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A lot of the gold China imported in the last three years was used to secure cheaper loans due to a liquidity crunch, but that is now flowing back into the market as lending rates drop. "All this gold that was used for financing has been given back as there is liquidity in the market and liquidity is cheap," Valcambi Chief Executive Michael Mesaric told Reuters. "There is no need to use gold anymore," Mesaric said. After China's central bank has continuously cut lending rates to support the economy, China's gold imports had been dropping, Mesaric said.
China's gold imports via main conduit Hong Kong dropped to a 10-month low in June, data showed on Monday. Imports fell to 813.13 tonnes last year from a record 1,158.16 tonnes in 2013. China does not provide official trade data on gold and the Hong Kong numbers serve as a proxy for flows to the mainland.
The Hong Kong data, however, does not provide a full picture as Chinese imports also come directly through Shanghai and Beijing.
Mesaric was referring to China's imports via all routes in estimating the fall in this year's purchases.
The decline in China's appetite is evident in modest premiums on the Shanghai Gold Exchange over the global benchmark, said ANZ Bank commodity strategist Victor Thianpiriya.
"In the past two years we've seen a big pickup in the Shanghai premium which makes it profitable for traders to import gold and sell them on the domestic market and we're not seeing that premium pick up this year," said Thianpiriya.
Lower imports from China could pull gold towards $1,025 an ounce, said Mesaric.
"I think $1,025 is a good support. In worst case scenario gold can drop to $950, but I don't think at the moment that is going to happen."
