China reawakens appetite for gold as central bank relaxes quotas

China is the biggest consumer of gold in the world, responsible for hundreds of tonnes consumption, valued at tens of billions of US dollars every year. However, gold imports fell sharply as the coronavirus spread and national demand fell away.

Now China has given the green light to domestic and international banks to import significant quantities of gold, according to a number of sources. This has the potential to support gold prices, after many months of decline.

As China’s economy starts to go into rebound (since the second half of last year), consumer appetite for gold jewellery, bars and coins has also gone up, and since the beginning of 2021 domestic prices have been higher than global benchmark rates, meaning it is profitable to import gold bullion.

The nation’s central bank, The People’s Bank of China (PBOC), has control of how much gold enters China through the quota system is sets for commercial banks. For the most part the Bank allows enough metal in to meet local demand, but is also capable of restricting the flow. But in recent weeks, it is claimed that the quotas have been lifted.

China’s appetite for gold jewellery, bars and coins is chasing back to normal as the economy rebounds

For some time there were no quotas allowed. Now the restrictions are being relaxed: the most since 2019.

Circa US$8.5 billion at current prices, that’s some 150 tonnes of gold, is set to shipped according to sources in China.

Typically, the great bulk of China’s imports of gold are from Australia, South Africa and Switzerland.

However, the amount of imports in question suggests China is making dramatic return to the global bullion market. From February 2020, China has averaged some US$600 million a month of imported gold worth around. That’s about 10 tonnes.

In 2019, imports were at some US$3.5 billion a month, circa 75 tonnes.

Overall, China’s absence has not made a great deal of difference to gold prices since the beginning of the pandemic, as investors in Western economies feared economic chaos and as a result stockpiled huge amounts of gold bullion – typically seen as a safe asset in turbulent markets – which pushed gold to a record high of US$2,072.50 an ounce.

However, since the height of market nervousness, investor interest has flattened as the impact of vaccines and government stimuli revived economic growth, such that prices have fallen back to around US$1,750.

Meanwhile the demand for bullion in India has also come back strongly from the slump at the outset of the pandemic. In March there were record-breaking imports of 160 tonnes of gold, according to an Indian government source. China and India account for around forty per cent of the world’s annual demand for gold. Thus, recovery in these markets is critical in determining the market for gold and should their renewed appetite should prevent prices from falling further over the short term.

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