05 September 2012

Chinese imports not all they seem

Interesting bit of market intelligence from GFMS:

Reviewing the available customs data reveals bullion flows from Hong Kong to mainland China posted a massive increase this year, with total volumes in the first five months rising over 700% year-on-year. On first glance, this may suggest that demand in China has continued to strengthen with these imports destined for fabricators producing jewellery and investment products. However, our information collection from various trade sources indicated that these Hong Kong export numbers have been highly inflated by growing round tripping between mainland China and Hong Kong whereby local companies used gold to engage in currency and interest rate arbitrage transactions.

I can't get any further details on this from our contacts, nobody wants to talk about it, which is a pretty good indication GFMS is on to something here. Will be interesting to watch China-HK volumes in the coming months, these arbitrages usually don't last.

6 comments:

Marks said...

Interesting, thanks for that info.

This implies that gold is being used as collateral for currency and interest rate arbitrage...? Is that your take on this news?

And instead of accepting allocated gold in a vault somewhere, China is demanding the physical gold be shipped?

Please try to get further details!!

Bron Suchecki said...

The reference to "round tripping" means the gold goes in but then comes back out and has nothing to do with "China" (ie official) activities.

Bron Suchecki said...

Left this comment on ZH http://www.zerohedge.com/news/name-new-reserve-currency-china-imports-more-gold-2012-all-ecb-holdings?page=1#comment-2775426:

Tyler, it is very amusing you jump on the "unnamed sources" part of the GMFS report, when you yourself often deal in such information. Does that mean we should discount everything King World News' London Trader says just because he is "unnamed"?

Also, if you read GMFS' note, they say it is "round tripping" which means the gold is going back out, so "the physical gold is now [not] on Chinese territory." That is the point, the actual net imports are lower than reported.

In reference to the "nobody wants to talk about it" - in speaking with our bullion bank contacts we can confirm the transactions are happening as GFMS describes, what nobody wants to talk about is the specific details of the arbitrage, volumes or who is involved.

These sorts of round tripping arbitrages occur from time to time in the gold market as traders take advantage of profit opportunities or loopholes or game tax incentives. The rarely last once authorities find out about them.

My post is not saying the Chinese aren't buying a lot of physical, both visibly and under the radar. A fair bit of the 5-6 tonnes of gold the Perth Mint sells to bullion banks each week is destined for HK/China as we see the shipment paperwork.

The point of my post is just to say that one should not take the Chinese import figures at face value.

S Roche said...

Well done Bron, one of the Tylers likes to operate in a fact-free zone.

Bron Suchecki said...

Interesting theory by DrkPurpleHaze on http://www.tfmetalsreport.com/comment/210159#comment-210159

"Are the Chinese/Hong Kong publicly recycling the same large amounts of gold back and forth to some extent while at the same time increasing the 'public awareness ' gold tonnage number that China seems willing to let people know about without an actually total or official tally behind the numbers being floated? Smart move on their part if they are doing so. Perception is huge."

Anonymous said...

GFMS data and the analyst forecasts that have been built on the back of it over the past ten years has been an absolute shower. Median analyst forecasts for one year price movts have been COMPLETELY WRONG every year for ten years in Gold and SIlve rbut not in other commodities. Qui bono and who owns GFMS....hmmm