China does not issue official data regarding its gold trade, leaving analysts to rely on imports from Hong Kong as a yardstick. During November, a record amount of the precious metal passed through mainland China.
Just one month later, the situation was very different, as imports plunged. Despite this, annual data revealed a trend of increasing demand for the metal. Experts attribute this to domestic demand and governmental desire to diversify currency reserves. They expect China gold demand to remain high throughout 2012.
The Census and Statistics Department in Hong Kong reported 85.7 tons of golden imports during October 2011. In November, imports skyrocketed to 102.8, only to fall by 62 percent during December and land at 38.8 metric tons.
Despite this late-year decline, 2011 imports were nearly 428 tons. This almost quadrupled the 2010 figure of 119 tons.
The level of investment and fabrication demand that began in 2010 continued through 2011 due to increased inflation, low interest rates, and worries regarding the global economy, said CPM Group commodity research analyst Mu Li.
Ms. Li commented that during 2010, the government increased measures against real estate speculators. This led some investors to seek alternative assets including the golden precious metal. Other analysts attribute the increase in demand to rising incomes within China.
The developing middle class is showing great interest in gems and precious metals. As capitalism spreads within the country, Chinese citizens are protecting their new wealth by purchasing these tangible assets that have intrinsic value.
Between early fall and November, China traditionally imports more gold from Hong Kong. This is mainly due to anticipation of increased demand during the Chinese Lunar New Year occurring in January.
Many Chinese citizens purchase the precious metal for investment and commemorative reasons during this time of year.
At the time of the fall 2011 upswing in demand, a sell-off was occurring, resulting in bargain hunting. On September 6, the most active April contract rose to $1,925 per ounce on the New York Mercantile Exchange Comex, eventually falling to $1,526.20 on December 29.
During this time, there was physical buying activity in the Asian sector, with investors buying dips. The media subsequently reported an ample supply of the precious metal in Chinese domestic product and spot demand declined, which reduced the need for imports during December. Ms. Li informed Forbes that the same trend occurred during December 2010.
She clarified the situation by explaining that reduced buying during December “doesn’t mean there is less demand generally…it just means that a lot of buying has occurred in advance [according to Forbes].”
Some people may view the December contraction as a negative sign, reported UBS precious metals strategist Edel Tully.
She believes that the October and November shipments were the outliers, as they greatly exceeded volumes during previous months. Though the December activity was the lowest since July 2011, it was 245.2 percent higher from a year-over-year perspective. During 2011, there was a 258 percent increase in golden precious metal imports from Hong Kong, compared to 2010.
According to Ms. Tully, the pre-Chinese Lunar New Year increase in demand may not tell the full story. Official sector purchasing may have occurred and trade statistics do not always include the grey areas in terms of data, which are typically more interesting. A seasonal factor may be involved, she said.
Meanwhile, Ms. Li commented on the future, saying that continued moderation of the inflation level during 2012 may ease some upward support for demand. However, demand increases are expected in 2012 and during future years, grounded in both investment and commemorative reasons, said the CMP Group analyst.
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