China has allowed domestic and international banks to import large amounts of gold into the country, five sources familiar with the matter said, potentially helping to support global gold prices after months of decline.
China is the world’s largest consumer of gold, buying hundreds of tons of precious metal worth billions of dollars each year, but as imports of coronovirus spread, its imports plummeted and local demand dried up.
With the Chinese economy strengthening since the second half of last year, demand for gold jewelery, bars and coins has declined, making domestic prices above global benchmark rates and profitable to import bullion .
According to Asia’s gold traders, the local premium is now $ 7 to $ 9 an ounce, and if more imports were not allowed to meet demand, it would probably increase further.
According to current sources, at current prices, about 150 tonnes of gold worth $ 8.5 billion is expected to be shipped from Beijing after the green light. Two said the gold would be shipped in April and two said it would come in April and May.
The bulk of China’s gold imports usually come from Australia, South Africa and Switzerland.
The country’s central bank, the People’s Bank of China (PBOC), refers to how much gold enters China through the quota given to commercial banks. This usually allows for metal but sometimes restricts the flow.
“We haven’t had any quota for some time. Now we’re getting them … the most since 2019,” said a source from one of the banks that moved gold in China.
PBOC did not respond to a request for comment.
The size of the shipment indicates a dramatic return of China to the global bullion market. Since February 2020, an average of about $ 600 million of gold is imported into the country, or about 10 tons, Chinese customs data show.
In 2019, its imports stood at around $ 3.5 billion a month, or about 75 tons.
China’s absence of the epidemic caused very little difference in gold prices when Western investors stocked vast amounts of safe-property fearing economic catastrophe, pushing it to a record high of $ 2,072.50 an ounce.
But vaccines and government stimulus programs revived economic growth and gold prices rose to around $ 1,750 an ounce.
A government of India source said demand for bullion in India has also recovered from an epidemic-induced recession, in which a record breaking 160 tonnes of gold was imported in March.
China and India generally account for some two-fifths of the world’s annual demand for gold.
Sookie Cooper, an analyst at Standard Chartered, said her recovery is “important in setting the floor for gold” and should prevent prices from falling further in the coming months.
During the Lunar New Year holiday in February, jewelery sales in China were stronger than in 2019 and 2020 and manufacturers and retailers needed to recoup their stocks, Philip Klapiewicz in Precious Metals Insight, a consultancy in Hong Kong he said.
He said, “A much better recovery in demand for gold this year (compared to 2020) will require higher levels of gold imports.”