Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The gold price was trending weaker on Thursday after authorities uncovered massive fraud in the China’s gold-backed loan industry, raising doubts about the true levels of Chinese demand for the metal.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery in midday trade exchanged hands for $1,315.80 an ounce, down $6.80 from yesterday’s close.
Earlier on in the day gold touched a low of $1,306.80, after news that China’s chief auditor discovered 94.4 billion yuan ($15.2 billion) of loans backed by falsified gold transactions.
The investigation revealed that since 2012 25 bullion processors made a combined profit of roughly $150 million from the loans.
The World Gold Council, which last week inked a deal with the 510-member China Gold Association to promote the metal, estimates as much as 1,000 tonnes of gold may be tied up in lending and leasing deals.
“This is the first official confirmation of what many people have suspected for a long time – that gold is widely used in Chinese commodity financing deals,” Liu Xu, a senior analyst at Capital Futures in Beijing told Bloomberg:
“Any scaling back by banks of gold-backed financing deals might lead to a short-term reduction in Chinese imports and also spur some sales by companies looking to repay lenders.”
Ole Hansen, Head of Commodity Strategy at Denmark’s Saxo Bank says the physical demand from China has been important as an off-set against the reduced demand for paper gold through exchange traded funds and futures.
Holdings in the world’s physical gold-backed ETFs have fallen to levels last seen during the height of the financial crisis and after a short burst of inflows earlier this year, liquidations have continued. More than 800 tonnes left gold ETFs last year.
China overtook India last year as the world’s number one importer of gold after demand surged by more than a third to 1,035 tonnes, but there has been a steep drop-off this year.
Customs data for May from Switzerland – the main trading hub for the global physical trade in gold – showed a 59% drop in exports to Hong Kong to just over 10 tonnes.
Cargoes going to mainland China plummeted by 83.5% to a mere two tonnes, compared to 37 tonnes back in February.
The gold revelations follow a probe into into allegations that several companies pledged the same copper, iron ore and other industrial metals held at the port of Qingdao as collateral for loans to different banks.
Beijing is stepping up efforts to curb the country’s vast shadow banking system and the revelations could see a further clampdown on this lending practice which have been a key part of the commodities trade – particularly in iron ore and copper – for years.
Investment bank Goldman Sachs pegs the value of the commodity-backed financing industry in China at $160 billion of which $80 billion may involve gold, $46 billion copper and $13.8 billion iron ore, with the rest soft commodities including soybeans.
5 Comments
frankinca
Hope someone will eventually have to cover their short gold position and have to buy or go to jail or worse. The Chinese seem to have a quick and severe punishment for people who defraud the government or others.Buy buy buy!
Anthony Maw
AT the end of the day it does not matter….all gold is being sold at the nominal actual cost of production right now subject to daily fluctuations. The big speculative boom caused by ETF inflows has evaporated and gold prices are where they should be. The only way that gold will go down is if Central Banks start selling or citizen consumers in the Eastern countries stop buying but that’s not likely to happen. Gold never goes out of style.
12phil34
What exactly are the “falsified gold transactions” and how do Chinese companies borrow against them? Need more info. here.
MINING.com Editors
@12phil34 The Chinese auditor released few details, but I think it may have been as straightforward as faking ownership documents of gold that either does not exist or you don’t own. Then putting up the fake gold as collateral for a bank loan. Or pledging the same gold more than once a la Qingdao.
— Frik
silbershark
Keep Calm & Buy Phyzz.