By all accounts in the mainstream media, gold demand in Asia, and in particular in China and India, has been slipping dramatically this year which some see as the principal reason behind current price weakness. But all may not be as the reports suggest. Is Chinese demand, as suggested by the enormous slippage in gold imports though Hong Kong really as bad as the figures appear to show?

Reuters reports Hong Kong net gold exports to mainland China in July as falling to the lowest level since June 2011 at 22 tonnes (Bloomberg reports the figure as 21 tonnes). Compare this with the heady days last year when such gold imports exceeded 100 tonnes monthly for 6 months in a row from May to October. If this is an accurate indication of Chinese gold demand weakness then this is indeed something of a blow for gold bulls. 

But, China has moved the goalposts. While Hong Kong was very much the primary routing for gold entering the Chinese mainland in the past, indications are that this may no longer be the case as China has now designated a number of other points as import points for gold – notably Shanghai and Beijing. But as it does not publish statistics for these, overall import figures are much more opaque.

Koos Jansen, who monitors detailed gold flows through the Shanghai Gold Exchange, reckoned to be the true indicator of Chinese wholesale gold consumption, and which does publish weekly figures, has also seen a fall – but not nearly to the same extent as the Hong Kong data would suggest. Indeed writing on, he sees total Chinese demand to August 1st as 1,094 tonnes and imports to this date are estimated at 688 tonnes. Extrapolating for the full year this could suggest total annual imports of 1,170 tonnes, although given there was an import surge in January and February the figures might not be directly comparable – but even so it does mean Chinese gold imports may well amount to perhaps around 1,000 tonnes for the whole of 2014. (Possibly higher given that demand tends to pick up later in the year as the Chinese New Year approaches). While this is indeed a lower figure than last year’s record it is not down to anything like the same degree that the Hong Kong figures alone might indicate.

And take Shanghai gold premiums. According to Reuters these are currently running at around $3-$7 over the London price, after slipping back to zero (and briefly to negative) a couple of months ago. This does at least point to weak to moderate demand in the Chinese market which is again counter to what the Hong Kong data alone might suggest.

And how about that other massive Asian market – India? Gold has had a very topsy-turvy ride this year, largely centred around the Indian elections and hopes, subsequently dashed, that the big gold import premiums imposed to assist the country’s balance of payment figures with the value of gold imports providing such a significant part of the country’s trade deficit, would be dropped or reduced. Again Reuters reports that demand is picking up well and with Festival and wedding seasons approaching, and the Monsoon proving a little better than originally anticipated helping boost rural demand, price premiums in India have risen to around the $10-$13 level compared with zero a month ago.

The latest figures indicate that India could still well import around 700 tonnes of gold this year, but this could be swelled by unrecorded amounts smuggled into the nation to avoid the government duties, which could be as much as 200 tonnes or more according to some estimates.

So overall gold movements into the world’s two biggest consumers may well be slipping this year after last year’s big figures, but it does not appear to be slipping nearly as much as some media reports would have us believe. Taking into account a substantial drop in disposals from the big gold ETFs, relatively flat mine supply and a fall in scrap sales due to the lower prices this year’s supply/demand balance could well move in gold’s favour, although this will not necessarily result in significantly higher prices given the markets are still largely controlled by COMEX paper gold futures data.

If the gold price is to rise significantly by the end of the year, then it will be geopolitical factors that most likely will prove the key. But, the investment public is suffering from news fatigue on this front and it would probably take something really dramatic – like a fullscale Russian invasion of eastern Ukraine, to move the markets substantially here. Given that yesterday’s reports that a Russian tank column had crossed the border into Ukraine didn’t have much of an impact on the gold price, although it has moved up this morning (there is so much disinformation on the Russia Ukraine crisis being disseminated that this may be yet another false accusation) it would definitely take some very substantial news to drive prices upwards by more than a few dollars.

But, we are entering a dangerous time of year on the geopolitical front and if, indeed, Chinese and Indian demand does start to pick up significantly in the second half of the year we could see something of a run in the gold price. However there are just too many unknowns out there at the moment to be able to make any serious predictions one way or the other.