Gold price drops after Chinese imports crater 38%

The price of gold weakened on Monday after data showed a crimping of demand from top importer China.

On the Comex division of the New York Mercantile Exchange, gold futures for June delivery fell through the psychologically important $1,300 an ounce level to exchange hands for $1,296.10 an ounce in late trade.

Earlier in the day the metal touched a low of $1,292.10, down nearly $10 from Friday's close. Trading was particularly lacklustre with fewer than 100,000 contracts dealt, almost half usual daily volumes.

Mainland China's net imports totaled 80.6 tonnes in March, a 27% drop compared to the 111.4 tonnes imported in February.

Compared to the same time last year the drop-off was even more stark – down 38% from the record 130 tonnes in March 2013.

Another indication that there are fewer buyers in China is the disappearance of premiums paid on the Shanghai Gold Exchange.

From premiums that topped out at $37 when gold was trading around $1,200 last year, during March traders on average offered gold at a small discount to the quoted London spot price.

March was the first month since September 2012 that gold did not attract a premium.

Driven in part by a weakening yuan, discounts on gold widened to as much as $9 an ounce below when the price were headed towards $1,400 in March.

Bloomberg quotes Liu Xu, an analyst at Capital Futures Co. in Beijing as saying "banks changed their ‘import at any time’ mentality as the local gold price turned to a discount":

"Chinese consumers no longer have an indiscriminate appetite for gold."

Last week a report by the World Gold Council said Chinese firms could have locked up as much as 1,000 tonnes of gold – the equivalent of annual imports – in short-term financing deals, also a sign that end-user demand for jewelry, coins and bars may not be as strong as thought.

Gold was also hurt on Monday by a lack of meaningful developments in Ukraine to boost safe haven buying and good news for the US economy.

Further signs that the housing market in the world's largest economy was improving, boosted the dollar and sent gold, which usually moves in the opposite direction, lower.