Q&A: China gold premiums rising on import curbs - GFMS

LONDON (Reuters) - Gold premiums in China have reached their highest since April, with traders reporting that the Chinese central bank has moved to restrict imports of the metal in an attempt to stop capital outflows.

Imports, already down 20 percent in the first nine months of the year, are slated to fall still further in December as a result of the move, GFMS analyst Samson Li said in a live Q&A in the Reuters Global Gold Forum.

However, with the People's Bank of China yet to make an official statement on the policy, the outlook for gold imports into the world's biggest consumer of the metal is unclear.

Q: What exactly has the PBOC said about potential restrictions on gold imports into China?

A: They didn't say anything officially. There are rumours though that the PBOC has expressed its desire under the table for banks to limit the volume of gold being imported. Therefore, some licensed importers have lowered import volumes, or stopped importing gold outright. Meanwhile, the PBOC is taking a longer time to approve each importing transaction, which in turn is pushing some volumes down the road.

Q: What's the thinking behind this?

A: China is suffering from massive capital outflows. (That) has caused the yuan to depreciate. The PBOC is using various methods to try to stabilise the yuan exchange rate, and one is to limit capital outflow by controlling imports. However, considering China's total net gold imports consisted of less than 4 percent of total imports last year, one has to wonder how helpful this policy could be.

Q: Has this pushed up premiums?

A: Yes. The average premium of the Shanghai Gold Exchange's most heavily traded contract was 0.45 percent, or roughly $1.20 an ounce, in October. Since the last week of November, it has risen to 2 percent, or approximately $5.15/oz. On Nov 28, it reached as high as $6.10/oz, the highest since April.

Q: How could this affect gold imports next year?

A: It remains to be seen. Gold imports (are) a very small (proportion) of total imports. Thus even if the PBOC goes to the extreme measure of banning gold imports, it will not help much to contain the outflow of currency. The gold import restrictions, if true, may be more of a posture than having any real impact.

Q: Would you expect to see smuggling pick up, if there are curbs on official imports?

A: Yes. The continual rise of the gold premium, along with the general consensus that the yuan has more room to depreciate, will probably fuel more demand for physical gold. If the premium rises to $8/oz or higher, one would expect smuggling activities to heat up.

Q: How do you anticipate this could affect global demand for gold?

A: China's total gold imports have fallen 20 percent in the first nine months of this year, and we believe that the annual decline could be higher as we may see a heavier decline in December. Having said that, if the PBOC realises that restricting gold imports fails to make any impact on their objectives and decides to loosen the restriction, gold imports may pick up somewhat in the first half of 2017.

(This interview was conducted in the Reuters Global Gold Forum, a chat room hosted on the Eikon platform. For more information on the forum or to join the conversation, follow this link: https://forms.thomsonreuters.com/communities/)

(Reporting by Jan Harvey, editing by David Evans)