UBS: Chinese Gold Demand Nothing Exceptional After Lunar New Year

(Kitco News) - Chinese markets reopened earlier this week, following a week-long Lunar New Year Celebration, and renewed interest in Asian is helping to support the gold market, said analysts at UBS in a research note published Thursday.

They noted since trading resumed earlier this week, trading volumes on the Shanghai Gold Exchange have been picking up and premiums have also been pushing higher. However, the analysts add that although demand is positive, it is “nothing exceptional.”

“In a sense, we believe the unremarkable interest from physical markets observed in the past couple of months broadly remains in place,” they said.

Looking at imports from Hong Kong and Swiss trade statistics, analysts said that China imported about 91 tonnes of gold in January, relatively flat compared to December and down by about 5% from the previous year.

“This is not to say that Chinese demand this year is weak: it is not; but in our view, it is nothing to get excited about,” they said.

The analysts also warn that the trade data alone doesn’t necessarily provide a good picture of demand in the country. High onshore stockpiles of gold could be the reason for the low imports at the start of the year, they said.

These stockpiles need to be depleted before there is a need to significantly increase imports but UBS thinks this might take a little bit longer than expected as consumer demand, similar to investor demand, has been unimpressive.

According to their research, the Swiss-based bank said, jewelry sales outperformed other retail products during the holiday period but the data still disappointed.

“We note that a gradual shift in consumer behavior appears to be under way, whereby shopping is becoming less concentrated during traditional festivals: instead, purchases are becoming more spread out via online shopping throughout the year, and are also being absorbed in daily consumption,” they said. “Overall feedback from gold and jewelry retailers on Chinese New Year sales generally ties in with our observations on China's gold demand, as well as indications from trade flows so far this year – still healthy, but nothing exceptional and likely flattish versus last year.”

Courtesy: Kitco News