Gold deliveries from Shanghai bourse jump on physical demand


By Feiwen Rong
Bloomberg News
Monday, July 15, 2013

BEIJING -- Physical gold delivered to buyers by China's largest bullion bourse in the first half of this year almost matched the entire amount taken from its vaults in 2012 and was more than double the country's annual production.

The Shanghai Gold Exchange supplied 1,098 metric tons in the six months through June, compared with 1,139 tons for the whole of last year, according to data from the bourse today.

Output in China, the world’s largest gold producer, reached a record 403 tons last year, according to the China Gold Association.

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The surge in deliveries underscores buying interest in China, which may pass India as the largest bullion consumer as early as this year after the government in New Delhi raised import taxes while regulators in Beijing made investing in the metal easier. Miners, smelters, and refineries are required to sell gold via the Shanghai bourse, the only state-sanctioned marketplace for spot bullion in China.

"The number shows demand for bullion as an underlying asset in China and investors here remained big buyers of the physical commodity this year," said Fu Peng, a commodity strategist in Beijing at Galaxy Futures Co, a brokerage controlled by the country’s sovereign wealth fund.

Bullion lost 23 percent last quarter amid speculation that the Federal Reserve would curb its asset-buying program as the U.S. economy recovers. Bullion may drop to $1,050 an ounce over 12 months as demand for the metal as a safe haven wanes, UBS AG said on July 4. Citigroup lowered its 2013 gold estimate to $1,358 an ounce.

The gold exchange was set up in 2002 and under the jurisdiction of the central bank. Commercial banks that are qualified to import gold are also required to sell their shipments into the bourse.

Bullion of 99.99 percent purity on the Shanghai Gold Exchange fell 27 percent in the first six months and was at 259.70 yuan a gram ($1,315.93 an ounce) today. In London, gold for immediate delivery traded at $1,282.89 an ounce at 5:55 p.m. Shanghai time, 23 percent lower this year.

Still, monthly gold deliveries are now below the record 236 tons in April, having eased to 224 tons in May and 180 tons in June.

"Investors aren't inclined to rush to buy gold the way they did to the abrupt price drop in mid-April," said Long Ling, an analyst at Industrial Futures Co. in Shanghai.

Trading of spot bullion of 99.99 percent purity on the Shanghai exchange exceeded 20 tons every day between April 16 and May 6. That's more than four times the daily average in 2012. Volume reached a record 43.27 metric tons on April 22 and climbed above 20 tons for two days through June 21, according to the exchange.

China's net gold imports from Hong Kong increased 40 percent in May from a month earlier as the metal's deepening slump continued to attract bargain hunters to bullion shops.

Mainland buyers purchased 106 tons during the month, after deducting flows from China into Hong Kong, compared with 76 tons a month earlier, according to calculations by Bloomberg based on data from the Hong Kong government. Inbound shipments including scrap were 127 tons, from 75.6 tons a year earlier and 126.1 tons in April.

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