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Annual Gold Imports to China Increase 94 Percent

Release Date: 
Saturday, February 9, 2013

Gold was somewhat volatile this week on increased demand for the metal in China with annual gold import figures almost doubling.  European economic concerns also grew, supporting gold prices.  Gold ended the week essentially flat, settling at 1668.20 per ounce at 2:15 PM Pacific Time at the New York Spot Market close, while silver was higher, closing at $31.69 per ounce.

Gold imports to mainland China from Hong Kong increased 94 percent to an all-time high in 2012.  This increase “was largely a result of income growth,” Jiang Shu, a senior analyst at Industrial Bank Co. Ltd., said from Shanghai before the data was released. “The Chinese are becoming more wealthy.”

China’s urban per capita disposable income rose 12.6 percent while the per capita rural net income increased 13.5 percent. The economy may expand 8.1 percent this year, according to the median in a survey of analysts.

The import data, along with “persistently strong” volumes on the Shanghai Gold Exchange and elevated premiums in the past couple of weeks, indicate a “robust demand story” in China, UBS said.

Commerzbank analysts said “if it is assumed that China itself produced almost 400 tons of gold last year, the total Chinese gold demand will have been over 950 tons.” That “would mean that China had overtaken India as the world’s number one consumer of gold on a yearly basis.”

CITICS Futures Co., a unit of China’s largest brokerage, said “we see [gold] demand continuing to be robust into 2013,” … “The economy will recover, albeit slowly, while real interest rates will remain low and central banks will continue to accumulate.  These are all bullish [factors] for gold.”

The week-long Chinese Lunar New Year holiday begins on February 10. "Physical demand is reasonably good because the Chinese New Year is round the corner and will continue to hold the market this week," said Bernard Sin, senior vice president at MKS SA.  HSBC metal analysts also saw support for gold prices from increased demand for gold ahead of the Chinese New Year.  “We remain positive on bullion,” HSBC said.

HSBC expects a more loose, accelerated and broad policy-easing plan from the Bank of Japan (BoJ) that may support gold.  “Bullion is historically sensitive to global monetary policy stimulus and expectation of further accommodations by the BoJ is gold positive, we believe,” HSBC analysts said.

After a policy meeting, European Central Bank (ECB) President Mario Draghi said that economic activity in the euro area should gradually recover later in 2013 but there are more negative risks than positive ones. 

Concerns in the Eurozone are rising, leading to increased buying of safe haven assets.  Alexandra Knight, an analyst at National Australia Bank Ltd., said, “we haven’t heard that much about Europe lately, and there’s been a shift in focus.”  The problems “are re- emerging and worrying investors a little bit,” she noted.

According to Tom Essaye, editor of the “Seven’s Report,” [7:00’s Report] a daily commentary on equities, commodities, and  the economy, political turmoil in Europe is considered positive for gold.   Investors are getting “nervous about another bout of European political drama,” he said.  In Italy, former Prime Minister Silvio Berlusconi polled favorably in opinion polls ahead of elections this month, increasing fears the country will diverge from its current economic reforms. 

"People are trying to understand whether we're in a recovery scenario, or whether there is another speed bump out there," Clive Burstow, a fund manager at Baring Asset Management, said.  "I think you have to have an exposure to gold, because there are still headwinds…”

Last Friday, gold rose as monthly employment figures failed to meet expectations, increasing concern for the slowing U.S. recovery.  The Labor Department reported U.S. employers added a less than expected 157,000 jobs in January. U.S. The unemployment rate increased one-tenth of a percentage point to 7.9%, above the Fed’s 6.5% target.  Economists surveyed by Dow Jones Newswires expected nonfarm payrolls to rise by 166,000 and 7.8% unemployment.

“The unemployment rate ticked up a bit, and the Fed has said they’ll hold rates low until that comes down,” said Phil Streible of R.J. O’Brien & Associates. “The Fed will keep going on its mandate, and that’s helping gold.”

According to Thomson-Reuters GFMS, central bank purchases of gold increased 17% last year, the most in 48 years.

Several analysts said gold may rise near $2,000 per ounce this year.  Harry Colvin, director and senior economist at Longview Economics, said the gold price could rise between $300-400 in 2013, breaking through the $2,000 per ounce mark.  "Everyone is always bearish at the lows, that's the time to buy it, we're going to get a good rally this year,” he noted.

Mr. Colvin added, “on a contrarian basis, there’s a good argument to own gold. The real reason, though, is QE3.  The Fed are expanding their balance sheet $85 billion a month.  And that’s just a similar kind of pace to what they were doing in QE1 and QE2.  And of course it injects liquidity into the markets, debases the dollar, and underpins the rally in gold prices.”  According to Mr. Colvin, “the [Federal Reserve] balance sheet is about to expand rapidly. And with that we're going to get a rally in the gold price, it's going to go hard this year and probably into the next."

Mike Harrowell, Senior Resources Analyst at BBY, said “we are looking for gold prices to be getting towards that $2,000 mark by the end of the year, so let’s say…$1,850 to $1,950 [per ounce].”  Acccording to Harrowell, in the long term, “too much growth and too much money supply create a very explosive mix for the price [of gold] that’s more likely for the back half of the year or a bit later….”

Eugen Weinberg, head of commodities research at Commerzbank, said as inflationary pressures become more visible in the second-half of the year, they will lend support to gold prices which could hit $2,000 at some point in the fourth quarter or early 2014.

Byron Wien, vice chairman of Blackstone Advisory Partners and an investment industry icon, believes gold may rise to $1,900 per ounce in 2013.   “I buy gold as an insurance policy against calamity in financial assets,” Mr. Wien said.  “If the market is turbulent, if the VIX [volatility index] goes up, I think you’re going to be glad you own gold.  I have a 5 percent position in gold.  I don’t own it because I think it’s going up.  I own it because if my financial assets get in trouble, I’m going to be glad I have a little insurance in the form of gold.”

Gold may climb to a record above $2,000 an ounce and average between $1,700 and $1,800 this year as “investment demand remains high,” according to Vitaly Nesis, CEO of Russian gold and silver miner Polymetal International Plc.  “This year, central banks’ purchases will be the main demand driver,” Mr. Nesis added.


(Sources: “Gold futures inch higher ahead of ECB,” Marketwatch, February 7, 2013; “PRECIOUS-Gold market steadies ahead of ECB meeting,” CNBC, February 7, 2013; “PRECIOUS-Gold edges up before ECB meets, PGMs near 17-mth highs,” Reuters, February 7, 2013; “China Gold Imports From Hong Kong Climb to Record on Wealth,” Bloomberg, February 6, 2013; “Platinum Climbs to a 16-Month High, Extending Premium Over Gold,” Bloomberg, February 6, 2013; “Gold futures edge higher, top $1,675 an ounce,” Marketwatch, February 6, 2013; “Platinum Drops From 17-Week High as European Concern Resurfaces,” Bloomberg, February 5, 2013; “Inflation or Not, Gold Will Still Break $2,000: Analyst,” CNBC, February 4, 2013; “Now's the Time to Buy Gold: Economist,” CNBC, February 4, 2013; “Relationship Between Growth & Gold,” CNBC, February 4, 2013; “Gold scores second straight session gain,” Marketwatch, February 4, 2013; “Gold Futures End Up at $1,676; Platinum Rises,” CNBC, February 4, 2013; “Fund managers' ardour for gold cools as economic fears recede,”February 4, 2013; “Gold futures shoot higher in wake of jobs data,” Marketwatch, February 1, 2013; “Economy Adds 157,000 Jobs,” Wall Street Journal, February 1, 2013; “Gold Rises as Jobs Data Signal Economic Growth, Inflation,” Bloomberg, February 1, 2013;  “Gold or Platinum—Which Will Get to $2,000 First?CNBC, January 31, 2013; “Wien: Where Gold's Headed By Year's End,” CNBC, January 31, 2013; “Gold Seen by Polymetal Climbing to Record Above $2,000,” Bloomberg, January 30, 2013)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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