I recently wrote an article connecting the dots for readers on the current global gold trade.
If you recall, the trading pattern ended with the buyers of gold bars and jewelry in Asian countries.
The largest of these Asian buyers is now China, which consumed nearly 1,190 metric tons (mt) of gold in 2013.
Indeed, it’s vital to be aware of Chinese buying patterns when predicting the path that the gold market will likely take.
The problem is, that’s going to get a lot tougher in the near future…
Gold Moving Through Shanghai
Traditionally, most gold imports into China have been transported through Hong Kong.
This made China’s buying (aside from central bank transactions) very transparent. Data showing Hong Kong’s exports of gold to Shenzhen was a good rough proxy for overall Chinese gold demand.
But tracking China’s gold imports is going to get complicated…
The Shanghai Gold Exchange, the world’s largest physical gold trading platform, is setting up a brand-new exchange in Shanghai’s pilot program free trade zone.
The Exchange plans to launch physically deliverable gold contracts there.
So, instead of flowing through the gateway of Hong Kong, much of China’s gold imports in the years ahead will be coming directly into Shanghai’s free trade zone.
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The Chinese government is also permitting gold imports directly into both Beijing and Shenzhen. But the majority of the gold should go to the Gold Exchange in Shanghai.
The Opaque Gold Trade
This makes getting an accurate read on China’s gold demand difficult, since China doesn’t release trade data on gold. Information through the Shanghai Gold Exchange comes out months after the fact, and there are questions about its accuracy.
Therefore, Hong Kong’s gold export data will no longer be a useful proxy for Chinese gold demand.
But don’t tell that to the gold bears on Wall Street.
Recently, the bears used the cooling of Chinese gold demand as another excuse to start selling gold. They pointed to April’s figures from Hong Kong that showed gold exports to China were at a 14-month low.
But don’t believe it! They’re ignoring the gold now flowing through Shanghai.
The estimate by the World Gold Council is for Chinese gold demand to rise by at least 20% by 2017. That’s a substantial amount, if a bit conservative of an estimate.
And “the chase” continues,