China spurns gold, adding to price woes

The slump in the gold price that has occurred in recent months shows no signs of letting up, and the latest import data from China will not give any joy to gold bugs. As gold closed at $1,219.40 in New York on Friday, a report out the same day by Commerzbank stated that Chinese gold imports will "fall well short" of last year. Hong Kong's Census and Statistics Department shows China imported only 27.5 net metric tons in August.

“This puts net imports only slightly above the previous month’s low level, which constituted the lowest figure since June 2011,” Commerzbank said. The bank notes that net gold imports from Hong Kong are down by a third from the corresponding period last year, to 497 tons. August was the sixth straight month that Chinese gold imports have fallen.

The World Gold Council blames the situation on slumping domestic demand for gold. As Bloomberg explains it, when gold entered a bear market, Chinese citizens began buying physical gold in droves, pushing the nation past India as the world's largest gold consumer in 2013. But then, an anti-corruption drive by President Xi Jinping prompted fewer buyers to purchase gold bars, coins and jewelry, and imports fell. According to Commerzbank, the recent price slide has not sparked any revival of physical demand.

"Chinese gold demand looks set to fall well short of last year’s total even if it picks up in the next few months," the bank stated, adding: "The weak gold demand in China is one key reason for the slump in the gold price over recent months. So far, the price slide has not sparked any revival of physical demand. Evidently buyers in Asia are holding back in anticipation of even lower prices. Thus the gold price remains more dependent on Western investment demand.”

Of course, many gold market observers do not believe the Hong Kong import numbers, and hold to the view that a lot of gold gets into China unreported. Officially, all gold exported to China moves through Hong Kong, although the country recently started allowing direct imports via Beijing. Sources say the move is a way to keep China's imports under the radar as it seeks to hoard gold to diversify away from U.S. Treasuries.

The country's gold reserves are officially put at 1,054 tonnes — a number officials haven't updated since 2009.

Gold makes up little more than 1% of the country's $3.6 trillion in reserves compared to more than 70% for the United States, which holds 8,166 tonnes of gold in vaults.