China's net overseas purchases of gold through key conduit Hong Kong fell to a 17-month low in June as a weaker yuan curbed demand from the world's biggest bullion consumer and as direct imports through the mainland flourished. The fourth consecutive month-on-month drop in gold imports amid a withdrawal of stimulus measures in the United States and import restrictions in No 2 buyer India could drag on global prices of the precious metal.
June net gold flows into China from Hong Kong slid to 40.543 tonnes, from 52.606 tonnes in May and 104.567 tonnes in the year-ago period, according to data e-mailed to Reuters by the Hong Kong Census and Statistics Department. The imports were the lowest since January 2013 as a softer yuan continued to curb consumers' buying power. The yuan has lost about 2 percent against the dollar since the start of the year, the worst performing currency among its emerging market peers.
While jewellery and investment demand for gold in China remains weak, the Hong Kong numbers were also hurt by direct imports into the mainland through Shanghai, market sources said. China is set to launch a new international gold exchange at Shanghai free trade zone later this year, and banks have started trial gold imports directly into Shanghai, sources told Reuters last month.
As China does not release any gold trade data, market participants see the Hong Kong numbers as the best indicator of Chinese demand. But with more imports coming in through Shanghai, reading Chinese imports has become difficult. "More and more imports are going through Shanghai," said Jiang Shu, an analyst with Industrial Bank - one of 12 banks allowed to import gold into China. "With the launch of the new exchange, imports from Hong Kong will increasingly become less meaningful as an indicator of actual gold demand in China."
Hong Kong has historically been the gateway for gold into China, as Chinese banks buy gold from foreign banks that have branches and vaults there. Imports last month could have also been hit by low demand for commodity financing deals, which have come under increasing scrutiny in China in the wake of a suspected financing fraud in Qingdao - the world's seventh busiest port. A leading precious metals consultant has said Chinese gold imports could drop by up to 400 tonnes this year as the government tightens controls on such financing deals and domestic demand softens.
China's gold demand slumped by a fifth in the first six months of the year, the China Gold Association said in a separate statement on Thursday. "The sales volume of jewellery and investment demand for gold has really dropped drastically in China," the analyst said. "Consumer confidence in the gold market has declined and they are now buying jewellery or bars of lesser value." The lower demand this year is partly due to huge purchases in 2013, when China overtook India as the biggest consumer of the precious metal. Gold prices dropped 28 percent last year, after a 12-year bull run, prompting many to bring forward their purchases and eating into 2014 demand.
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