China's Impact on Gold ETFs: Silence is Golden

China, the world’s largest consumer of gold, is a growing force in the bullion market. In an attempt to reduce its impact on gold prices, China is allowing imports through Beijing, a move aimed at masking central bank purchases of the yellow metal.

By importing gold through Beijing, the third gold entry point along with Shenzhen and Shanghai, China can tap into the precious metals market directly instead of going through a middle man that discloses how much is purchased, reports A. Ananthalakshmi for Reuters.

While China does not officially release any data on gold imports, bullion observers can infer Chinese purchases through monthly export data released by Hong Kong, which supplied $53 billion in gold to China in 2013. China imported almost 1,160 tons of gold from Hong Kong last year, or two times the amount in 2012. [Chinese Demand Could be Golden for Gold ETFs]

“We have already started shipping material in directly to Beijing,” an industry source told Reuters, noting that imports have been small so far since Beijing only began allowing imports in the first quarter.

The World Gold Council believes that the People’s Bank of China is bolstering its gold reserves in an attempt to diversify away from U.S. Treasuries. [Investors Turn Bullish on Gold ETFs]

“The major increase in gold supply to the Chinese market in 2012 and especially 2013 could be partly related to large-scale official purchases,” according to a Klapwijk-led survey for the WGC.

Observers believe China’s record bullion imports in 2013 after a 28% plunge in the precious metal’s prices may be an indicator that the Chinese central bank is increasing reserves on the cheap.