Chinese Gold Demand to Drop as Financing Deals Unwind

China’s gold imports could fall as much as 40 percent this year as demand for bullion used to back domestic financing deals decreases, the world’s biggest refiner Valcambi said.

A lot of the gold China imported in the last three years was used to secure cheaper loans due to a liquidity crunch, but that is now flowing back into the market as lending rates drop.

“All this gold that was used for financing has been given back as there is liquidity in the market and liquidity is cheap,” Valcambi Chief Executive Michael Mesaric told Reuters.

“There is no need to use gold anymore,” Mesaric said.

Lower demand from China, which accounts for nearly a fifth of global consumption, may add pressure on global prices that tumbled last week to $1,077 an ounce, the lowest since 2010, and have yet to recover strongly.

Chinese firms may have locked up as much as 1,000 tonnes of gold in financing deals, the World Gold Council said in a report last year.

But Mesaric said after China’s central bank has continuously cut lending rates to support the economy, China’s gold imports had been dropping.

“The market is supplied by itself by gold coming out of loans, financing,” he said.

China’s gold imports via main conduit Hong Kong dropped to a 10-month low in June, data showed on Monday. Imports fell to 813.13 tonnes last year from a record 1,158.16 tonnes in 2013.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza