The WGC is once again trumpeting its flawed estimates for China’s quarterly gold demand, reporting that the country experienced an absurd decline of 38% for Q3 of 2014.
The World Gold Council goes further to say that despite this decline, “demand was comparable to the same period of 2012.”
What they don’t say is that the WGC miscalculated 2013 totals of Chinese gold demand by more than 100% and has made no changes to how they estimate the country’s totals.
Buried in the fine print at the end of a WGC report called Understanding China’s Gold Market, the Council reveals the following:
There are two issues which cloud the picture of gold flows into China. The first is that data are limited.
Mainland China does not publish its own trade statistics so analysts rely on other sources, such as trade data from the Hong Kong Census and Statistics Department. In addition, there is little publicly available information on direct flows into mainland China, such as to Shanghai and more recently Beijing, although this has improved as other countries have started providing more trade data.
The second point is that gold flows are not always pure gold.
Trade data includes gold jewellery, semi-manufactured products, scrap, doré, and concentrates. Non-bullion gold imports can be mis-labelled too. Shipments can include other metals recorded under a gold-related Harmonised System (HS) code.7 So while import data are very useful, they need careful interpretation and should not necessarily be taken at face value.
Gold flowing into China does not automatically go to the SGE: Importing banks will often store gold on consignment before it is sold on the Exchange, and Shenzhen-based jewellery manufacturers with the necessary import/export licences will typically import and export gold without it going via the SGE.
They should probably re-title that article to “We Don’t Understand China’s Gold Market.”
So take any WGC reports with a grain of salt. Because while the World Gold Council is finally admitting (buried in the fine print at the end of an article on their website) that their numbers for China are sadly inaccurate, they continue to overlook this fact when they issue their reports and press releases to mainstream media sources.
The motivations for the WGC helping to obscure Chinese demand are not entirely clear, but it would seem that it could be to prevent what would be a dramatic rise in prices if more investors found out how much the country was actually purchasing.