|
Was the People's Bank of China really buying gold
at the rate of 1 ounce in every 8 sold worldwide last quarter...?
SO THOSE MILITANT crazies known to the mainstream media as "gold bugs"
– and to the FBI as subversives – got the headline
they've been longing for, apparently, last week.
"China central bank in gold-buying push,"
declared the Financial Times. "It does appear the People's Bank of China
has been a significant buyer," agreed a Reuters columnist.
At last, rapture is upon us! Beijing is buying gold
in the open market! The FT picks up
the story...
"China's imports from Hong Kong, which account
for the majority of its overseas buying, soared to 227 tonnes
in the last three months of 2011, according to data published by Hong Kong.
Mine production in the country, the largest gold producer, stood at about 100
tonnes in the quarter, implying total supply of at
least 330 tonnes.
"That compares to demand of 191 tonnes for gold jewellery, bars
and coins – which account for the vast majority of Chinese demand
– reported by the World Gold Council on Thursday."
With gold exports banned, you can see the gap right
there...all 139 tonnes of it. The FT's conclusion? Courtesy of an
"inference" and a "could be" from two leading analysts,
that excess of supply over demand must have gone to the People's Bank of
China. Must have, right?
Well...
· The data came from 3 different sources, one of which
is an official agency, another is the mining industry, and the third is
trying to cover end-user sales in the world's second-heaviest gold market and
most populous nation;
· Those demand figures in particular are likely to be
revised – upwards – by Thomson Reuters GFMS (who supply the WGC).
The best data available, they were certainly revised – upwards –
quarter-on-quarter over recent years. And even on first release, China's
retail jewelry and investment sales show average
compound growth of 36% per year since 2001. That's one hell of a trend to
keep count of in real time;
· No, a revision to end-demand of 139 tonnes will not
happen. But would a 75% hike be any less likely than the People's Bank of
China growing its stated reserves (officially 1054 tonnes) by more than 13%
inside 3 months? And inside 3 months that saw the gold price average $1684
per ounce, its highest level in history outside the $1702 record of July-Oct.
last year?
Somehow, we doubt that China's central bank snapped
up 1 ounce in every 8 sold worldwide between October and Christmas. Most
especially because, if Beijing's policymakers were the "mystery"
buyer, why would they then go and make importing gold a little bit harder for
China's bullion brokers?
Starting
this month, China's wholesalers now need to seek permission, reports our
friend Bruce Ikemizu at Standard Bank in Tokyo, for
each inbound shipment of gold from not only the People's Bank of China, but
also from the bureaucrats of the State Administration of Foreign Exchange
(SAFE). "So it takes longer to import gold," notes Bruce.
Weirdly,
SAFE was the agency which hoarded the 600-tonne addition of 2003-2009,
officially switched to and reported by the PBoC
three years ago in its last public update. So again, why would anyone buying
gold – and already paying very nearly the highest prices in history
– want to temper supply?
"In
the medium term we do know the Chinese central bank and other Asian central
banks with large foreign exchange reserves have been increasing their holdings
of gold," as Marcus Grubb of the World Gold Council told the Financial Times. Plugging some of
last quarter's gap "is consistent with that." But plugging the
whole 139 tonnes as the FT's
headline suggests?
Both
the WGC and GFMS's Phillip Klapwijk – also
quoted in the FT's report –
in fact added that bullion banks and other stock-pilers
would be likely candidates, too. And that would make sense after the scramble
to secure supplies in early 2011. Because gold imports through Hong Kong
– well ahead of last month's 2012 Lunar New Year holidays –
actually peaked in November. They then fell hard in December as the
festivities drew closer.
Indeed,
as the London gold price dropped late last September, the Hong Kong premium
tripled to jump above $3 per ounce. So calling your UK supplier and booking
new shipments would have been a natural response. Cheap prices, plus a fat
mark-up if the metal arrives in good time? What trader wouldn't try to book
that? October and November then saw record imports of gold through Hong Kong
to China. But the premium had fallen quickly however (according to Reuters data), already back down to $1 per ounce in
October.
That's
the trouble with a physical market – delivery needs brokers and
shipping, and wholesalers need stockpiles to draw on. Not much of a headline
though, is it?
Stock-piling
is common in base metals and oil. Standard Bank's commodities team now reckon
silver stockpiles in China are equal to 15 months of fabrication demand. And
if Beijing were really on the bid for imported metal, then why, immediately
after January's Chinese New Year celebrations – the single biggest
event on China's gold buying calendar – did it set China's gold
importers a new hurdle?
Our
guess? No doubt China is buying gold direct from its miners. That metal is
then lacking for retail consumption. So to ensure lots of supply for what
proved another strong Chinese New Year, importers booked early and often. But
following that trebling of gold imports in 2011, the timing of SAFE's move,
immediately after New Year – and only two weeks after India doubled its
gold and silver import duties – suggests Beijing is live to the
trade-balance risks posed by Chinese households' soaring demand.
"IMF
slashes forecast for China current account surplus," announced the Wall
Street Journal last week.
"China's
current account surplus for 2011 shrank to $201.1 billion ($187.37bn), from
$305.4bn in 2010. More important, as a ratio of gross domestic product, the
surplus fell to about 2.7%...close to a decade-low."
Now,
"as China's trade surplus declines dramatically," reports
University of Peking professor Michael Pettis,
"more and more people within the country are calling for interventionist
steps to halt the decline, including depreciating the [Yuan], or at least
halting its appreciation."
Pettisviolations"
of international law. But trying to stem – or rather slow – the
pace of import growth wouldn't look quite so rude.
This
new rule is already frustrating those banks importing gold, but it's likely
only to delay, rather than deter, the flow of bullion. Still, it's a hat-tip
to the potential drain on China's foreign currency holdings which gold has
become for India – still the world's No.1 consumer, and importing twice
as much as bullion as China in 2011 because it has no domestic mine output to
help feed its consumption, whether central-bank or private.
India's
hunger for a metal it does not produce is plain to see in its trade balance.
The only current-account deficit in the region as Morgan
Stanley notes, this gold-heavy outflow of cash also weighed on
the Rupee's exchange rate in 2011, down 15% versus the Dollar as the currency
markets tried to force an adjustment.
Because
even then, and with Rupee gold prices pushed to fresh record highs despite a
20% drop for US investors after September's top, India's full-year 2011 gold
demand still rose from 2010 in Dollar terms, setting a fresh record of $46
billion on the World Gold Council's data,
and equal to more than three-quarters of the country's current account
deficit.
"[We
hope to] discourage imports so that the Rupee steadies against the
Dollar," admitted a senior, unnamed official quoted by India Today
after New Delhi raised import duties and handed a tax advantage to the
domestic recycling lobby in January. Beijing's policy wonks are being equally
coy about trying to dampen gold bullion imports just ever so slightly. But
China's feint should remind precious-metals bulls that Asia's massive demand
growth can pose a risk to itself.
First,
high prices could dissuade new buyers, as shown all too clearly by Western jewelry demand since 2005. A slow-down in GDP growth,
worsened by a shrinking trade surplus, would make that risk worse. But for
Asia's ravenous gold buying, state interference is perhaps the present
threat, especially in a market averaging 36% compound growth by value each
year since China began
deregulating gold a decade ago.
China's
gold buyers have needed no help from over-excitable headlines. But they have
needed Beijing's blessing to date.
|
