Something Awry With Hong Kong Gold

At first glance, there seems to be something a little fishy about Hong Kong’s reported gold trade statistics. The World Gold Council puts private sector demand for gold for use in jewelry, investment, and industrial applications at 1,132 tons in 2013.

And yet official shipments of bullion from the territory to China were 1,490 tons. So where did the extra 300 or so tons go? According to a recent Credit Suisse report entitled “Commodities Advantage: Rumbling Along,” companies and speculators are using it for financial purposes other than investment.

Importing gold for loans and letters of credit is a low-cost way to invest while skirting restrictions on credit and cross-border capital flows. While there aren’t any official statistics, Precious Metals Insights, a Hong Kong-based consultancy, says the cumulative amount of gold tied up in financial operations is much higher than last year’s gap.

It may have reached a cumulative 1,000 tons of gold worth nearly $40 billion by the end of last year.

First published in 2014 in The Financialist.