SINGAPORE: China's net gold imports from main conduit Hong Kong tumbled in August to their lowest since May 2011 due to weak jewellery and investment demand in the world's biggest bullion consumer.
China does not provide any trade data on gold and the Hong Kong figures serve as a proxy for gold flows into China.
The Hong Kong data, however, might not provide a full picture of Chinese purchases as direct imports through Shanghai - where China's first international gold exchange launched recently - have been increasing.
Nonetheless, bullion demand in China remains weak and has paled in comparison with record buying last year, as reflected in lower premiums on the Shanghai Gold Exchange (SGE), the main platform for all physical trades in China.
"There is no arbitrage opportunity between SGE and London prices. So it is not profitable for Chinese banks to import and sell on the exchange," said a trader with an importing bank.
"The other reason for lower imports is that physical demand from clients did not come through."
Net gold flows into China from Hong Kong fell to 21.134 tonnes in August from 22.107 tonnes in July, according to data e-mailed to Reuters by the Hong Kong Census and Statistics Department on Thursday. That is the lowest since net imports of 4.370 tonnes in May 2011.
China's gold demand slumped by a fifth in the first half of the year, according to the China Gold Association, after it overtook India to take the top spot last year.
In 2013, China imported a record 1,158.162 tonnes of gold from Hong Kong alone as demand was boosted by a 28 percent drop in global prices.
Premiums on the SGE were about $3-$4 an ounce on Thursday, compared with double-digit premiums last year.
The cost of importing and delivering gold into China was between $2.50-$3 an ounce, market sources have said. Premiums would have to be higher than that for banks to start buying aggressively again.
Overall Chinese imports in September are likely to be higher than August, other traders said, as banks stock up ahead of the Golden Week holiday at the start of October.
Imports via Shanghai - for which no data is available - in particular have risen this month because of the new exchange, they said.
SGE launched an international version of its exchange last week, allowing foreign firms to participate in the Chinese bullion market for the first time.
Hong Kong has historically been the gateway for gold into China, as Chinese banks buy gold from foreign banks that have branches and vaults there.
From Hong Kong, the gold then heads across the border to Shenzhen - a jewellery manufacturing hub - to SGE's vaults. But with the new exchange in the free trade zone, foreign banks, refiners and mints can send directly to the mainland.
Analysts and traders have said that Shanghai imports would cloud the picture as regards demand in China.
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