SINGAPORE/BEIJING Chinese gold imports are likely to swell further after more than doubling to an all time high in March as retail consumers pounced when prices plunged to a two-year low last month.
China is the world's second largest buyer after India, and in both countries the steep fall in international gold prices in April unleashed years of pent up demand for coins, bars and jewellery.
That will help bolster prices for the metal, which has been abandoned by funds in other parts of the world in the wake of its historic fall.
"Physical demand picked up significantly over the last couple of weeks. Consumers and industrial users tend to see price drops as buying opportunities," Zhang Bingnan, secretary-general of the China Gold Association, told Reuters.
"Investment demand should continue to stay strong through the rest of the year because of limited investment alternatives," said Zhang, adding that gold sales and processing volumes both spiked in April.
Net gold flows from Hong Kong to China, the world's No. 2 gold consumer after India, jumped to 223.519 tonnes in March from 97.106 tonnes in February, smashing a previous record of 114.372 tonnes in December, data from the Hong Kong Census and Statistics Department showed on Tuesday (www.censtatd.gov).
That makes up more than half of record gold exports to China from Hong Kong in 2012, which stood at 557.478 tonnes.
In March, Shanghai gold futures fetched premiums of more than $30 to global prices, making it cheaper to buy the metal overseas.
April could see imports swell further after the drop in international prices spurred frenzied buying in Asia, leading to a shortage of gold bars and coins in Singapore as well as Hong Kong, which is China's main source for gold imports.
Appetite for gold from India and China is a major factor in international gold prices. The two countries account for more than a third of global demand, according to the World Gold Council. China produced 403 tonnes of gold in 2012, but consumption was more than double at 832.2 tonnes.
Gold tumbled to around $1,321 an ounce on April 16, its lowest in more than two years, after a fall below $1,500 and fears of central bank sales led to a sell-off that stunned investors and prompted them to slash holdings of exchange-traded funds. It stood at around $1,460 on Tuesday.
"April imports will be stronger than March," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong. "The world was buying gold and China was no different at all."
GRAPHIC on Hong Kong gold flows - link.reuters.com/ham87t
The drop in prices has prompted a gold rush in China, with Chinese shoppers flocking to retailers to buy jewellery and bars.
A spokesman for Hong Kong jewellery chain Chow Tai Fook, the world's largest jewellery retailer by market value, told Reuters that traffic at its China stores jumped by 50 percent during the May Day holidays.
The surge in Chinese travellers during the three-day May Day holiday also drove gold sales in Hong Kong to rise by an estimated 50 percent, with total gold sales from April 29-May 2 reaching some 40 tonnes, local media quoted Haywood Cheung, president of the Hong Kong Gold and Silver Exchange, as saying.
The jump in Chinese physical demand also prompted some banks to ship in more supplies from London and Swiss vaults, traders said.
With China's economy still on shaky ground, investors there with limited options for their cash could still see gold as attractive. The fall has hurt big funds elsewhere that bet on gold continuing a 12 year bull run, eroding investor confidence in the yellow metal.
China's annual export growth may have picked up slightly in April due to a low comparison from a year ago, while import growth probably eased, a Reuters poll showed, suggesting the underlying momentum for both the domestic and global economies remains tepid.
(Additinal reporting by Manolo Serapio Jr; Editing by Joseph Radford and Simon Webb)