China’s December gold imports a flash in the pan - Capital Economics
Metals

China’s December gold imports a flash in the pan

Precious Metals Update
Written by Alexander Kozul-Wright

Chinese imports of gold surged in December, while India’s foreign purchases remained in the doldrums. Looking ahead, we expect high local-currency prices in India coupled with a slowdown in Chinese economic growth to curb physical demand for gold in 2020. Accordingly, we think that subdued consumer demand will be one of the factors weighing on the price of gold this year.

  • Chinese imports of gold surged in December, while India’s foreign purchases remained in the doldrums. Looking ahead, we expect high local-currency prices in India coupled with a slowdown in Chinese economic growth to curb physical demand for gold in 2020. Accordingly, we think that subdued consumer demand will be one of the factors weighing on the price of gold this year.
  • The latest data from China’s customs authority showed that imports of gold increased three-fold in m/m terms in December. (See Chart 1). This tallies with a seasonal pick-up in jewellery demand in the run-up to Chinese New Year. And while withdrawals from the Shanghai Gold Exchange (SGE) rose for the third consecutive month, they remained low by historical standards. (See Chart 2.)
  • In our view, Chinese gold imports will trend down in 2020 for three key reasons. First, the temporary prop from holiday purchases will soon fade. Second, we expect that local-currency gold prices will remain elevated. (See Chart 3.) Third, we forecast that China’s economy will slow further this year, even if the recent coronavirus outbreak is contained, which will undermine consumer demand.
  • Elsewhere, data released by the Indian Commerce Ministry showed that gold imports in December slumped by 19% m/m. (See Chart 4.) The recent drop can be chalked up to elevated gold prices in local-currency terms. (See Chart 3 again.) In the coming months, we forecast that India’s economy will strengthen, which should provide support for the rupee and nudge up gold imports. Bringing all this together, we think Indian physical imports will grow in annual terms, but will remain low by historical standards.
  • In sum, we don’t expect a sustained revival in Chinese gold imports anytime soon. In contrast, Indian gold imports may recover some lost ground. That said, any increase in physical demand should be more than offset by soft safe-haven demand on the back of a gradual recovery in global growth later this year.

Chart 1: China Gold Imports (Tonnes)

Chart 2: Shanghai Gold Exchange Withdrawals (Tonnes)

Chart 3: Gold Prices in Local-Currency Terms

Chart 4: India Gold Imports

Sources: Refinitiv, Bloomberg, SGE, GACC, Capital Economics


Alexander Kozul-Wright, Commodities Economist, +44 20 3927 9833, alexander.kozul-wright@capitaleconomics.com