen tremendous amounts of gold go into Hong Kong for onward shipment to mainland China," says Philip Klapwijk, formerly of Thomson Reuters GFMS, in his first public report as CEO of new consultancy Precious Metals Insights. Domestic mine output, already the world's No.1 since 2007, has also risen this year.

 

But gold buying data from China's jewelry, industrial and investment sector "do not seem to account fully for this surge in supply," says Klapwijk.

 

To explain the gap, "anecdotal information" should be used to supplement official and reported data, says Klapwijk. Because not all aspects of the global or Chinese gold markets are transparent for precise analysis. And what Klapwijk calls "a growing contribution" to China's demand would seem to come thanks to the People's Bank.

 

"China needs to import a substantial amount of gold to meet its soaring local demand," the report says. But reviewing the available data, supply to meet China's demand for buying gold "comfortably exceeded" 1,000 tonnes in the first half of 2013 alone, Precious Metals Insights goes on.

 

The discrepancy "clearly implies that the Chinese authorities have been acquiring gold," says Klapwijk, with a chart showing perhaps 300 tonnes of gold buying by the central bank in the first half of 2013, when gold prices slumped.

 

The People's Bank of China last updated the world on its state gold bullion reserves in 2009, reporting a sharp rise to 1054 tonnes. Other analysts have recently pointed to the gap between China's reported private demand and supply (meaning imports and mine output), again concluding the "suspicion" that the People's Bank was buying gold, as Joyce Liu at Phillip Futures in Singapore put it to the Wall Street Journal last month.

 

"Undoubtedly," says Philip Klapwijk, quoted separately by Bloomberg News in Singapore on Thursday, the fact that the central bank has been buying gold in 2013 "has provided support for prices, which could have been weaker" without it.