Premiums High In China and India - China Gold Deliveries Double

Gold Fixes/Rates/Vols - (Bloomberg)

The cost of borrowing gold remains near its highest level since January 2009, reflecting a lack of supply from bullion banks and resilient demand for physical gold products, especially in Asia.

Trading volumes for gold and silver on the Shanghai Futures Exchange (ShFE) rose to record volumes on Friday, with premiums in Asian gold products remaining at sharply higher levels than in North America and Europe.

Gold premiums in China remain high at nearly $30 per ounce (see table above) an indication of strong demand in the People’s Republic of China and premiums in India remain robust despite the recent fall in demand.

Chinese gold demand remains insatiable with record deliveries being seen on the Shanghai Gold Exchange (SGE). 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 all of 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 reported by Bloomberg. 

Cross Currency Table  - (Bloomberg)

The surge in deliveries underscores buying interest in China, which is likely to 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.

Monthly gold deliveries are now averaging 200 tonnes - they hit a new record of 236 tons in April and then eased to 224 tons in May and 180 tons in June.

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.

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

It is important to note that a slowdown in the Chinese economy may not result in lower Chinese demand. It could indeed, lead to higher demand as Chinese people are buying gold due to concerns about the Chinese financial system and concerns about currency devaluations. These risks would increase should China slowdown or see a recession or depression.

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