China’s Gold Imports Seen Jumping 50% as Haven Demand Booms

(Bloomberg) -- China, the world's biggest gold market, may boost imports through Hong Kong by about half this year as local investors seek to protect their wealth from currency risks, a slowing property market and volatile stocks, according to the Chinese Gold & Silver Exchange Society.

Mainland China is set to import about 1,000 metric tons from the territory in 2017, said Haywood Cheung, president of the century-old exchange in Hong Kong which trades physical gold and silver. That compares with net purchases of 647 tons last year and would be the biggest since 2013, data from the Hong Kong Census and Statistics Department compiled by Bloomberg show.

Demand is rising on concerns over property, share and bond markets and the outlook for the yuan, amid a government drive to reduce leverage in the financial system. Local consumption was up 15 percent in the first quarter, with sales of bars for investment climbing more than 60 percent and dwarfing a 1.4 percent rise in jewelry buying, according to data from the China Gold Association. China also imports gold from Switzerland.

“People are looking at other means to invest, a safe haven to protect their renminbi because of the depreciation, so everybody starts to look for safe haven products,” Cheung said in an interview at a precious metals conference in Singapore on Monday. “So I think we're going to have a good year.”

Imports from Switzerland topped 100 tons in the first four months of the year, according to calculations on data reported by the Swiss Federal Customs Administration. In December, China imported 158 tons from the country, taking the total for the year to 442 tons, up from 288 tons in 2015, the data show.

Investment Demand

Global investors have also increased holdings. Assets in the SPDR Gold Trust, the world's largest exchange-traded fund backed by bullion, have climbed by more than 6 percent since the end of January to 851 tons as of June 5. Bullion rose as much as 1.1 percent to $1,293.78 an ounce on Tuesday, the highest level in about seven weeks, and traded at $1,292.10 by 1:50 p.m. in London.

The Chinese Gold & Silver Exchange Society is planning to build a bonded warehouse in Qianhai, with a storage capacity of 1,500 tons of gold, and completion is expected in two to three years, said Cheung, who has 33 years of experience in the industry. A temporary warehouse which holds about 50 to 100 tons of gold will be operational by the end of this year, he said.

The society has an offshore gold product, denominated and settled in renminbi, with current transactions of about 20 billion to 30 billion yuan daily, Cheung said. This isn't good enough and one way to improve it is to build the warehouse to get in touch with the China market, he said. The Shenzhen region supports about 3,000 jewelry manufacturing companies which supply 70 percent of the Chinese retail market, he said.

While the case for investment demand in China is reasonably “solid,” jewelry demand will probably decline again this year in volume terms as the consumer spends money on other things such as property or travel, or prefers 18 karat instead of 24 karat products, said Philip Klapwijk, managing director of Precious Metals Insights Ltd.

“I suspect that jewelry demand will be down more in tonnage terms than investment will be up,” Klapwijk said on the sidelines of the conference organized by the Singapore Bullion Market Association. “So demand in China this year could be down a tad. Financial use of gold in China could also see some reductions.”

To contact the reporter on this story: Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.net.

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, James Poole, Nicholas Larkin