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China's gold output and demand could be far greater than ‘official' data suggest
Following the recent Mineweb article on Chinese gold production and consumption (see China enhances position as world No. 1 gold producer - but where’s it all going?) we have received the following comment s from specialist precious metals analyst, Jeff Nichols of American Precious Metals Advisors and Rosland Capital, which suggests that both Chinese gold production and consumption may be considerably higher than that suggested by official and semi-official statistics coming out of the Asian giant.
Nichols avers that China’s domestic gold mine output is, without a doubt, much higher than reported. Actual gold mine output could easily be close to 400 tons and possibly more for the following reasons:
•The China Gold Association (CGA) numbers reflect production by their members only—but omit gold mined by non-members. These include many small, unofficial mining operations some of which are illegal existing in the “underground economy”. The CGA data also excludes production from mines owned and operated by the military, which is significant according to sources. Not to be overlooked is by-product output from copper, silver, and other metal mining activity. Again, this is significant though hard to know just how significant.
•In addition to mine output, analysts and commentators seem to forget about secondary supply—that is from recycling of jewelry, investment bars, and industrial scrap. Just to get an “order-of-magnitude” possibility, in recent years global secondary supply from scrap recycling has contributed roughly one-third of total worldwide supply. If scrap contributed only five or ten percent of China’s total gold supply it would still be quite important.
•Next, Western analysts are estimating that China’s total gold imports last year were around 490 tons—but no one talks about “illegal” imports—that is gold smuggled into China. We know smuggling is quite significant in some countries—Vietnam and India, for example. We can only imagine how many tons of gold in the form of tael bars, wafers, coins, investment-grade jewelry, etc. is carried into China each year by travellers and professional smugglers.
Actual Chinese consumption is, of course, a pretty speculative estimation. One assumes the imports (and the 490 tons referred to above relate only to that imported through Hong Kong which itself may be an under-estimate as we only have ‘official’ figures for this to November so far.) By anecdotal evidence the demand at the year-end, and running into the lunar New year, was enormous, thus this figure could easily be higher, quite apart from the gold coming in by other routes which Nichols points to in his comments.
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