Daily Nugget: Will Chinese Demand Slow In 2014?

This morning the gold price is hovering below its six-week high. It is likely to trade in a narrow range ahead of Bernanke’s final FOMC meeting next week, and concerns that physical buying (mainly in China) will slow in the face of higher prices.

Platinum continues to sit near its 2 ½ month high in the run-up to strike action later this week, affecting half of the world’s supply.

Will Chinese gold demand slow?

Reuters published an article yesterday suggesting Chinese demand is set to slow in 2014. The analysts suggest that the surge in imports in 2013 was partly thanks to the opening of wholesale showrooms, a source of demand not expected to continue into 2014.

Imports last year were, according to the World Gold Council, over 1,000 tons. However our research with Koos Jansen showed that this key level had been reached some years ago. Yet, some forecasters believe that imports will either fall below, or remain at, this level.

Reuters cites ANZ who expects China to import 900 tons of imports in 2014, VTB Capital who also forecasts imports below 1,000 tons, whilst Standard Bank expects imports to stay steady.

In the years prior to 2013, Chinese demand showed a trend of increasing as the price was climbing. It is only in the last 9 months or so that this trend has reversed. Therefore, expectations that the price will put off Chinese investors appears a little short sighted.

It is also worth considering the fact that the Chinese government have taken many measures to encourage gold investment at both institutional and individual levels, many of which have been announced since the 2011 peak. 2014 is expected to be a year where more measures are announced and the Chinese government intends to open up the gold market more to international investors.
Improved sentiment in gold market

The gold price is also still riding on the positive news that gold ETFs (as tracked by Bloomberg) saw inflows of 7.4 tons on Friday. Gold ETF outflows were one of the major reasons given for the 28% drop in the gold price last year. GLD saw the biggest inflows since November 2012, when gold prices were trading over $1,700/oz.

It seems that sentiment across the gold market, towards gold has picked up since the beginning of the year. Not only are there ETF inflows, but coin demand remains high and net longs on COMEX rose for the fourth-consecutive week last week.

Speaking of coin demand, should sales at the US Mint remain consistent throughout January then sales will match levels not seen since January 1999. So far January sales have reached 83,500 ounces.