China gold premiums hit 3-year high on possible import ban

Gold premiums in top consumer China jumped to the highest in nearly three years this week, on worries over a supply shortage that traders said were due to Beijing’s efforts to restrict import licenses.

China’s net gold imports via main conduit Hong Kong fell 15% from a year earlier to 61.075 tonnes in October.

“While we don’t have the exact numbers, we hear that they (Chinese government) have limited the number of importers,” said Dick Poon, general manager at Heraeus Precious Metals in Hong Kong. There has been no official announcement from China on restricting licenses to import gold. China allows only 15 banks to import gold, including three foreign lenders.

Potential restrictions on gold imports could have to do with limiting the outflows of the Chinese yuan, said Zhirui Ji, an analyst with Thomson Reuters-owned metals consultancy GFMS.

The yuan touched an 8 and a half-year low this week. Gold premiums in China against the international benchmark rose to about $25 an ounce this week, the highest since January 2014, compared with a premium of $10 last week, according to Thomson Reuters data. 

The premiums could stay high, as gold retailers and manufacturers might  replenish stocks for the Chinese New Year in January, taking advantage of spot prices hitting nine-month lows at around $1,171 an ounce.

In India, the world’s second biggest consumer, premiums dropped due to subdued demand after the government scrapped high-value notes.

Cash crunch was forcing retail consumers to trim purchases, while jewellers were waiting for prices to fall next month, traders said.

Dealers charged a premium of up to $3 an ounce on Friday over official domestic prices that include a 10% import tax. That compared with up to $12 an ounce last week, the highest in two years. “Retail demand has fallen, especially in rural areas, due to the cash crunch,” said Daman Prakash Rathod, director at MNC Bullion, a wholesaler in Chennai.

“People are expecting some government measures to dampen gold demand.” Reuters