12 Oct 2013

China’s Hunger for Gold Triggers Speculation About Reserves

China is on pace to consume a record amount of gold this year, which may be partly due to the central bank diversifying its foreign-exchange reserves, analysts say.
China imported around 861.40 metric tons of gold via Hong Kong in the first eight months of the year, more than double the 361.02 tons during the same period last year, new data from Hong Kong Census and Statistics Department showed. Imports from Hong Kong fell in August from the previous month but remained elevated, the data showed.
Gold prices hit a three-year low in June but have since rebounded.
Strong demand in China is driven largely by consumers, and jewelers are restocking following a spike in buying in April, when prices began tumbling. However, analysts say the People’s Bank might also be taking advantage of the lower prices to bulk up its reserves.
“My suspicion is that they [Chinese government] are increasing their gold holdings as part of their foreign reserves,” said Joyce Liu, an investment analyst with Phillip Futures in Singapore.
The Chinese government rarely releases comprehensive data on gold imports or its holdings, but Hong Kong’s data is considered a pretty accurate indicator of demand. The People’s Bank of China, the central bank, last stated its gold holdings in April 2009, when they stood at 1,054 tons.
China has the world’s biggest stockpile of foreign-exchange reserves, at roughly $3.5 trillion, including around $1.3 trillion in U.S. Treasury bonds. Beijing is thought to be keen to diversify its exposure, and the current legislative gridlock in the U.S. and a possible debt default have only deepened concerns about the outlook for the U.S. dollar and Treasurys, analysts said.
The World Gold Council has estimated that Chinese imports this year will top 1,000 tons–believed to be a record amount. China became the world’s biggest gold consumer in the first half of this year, just topping India, which had held the top spot for years, the WGC said in August. Chinese demand totaled 570 tons during the first six months of the year, while India’s was 568 tons, it said.
In India, retailers are now paying as much as $50 a troy ounce more than international prices ahead of the upcoming festive season, a time of strong gold demand. Demand is outpacing supply following government efforts to curb imports

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