In a move to expand import capacity, Chinese officials have announced that gold imports will be allowed to flow directly through the capital of Beijing.
This is in addition to imports through Shenzhen, Shanghai and Hong Kong. However, the new move could threaten business in the latter.
While information on imports through Shenzen and Shanghai is scarce and unreported by the Chinese government, Hong Kong discloses how much it buys and sells. $53 billion in gold is known to have shifted to the mainland in 2013 as a result of Hong Kong’s reporting rules.
With new imports through Beijing, China will be better able to obscure the massive flow of bullion from western central banks and mines into the nation.
The drop in gold prices last year greatly increased Chinese gold demand. China imported nearly 1,160 tonnes of gold from Hong Kong last year. Analysts from Global Trade Information Services suggest that China imported at least another 194 tonnes last year from other sources.
All of this is on top of about 428 tonnes of local production. The World Gold Council has said Chinese demand in 2013 was 1,066 tonnes, raising the question of where the other 716 tonnes went.
Many, if not most, in the industry believe that it went into the coffers of the People’s Bank of China (PBOC).
With growing concern over the long-term effects of quantitative easing and mounting U.S. debt, China has shifted almost entirely away from buying U.S. treasury bonds to adding massive amounts of gold to its reserves.
The PBOC last released information in 2009 on gold reserves, when it announced that bullion holdings had risen to 1,054 tonnes from 600 tonnes in 2003.
Unverified rumors amongst analysts in the industry suggest PBOC gold reserves actually range from 3,000 to 5,000 tonnes.
Even a 1,000 tonne increase from last announced levels could prompt a jump in gold prices, which would make the PBOC very cautious about the timing of any announcement.
Given the advantages of keeping prices low and stealthily building up central bank reserves outside of debt-burdened fiat currencies, there is little chance of any increase in the official reserve figures any time soon.
