* Chinese gold demand may fall 300-400 T from last year
* China imported 1,800 T of gold in 2013-consultant
* Authorities moving to crack down on gold financing deals
By Jan Harvey
LONDON, July 3 Chinese gold imports could fall
by up to 400 tonnes this year as the government tightens
controls on gold financing deals and domestic demand softens, a
leading precious metals consultant said on Thursday.
Philip Klapwijk, director of the Hong Kong-based Precious
Metals Insights, said the Chinese authorities are once again
moving to rein in abuse of gold lending, after a crackdown on
commodity financing last year.
He said weaker import volumes in recent months -- China's
gold imports from Hong Kong dropped in May to the lowest level
since January last year -- suggested the gold lending business
was already being partly wound down.
In the full year, imports could fall 300-400 tonnes, or as
much as 22 percent, he said.
"(Gold imports) will probably decline for the full year
given the impact of firstly, weaker real demand in China
compared to its outstanding level in 2013 and secondly, measures
to restrict the abuse of gold lending and other financial plays
using the yellow metal," he said in an interview with the
Reuters Global Gold Forum on Thursday.
"Total imports into China may have reached nearly 1,800
tonnes in 2013, taking into account unofficial and direct
shipments," he said. "That figure will surely be several hundred
tonnes lower in 2014.... It is another headwind for any rally in
gold this year, and it also means the price floor may be a bit
Gold prices are up nearly 10 percent this year after
falling in 2013 for the first time in more than a decade, but
remain more than 30 percent below 2011's record highs.
A report from the World Gold Council earlier this year,
based on research by Klapwijk, said gold imported into China was
being used via gold loans and letters of credit to raise
low-cost funds for business investment and speculation.
It estimated that up to 1,000 tonnes of gold, worth about $42
billion at current prices, could be tied up in these
"In short you have in China a very large 'surplus' of gold
-- cumulatively over 2,000 tonnes in the last 4 years -- that
can mostly only be explained by either private sector financial
use of gold or official purchases," Klapwijk told the Forum.
"It is impossible to be sure of the split between these two
main semi-hidden sources of demand, but both would be large, in
China's chief auditor said last week Chinese gold processing
firms have since 2012 used falsified gold transactions to borrow
94.4 billion yuan ($15.2 billion) from banks.
While affirming that a drop in Chinese gold imports could
prove a drag on price, Klapwijk played down the impact of a
large-scale unwinding of Chinese gold financing deals on
He said however that it could reverse the flow of physical
gold, which has moved from west to east in recent years as gold
stored to back exchange-traded funds in London and New York was
shipped east to meet Chinese demand after investors sold ETFs.
"Given that nearly all of these gold trades are hedged in
the futures market, there should be no net effect on the price
if they are unwound," he said.
"However, there could be an impact on the contango (discount
for immediate delivery) and also on the physical premium or
discount loco (located in) China or Hong Kong versus the rest of
He said the premium could potentially fall significantly,
adding: "If the discount grows sufficiently then there will be
pressure to export material from China to Hong Kong and then
back to Europe, reversing in fact some of the financially-driven
flows seen between 2011-13."
(Editing by Keiron Henderson)