LONDON – With gold withdrawals from the Shanghai Gold Exchange (SGE) totalling a further 37.1 tonnes for the week ended May 29, the total for the first five months of the year has been an absolutely massive 983 tonnes – the highest total on record for the period. Withdrawals have admittedly fallen back from the high Chinese New Year figures, but they are still running strongly for the time of year. One has to assume that the half year figure will be in the region of 1,150-1,200 tonnes, which will be a record for the period.

Indian gold imports for March – the most recent month for which official figures have just become available – have also been high – at 131.5 tonnes, although admittedly this was at the tail end of the festival season and imports will likely now drop back quite sharply as is usual through the Q2/Q3 period as the monsoon season kicks in and the rural gold buyers tend to hold fire until they have a better idea of how good the rainy season, and the likely crop yield, will be. But with the high 10% import duties on gold one suspects the true figure is rather higher due to gold smuggling. True, April imports are estimated to have fallen back to 81 tonnes, but seasonal factors are kicking in and the pre-monsoon forecasts are not encouraging.

But, reading some media headlines one would be led to assume that Chinese and Indian demand has dwindled dramatically they have been so negative of late. We have touched on this before – in particular with regard to the treatment of Hong Kong net gold exports to China, which are no longer nearly as relevant since China eased the path for gold imports to come in directly to the mainland from other nations than Hong Kong. Figures from Switzerland – the biggest known direct exporter of gold bullion to China – show it now sends 30-40% of its gold direct to the mainland, thus bypassing Hong Kong altogether. The US likewise on the latest US Geological Survey figures we have seen. And now, with Chinese companies buying controlling stakes in overseas gold miners, there is yet another potential pathway for gold to come in directly.

We are also entering a time of year when gold demand does indeed drop in both China and India, with the big early year festivals over. This happens every year, so figures comparing say April gold movements into China or Hong Kong, with those from March, can be taken as misleading in terms of the emphasis which seems to be put on them, as they can for India.

As an example, take this Bloomberg Headline of May 28 and the ensuing article – ‘China’s H.K. Gold Imports Slide as Falling Prices Delay Buying’. It goes on to note that ‘Net inbound shipments dropped to 46.6 metric tons last month from 61.8 tons in March and 65.4 tons a year earlier’ but no mention anywhere of the seasonal demand factors, nor the fact that now China is taking far more gold directly into mainland ports than it was a year ago and avoiding going through Hong Kong altogether.

At least the recent article on Mineweb, initially published by Fastmarkets in London, headed Swiss gold exports to China drop 67% in April, although very negative in tone, did recognise the seasonal factors in play here. It also noted that although Swiss exports to mainland China fell to 15.1 tonnes (26% of combined China and Hong Kong imports) in April, those to Hong Kong (mostly destined for mainland China), actually rose to 43.4 tonnes, up 36%. Doing the maths this implies that Swiss exports to mainland China will have accounted for almost 59% of the Hong Kong and China combined total the previous month. So one suspects some of the differences in the figures for both months were likely strongly affected by the overall timing of deliveries. Over the two-month period China mainland imports will have come to 60.9 tonnes and Hong Kong’s to 77.7 tonnes, thus showing that almost 44% went into mainland China directly, completely bypassing Hong Kong. It also suggests that if one takes Hong Kong and China together the fall off in demand over the two months was from 77.7 tonnes in March to 58.5 tonnes in April – a fall of only around 25% as compared with the 67% suggested by the headline. True, a substantial fall but not unexpected for the time of year.