China: Major player in gold market
In 2013, China (FXI) became the world’s largest gold market. It accounts for about a third of global gold demand. The World Gold Council (or WGC) expects demand from China to grow by at least another 20% by 2017.
Because of China’s sheer size, investors need to monitor physical gold demand trends in China. These trends impact overall gold demand and gold prices. To learn more, read Market Realist’s article Why gold is important in China.
Imports at 7-month low in March
China doesn’t publish gold import or export data. As a result, we’ll rely on data from Hong Kong’s gold exports to China. The Census and Statistics Department in Hong Kong releases data every month.
China is importing gold from Hong Kong. Net gold imports from Hong Kong to mainland China totaled 66.4 metric tons in March compared to 65.8 metric tons in February and 71.6 tons in January. Imports for March are at a seven-month low. According to the China Gold Association, Chinese gold consumption remained broadly stable in the first quarter and is just 1% up from a year earlier at 326.68 tons.
An anti-corruption drive in China has also impacted its gold demand.
Investors should note that Hong Kong data don’t provide a full picture of gold imports into China since imports are also shipped directly through Shanghai and Beijing. No official figures are available for these imports.
Physical buying and gold prices
Strong physical demand from the world’s largest consumer boosts the price of gold. Weak demand impacts prices negatively. Physical buying by China and India came to the rescue of falling gold prices in 2013 when ETFs were on a selling spree. These purchases increase gold prices as well as sustain gold-backed ETFs such as the SPDR Gold Trust (GLD).
As we saw previously in this series, there are other factors that affect gold demand. These factors are more important right now for gold stocks such as Goldcorp (GG), Barrick Gold (ABX), Newmont Mining (NEM), Kinross Gold (KGC), and Yamana Gold (AUY). They’re also important to ETFs such as the VanEck Vectors Gold Miners ETF (GDX). GDX invests in senior and intermediate gold producers. The companies mentioned here form 27.3% of its total holdings.