China’s the top gold consumer
According to the WGC (World Gold Council), China was the top gold consumer in 1Q15. It accounts for about one-third of the global gold demand. As a result, it’s very important to track gold consumption trends in China.
Imports are at an eight-month low
According to data released by the Hong Kong Census and Statistics Bureau on May 28, China’s gold imports from Hong Kong fell to an eight-month low. Imports totaled 52.2 metric tons in April—compared to 66.4 metric tons in March. In April, imports were at the lowest level since August 2014.
One of the reasons for weak demand could be the strong performance by the Chinese stock markets (FXI). Gold is an investment alternative. When other alternatives—including equity and bonds—appear more lucrative, people might trade between these alternatives.
However, investors should note that while gold imports from Hong Kong provide a directional sense of China’s demand, they offer incomplete data because additional shipments also come into China through Shanghai and Beijing. There isn’t official data available for these shipments.
Physical buying and gold prices
A lack of physical demand from the world’s largest consumer is negative for the price of gold (GLD).
In turn, the price of gold impacts gold stocks like Goldcorp (GG), Barrick Gold (ABX), Newmont Mining (NEM), Kinross Gold (KGC), and Yamana Gold (AUY). They’re also important to ETFs like 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.
In the next part of this series, we’ll see if withdrawals from the Shanghai Gold Exchange also confirm the trend of weak demand in China or if it has something different to say.