HSBC Bank (China) Co announced on Friday that it has been approved as a member of the Shanghai Futures Exchange, becoming the first overseas bank to engage in China’s gold futures market.

“China is an important producer, user and investor of gold. The access granted for China’s gold futures market is a welcome addition to our existing gold spot trading business with the Shanghai Gold Exchange, and reinforces HSBC’s leadership in the global precious metals market,” said David Liao, managing director and head of Global Markets at HSBC China.

“We look forward to playing a greater contributing role in the development of China’s fledgling gold market, where we see vast growth potential,” Liao added.
HSBC China was one of the first overseas banks to become a member of the Shanghai Gold Exchange in February 2008, and the first overseas bank to obtain approval to start gold trading in June 2008.

The approval “reflects the opening up of China’s futures market,” Wu Jian’gang, researcher at the CEIBS Lujiazui International Finance Research Center, told the Global Times on Sunday.

“Gold is not quite closely related to industrial production, so introduction of foreign companies would not create a big, unmanageable impact on China’s commodity market,” Wu noted.

Gold futures should be in tune with the foreign exchange reform and opening of the financial market, so it is appropriate to open the gold futures market first in the process of foreign exchange reform and yuan internationalization, he added.

“The country would intensify efforts in the futures market, including reducing rates and increasing the liquidity and diversity of investors and agents. The opening up of gold futures is just a start and in the future, not only institutions, but also advanced global technologies and experiences will be introduced,” said Wu.

China is the largest gold producer in the world, with the output increasing to a record high of 340.88 tons in 2010, data from China Gold Association shows.

Demand for physical gold in China may exceed consumption in India by the end of this year, said Chuck Jeannes, chief executive officer of Goldcorp Inc. (G), the world’s No. 2 producer of the metal by market value.
“Three or four years ago there was no one who would have expected Chinese physical demand for gold to surpass India,” Jeannes said yesterday in a telephone interview from New York. “Now it looks like that could happen as early as the end of this year. And that’s while Indian demand is increasing.”
While global demand for gold is advancing on concerns about financial turmoil in the U.S. and some European countries, consumers in China are buying larger amounts of the metal as an inflation hedge, Jeannes said.
Investment demand in China more than doubled in the first quarter to 90.9 metric tons as the nation overtook India to become the largest market for coins and bars, the World Gold Council said in May.

India was the largest consumer of gold jewelry last year, according to data compiled by Bloomberg. Gold reached a record $1,631.20 an ounce on July 27 in New York on concern about a potential U.S. default and is heading for an 11th straight annual increase.
Demand for gold in both China and India may help lift the price of the precious metal, said Jeannes, who said he expects gold to advance to $1,700 an ounce by the end of the year.
“I predicted a $1,600 gold price at the beginning of the year, and am happy to see it there now,” Jeannes said. “I wouldn’t be surprised to see it move significantly higher by the end of the year.”
Goldcorp, based in Vancouver, is second by market value after Toronto-based Barrick Gold Corp., the world’s largest gold producer.

It was said from the Bombay Bullion Association in Mumbai on Wednesday that gold imports declined by nearly 24 per cent in 2009 at 343 tonne, against 449 tonne in 2008.

“The country has imported 343 tonne gold in 2009, compared to 449 tonne in 2008,” Bombay Bullion Association President Suresh Hundia said.

India has remained the largest gold importer in the past few years, but took a hit in 2009 due to soaring prices, he said.

Commenting on price trend, Hundia said gold may see some correction and may touch Rs 16,400-16,500 per 10-gram in the near future.

The precious metal plunged Rs 245 to Rs 16,785 per ten grams at the Mumbai bullion market today on emergence of hectic offloading by stockists and speculators.

The sudden bout of selling was attributed to heavy profit-taking fearing a price correction in the overseas markets following China’s tightening of its monetary policy yesterday, a trader said.

Pure gold (99.9 purity) fell by a similar margin to end at Rs 16,870 per ten gram from Rs 17,115 previously.

It is reported from UK-refiner Johnson Matthey that Chinese jewellery demand has been tremendously strong in 2009. But how long can it keep on growing?

It’s been clear that China’s demand for platinum has been exceptional in the last 12 months. There are two key and relatively timely sources of data about the Chinese market – the country’s imports of platinum, both direct and via Hong Kong, and turnover on the Shanghai Gold Exchange (SGE). Both have been very strong since Q4 2008, and that has continued through most of 2009. The chart below shows net imports of unwrought platinum into China & Hong Kong since the start of 2008.

After a rather subdued first nine months of 2008, on the back of the extremely high platinum price and restricted supply (due to the power crisis in South Africa), China’s demand really took off in September 2009 as the price crashed, and has remained strong ever since. It dipped in June this year but has slowly recovered. October data is only available for direct China imports, and this shows these falling back to 79,048 oz, the lowest since December 2008.

In total, these add up to 1.7 Moz in 2008 (of which nearly 900,000 oz came in the last three months) and 2.3 Moz in 2009, up to the end of September. Even if imports were to slow to a rate of 150,000 oz a month for the last three months of 2009, that would still imply 2.75 Moz for the full year. It’s possible that some of this data is less than totally reliable – Swiss exports to China do not always tally with recorded Chinese imports from Switzerland, for example – but the trends are clear.

A similar tale is shown by the cumulative turnover on the Shanghai Gold Exchange’s platinum contract. By end-November this year the cumulative total traded in ounces (having halved the total to remove double-counting) was 838,299 oz, far in advance of the previous highest level at this stage of 2008, when it was 632, 952 oz.

These volumes are lower than those recorded by imports, as not all platinum that enters China, and even more so Hong Kong, goes through the Shanghai Gold Exchange. Nevertheless, as the following charts show, the trends have been similar.

Both measures suggest that, even allowing for some slowdown in December as higher prices have begun to bite, China’s platinum usage will be much higher in 2009 than in 2008. The data however cannot tell us how much goes into jewellery as opposed to autocatalysts, glass, electronics and chemicals. In November the UK-based refiner Johnson Matthey (JM) suggested that total demand (from all sources) of platinum in China in 2009 would be 2 Moz, 66% higher than 2008. Of this they estimate 1.75 Moz1 will be jewellery, up from 850,000 in 2008. It is interesting to note that JM’s jewellery figures match Hong Kong imports quite closely.

Clearly it is not an exact science as to how much platinum goes to one use or another. However, jewellery manufacturing is going to be the major platinum user in China. Primarily this is because the Chinese automotive industry tends to make gasoline-powered cars, and so the split between platinum (normally found in diesel-engine autocatalysts) and palladium is heavily in favour of the cheaper metal. The next largest use typically is glass manufacturing, followed by the chemical and electronics industries.

These contribute a fair chunk to China’s consumption, but even if they have been underestimated it is still the case that jewellery demand must have increased substantially over 2008. It is possible that the high levels of jewellery demand might to some extent be masking investment in platinum, but it is impossible to know in what quantities this might be happening.

It is reported that gold demand has fallen dramatically in the UAE and jeweller closures are “inevit-able” the World Gold Council said in a report.

The UAE saw demand fall by 39 per cent in the third quarter of this year compared to the third quarter of last year, the council said.

“A combination of high gold prices, declining tourist numbers and a sharp downturn in the property sector were responsible for the drop off in demand,” according to the report, released yesterday.

In the Middle East as a whole, jewellery demand fell by 34 per cent, while investment demand dropped by 11 per cent.

However, in the UAE, jewellery demand was down 38 per cent and investment dem-and 52 per cent, compared to the third quarter of 2008.

However, the third quarter of 2008 was an exceptionally strong quarter.

When compared to a five year average of third quarters, total demand in the UAE was down six per cent, the report said.

Despite this, the council said that jewellers in the UAE were at risk of closure.

“The jewellery trade, most particularly in Dubai, is under pressure. As with many residents in the UAE, many jewellers had invested their profits in the property sector.

“Left with cashflow problems jewellery retailers have been forced to liquidate inventories to meet margin calls and make repayments on gold loans. As yet, there have not been any notable closures of jewellers, but this is probably inevitable if demand conditions do not improve,” the council’s report said.

Earlier we noted a worrisome sign for bulls: On-net, all speculation is on the long side. There are virtually no portfolio managers willing to go against gold.

Here’s another bad sign according to RBC (via FT Alphaville and Pragcap). Speculative positions on COMEX are spiking, while gold under ETF management is flat.

The weak physical demand for gold combined with the rapid rise in the speculative activity could give rise to a sharp correction, especially if the US dollar rallies.

According to the National Gold Group at the ongoing China Mining Conference, China has recently increased gold quota in its foreign exchange reserves from 600 tons to 1,054 tons.

China produced 282 tons of gold in 2008, the biggest amount in the world even surpassing South Africa.

Meanwhile, the country has discovered new gold deposits of 750 tons.

In 2008, total gold demand in China reached 395 tons, and total sales value of gold and diamond jewelry reached 180 billion yuan, ranking second in the world after India.

U.S. gold futures ended higher on Monday as a weaker dollar boosted bullion’s appeal as a hedge against the weakening value of paper assets due to currency depreciation. Gold, little changed in London Monday, may gain on speculation a weaker dollar will boost the metal’s appeal as an alternative investment.

The Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.3 percent Monday. Bullion has climbed 20 percent this year as investors sought to protect their wealth from the declining dollar and as a hedge against inflation. Gold prices, heading for a ninth annual gain, reached a record US$1,070.80 an ounce on Oct. 14.

“It is still too premature to short gold,” Andrey Kryuchenkov, a VTB Capital analyst in London, said Monday in a report.

Immediate-delivery bullion added US$2.72, or 0.3 percent, to US$1,056.32 an ounce at 11:36 a.m. local time. The metal rose 0.4 percent last week, the eighth gain in nine weeks. December gold futures were 0.5 percent higher at US$1,057.10 an ounce on the New York Mercantile Exchange’s Comex division.

CME Group Inc. will allow gold to be used as collateral to back trades on its exchange, according to a member notice dated Oct. 16. Gold would be the first commodity to be used as margin on CME trades, spokesman Jeremy Hughes said by phone Monday.

The metal gained to US$1,054.50 in the morning “fixing” in London, used by some mining companies to sell production, from US$1,047.50 at the afternoon fixing on Oct. 16. Still, nine of 16 traders, investors and analysts surveyed by Bloomberg, or 56 percent, said bullion would fall this week. Five forecast higher prices and two were neutral.

“The whole market is expecting to see some consolidation first before another round of buying,” said Kate Harada, a senior trader with Mitsubishi Corp. Futures & Securities Ltd. in Tokyo.

UBS AG raised its one-month and three-month forecasts for gold to US$1,000 an ounce and US$1,050 an ounce, from US$950 and US$1,000 respectively, John Reade, the bank’s head metals strategist in London, said Monday in a report. Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged for a seventh day at 1,109.31 metric tons on Oct. 16, according to the company’s Web site.

Assets in ETF Securities Ltd.’s exchange-traded products fell 5.1 percent to 8.068 million ounces on Oct. 16, its Web site showed.

An investor who recently bought shares in one of the company’s gold products made a “one-off” transaction, Nicholas Brooks, head of research and investment at ETF Securities, said Monday by phone. He declined to name the investor.

UBS also raised its one-month and three-month forecast for silver to US$16 an ounce and US$17.50 an ounce, from US$14 and US$15.50 respectively. The bank increased its three-month platinum estimate to US$1,375 from US$1,275, and its three-month palladium forecast to US$330 from US$240.

Silver for immediate delivery in London added 0.3 percent to US$17.515 an ounce. Platinum rose 0.6 percent to US$1,350.95 an ounce, while palladium lost 0.2 percent to US$328.50 an ounce.

It is reported on Oct. 14 that soaring prices are likely to dent the demand for gold tomorrow, which is Dhanteras.

Merchants are expecting demand to fall by as much as 50 per cent, with buyers opting for smaller items.

The yellow metal rose to a record high of above $1,070 an ounce on Wednesday in London as the dollar slid to 14-month lows against the euro and oil prices inched towards $75 a barrel, boosting interest in commodities.

In India, where markets are influenced by global trends, prices are sizzling at record levels. In Calcutta, pure gold is at Rs 16,265 per 10 gm after scaling Rs 16,385 yesterday.

Dhanteras, when precious metals are bought in the belief it would lead to prosperity, generally accounts for sales of 15-20 tonnes of gold. But when consumers throng to jewellery shops and banks on Thursday, they are expected to look for smaller items.

“This year, our new initiative has been the 2 gram coin,” said an executive in a private bank in Mumbai. “Smaller coins are definitely going to sell more,” the executive added.

Traders and dealers said high prices, inflation and the economic slowdown are turning people into cautious buyers. “We see gold demand to drop by 50 per cent tomorrow because prices are ruling at an unaffordable level now,” Bombay Bullion Association president Suresh Hundia said.

Dhanteras is also expected to show Indians’ growing love for gold as an investment in the form of coins and bars rather than jewellery.

Jewellers and traders said the shift towards buying bullion over the past 4-5 years was here to stay as more consumers realise it is the more economical way to buy gold.

It is said from Harmesh Arora (director of NIBR Bullion Pvt Ltd, a Mumbai-based gold refinery that sells coins) that now even small investors have started buying gold coins. They collect it for their children.