China’s 2010 implied gold demand at 600 tonnes

Gold is closing in on $1,400. With gold at these levels scraps gold is coming to the market once again. We expect selling from the physical market to provide resistance at these levels. The Shanghai Gold Exchange indicated China imported 210 tonnes in the first 10 months of 2010. During the same period in 2009 only 45 tonnes of gold was imported.

We believe China’s gold production in 2010 should be around 350 tonnes. Gold exports are not allowed to be exported out of China. If the pace of imports we saw during the first 10 months continues in November and December 2010, gold imports into China should be around 250 tonnes. This puts China’s 2010 implied gold demand at 600 tonnes. The same calculation puts
China’s 2009 implied demand at 346 tonnes. Therefore, China’s gold demand in 2010 looks set to increase 254 tonnes or 74%.

We note that there is likely to be illegal gold exports and imports from and to China. This would distort the actual gold numbers for China. However, the trend is undeniable — gold demand in China is rising rapidly. Like the US, real short-term interest rates remain negative in China. Low real interest rates support gold demand. As long as this is the case, we expect China’s demand for gold to rise.

Gold support is at $1,380 and $1,372. Resistance is at $1,396 and $1,405.

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