Gold imports by China may drop over the next few months after the yuan fell, while shipments to India are picking up, according to Standard Chartered PLC, signaling contrasting outlooks for the two largest users.
Weakness in the yuan made domestic bullion in China cheaper than gold bought from overseas, said Jeremy East, global head of metals trading, who relocated to Hong Kong from London in June last year. Flows into India are higher than a year earlier and there is speculation import curbs may be eased, East said.
China overtook India as the biggest consumer last year, when Asia’s largest economy increased purchases to more than 1,000 tonnes and India’s restrictions hurt official imports. The two countries accounted for more than half of global demand last year.
“The expectation is gold orders into China will be lower in the next few months because of this exchange-rate move,” East said in an interview in Hong Kong on Friday last week. “We’re waiting to see whether it will have an impact on total demand for gold from China for this year.”
Spot gold in London increased 7.7 percent to US$1,293.68 an ounce this year at 2:52pm in Singapore, while metal of 99.99 percent purity on the Shanghai Gold Exchange rose 9.9 percent to 260.35 yuan a gram (US$1,292.19 an ounce).
In March, the average price in Shanghai was below that in London for the first time since September 2012. The yuan has fallen 3.4 percent this year, the worst performance among Asia’s 11 most-traded currencies.
Net imports into mainland China from Hong Kong dropped to 80.6 tonnes in March from 111.4 tonnes in February and 130 tonnes a year earlier, according to Bloomberg calculations based on data from the Hong Kong Census and Statistics Department.
Over the first quarter as a whole, net shipments remain higher, totaling about 275.6 tonnes this year compared with 210.5 tonnes last year.
The yuan has declined to its lowest level since 2012 last month as economic growth in China slowed in the first quarter.
Gold demand in China, the largest producer, will rise about 25 percent to at least 1,350 tonnes by 2017 as the population gets richer, the World Gold Council forecast in a report on April 15, adding that as much as 1,000 tonnes may be tied up in financing.
Demand for gold in China remains resilient and investors’ concerns about financing are overblown, Australia & New Zealand (ANZ) Banking Group Ltd said on Tuesday.
The Indian government raised the import tax three times last year and tightened financing to rein in a record current-account deficit and to reverse a slump in the rupee. Official imports dropped 4.1 percent to 825 tonnes last year, according to the London-based council, which said unofficial inflows were probably toward the upper end of 150 tonnes to 200 tonnes.
“Gold now has started to flow into India, not as big as it was years ago, but it’s picking up, higher than a year ago,” East said. “The views are there’s a chance they will relax the gold-imports policy.”
While the Indian government may remove some of the curbs, they will not do so completely as that would hurt the current-account deficit, Victor Thianpiriya, a commodity strategist at ANZ, said on April 16.
India will probably keep restrictions on imports to defend the rupee, said Rajesh Khosla, managing director at MMTC-PAMP India Pvt, the country’s biggest refiner. India’s currency has advanced 2.3 percent this year.
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