China's Aunties Pulled Forward Gold Demand into 2013; 2014 Will See Weaker Growth

Chinese gold demand overdraft Aunt difficult now hunters scene
"China's real consumer demand growth will slow, but overall still maintain growth, investment in gold bullion gold jewelry consumption is still the subject if the Chinese consumer demand slowdown, the price of gold will bring some pressure. "said Wang Jin Qing, In February this year, China's major distribution companies Jewelers sales rose only 12.10%, its lowest value since February five years, expected this year, China's gold consumption without major highlight, the effect of the price of gold is also more limited.

In addition, the World Gold Council believes that after 2013 China's gold demand hit a record high and become the world's largest gold market, Chinese demand in 2014 will likely appear consolidation, because "Chinese Mother" early overdraft needs.

English coverage: Gold: Chinese Demand is Strong, But Strong Enough?
The catalyst is a report overnight by the World Gold Council predicting a “consolidation” in China’s gold demand during 2014 — for consolidation read slowdown. The report didn’t give a forecast for this year’s Chinese demand, but the WGC’s Albert Cheng tells the Wall Street Journalhe expects demand to run in place at about the 2013 level of 1,187 metric tons.

The other factor that’s spooking gold traders this morning is highlighted by the Financial Times: The surprising swift rise in the use of gold as collateral in financing deals, which may have reached 1,000 metric tons, according to the WGC. The report makes clear this use of gold is tied to the country’s shaky shadow-banking system:

The use of gold for purely financial operations is a form of demand that represents a small part of the much wider growth in shadow banking, which while entirely legal, is considered a grey area. Not surprisingly, there is little hard data on the shadow banking sector but J.P. Morgan recently estimated it at RMB46tn (US$1.7tn), equal to about 84% of China’s GDP. No statistics are available on the outstanding amount of gold tied up in financial operations linked to shadow banking but Precious Metals Insights believes it is feasible that by the end of 2013 this could have reached a cumulative 1,000t, equal to a nominal value of nearly $40bn.

To put the $40 billion figure in perspective, it’s equal in size to the heavy 2013 exchange-traded fund outflows when led the metal’s 28% price loss for the year.
The first thing to keep in mind is rehypothecation. Who knows how many tons might actually exist. There are already cases of people rehypothecating assets multiple times, including an entire office building.

The second thing to keep in mind is that China's central bank wants gold moving into the country, either in its hands or the hands of its citizens.

The third is that it is easier to buy gold than foreign currency in China.

If there's a major financial crisis that sees the yuan weaken, gold will catch a bid.

1 comment:

  1. Any thoughts on what to make of the HK-Mainland gold trade figures? Reliable or questionable like all other statistics coming out of China? Part of some trade financing scheme or other?

    - Luke