Hong Kong and the Gold Trade

Hong Kong, sitting China’s on flank and on the route to India, appears to be the nexus for a huge amount of gold moving around the planet, with as much as 60 metric tons of the precious metal crossing through in some months, worth US$3.32 billion at the current price per ounce.

There is so much gold passing through the territory from as far away as Switzerland that, as Asia Sentinel reported on Nov. 12, in July the Israel-based Malca-Amit Global Ltd announced that it had opened a bullion storage facility at Hong Kong International Airport that is capable of holding 1,000 tonnes at any given time – 22 percent of the gold in the fabled US storage facility at Fort Knox, Kentucky. A company official declined to comment on either the direction in or out of gold and other valuables shipments.

The Malca-Amit official is not the only one. Gold is a subject that nobody really seems to want to talk about. The World Gold Council office in Hong Kong did not return a call requesting an interview. Officials from the Hong Kong Customs and Excise Department also refused to be interviewed.

Where the gold comes from and where it goes from all three sources is somewhat a mystery. Research-Works, a Shanghai-based research firm, said a relatively small amount of China’s gold, 74.2 tonnes in 2011 goes into industrial use, while consumer demand – jewelry and investment, swallows some 780 tonnes annually.

Chinese demand is an obvious factor, not just because of the country’s healthy economy, but because Mao Zedong banned gold sales in 1850 after the Communists came to power. That continued until 2003, when the market was liberalized and demand among the general public zoomed. Demand from consumers, investors and central bank is very significant. A significant amount may go into building government stockpiles.

Robert Broadfoot, founder and managing director of the Hong Kong-based Political and Economic Risk Consultancy, which specializes in advising mining companies, said in an interview that gold dealers themselves probably have little idea. One source said Chinese companies could be shipping the gold into Hong Kong for use as collateral with third-world companies in joint ventures. Broadfoot said Hong Kong has long been a transshipment point for illegal gold from all over Southeast Asia, where borders are porous and customs officials are malleable.

While Chinese companies appear to be looting the Philippines for gold and other minerals, much of it illegal, Filipino gold shipments into Hong Kong are dwarfed by two other countries – China itself and Switzerland. Mainland China reported exporting 29.8 metric tons of gold to the territory in July alone, worth HK$11.86 billion. That was followed by Switzerland, with 28.1 tonnes worth HK$11.45 billion.

Nonetheless, while the Philippines is third, the amount has skyrocketed. In the whole year of 2005 Philippine exports into the territory were worth HK$1.71 billion (US$220.6 million). In July 2012 alone, 3.48 tonnes of gold worth US$193.4 million were recorded as landing in Hong Kong. The figures are from the Hong Kong Merchandise Trade Statistics.

In any case, a full 60.66 tonnes of the metal were re-exported from Hong Kong to the mainland in the same month, an indication that nearly all of the gold that comes into the territory transships to the mainland. The totals include gold, plated with platinum, non-monetary unwrought or in semi-manufactured forms, or in powder form.

According to figures obtained from Chinese customs, the country takes in a massive amount of gold ore annually – nearly 195,000 tonnes of ores in nearly 2,000 shipments arriving at 59 Chinese ports in 2011. China’s domestic January-August gold production rose 10.3 percent annually to 250 tonnes.

Net gold imports from Hong Kong were 311.7 tonnes in the first eight months of 2012, up 266 percent annually, surpassing Chinese domestic production of 250 tonnes. Though still representing a steep increase, the year-on-year growth in net gold imports has declined sharply since April, partly as China’s economy has cooled.

That in fact may not be all of it. For instance, Indonesia has long been known to mine a vast amount of the metal illegally and to smuggle it out of the country. Yet none of the gold mined in Indonesia makes the list, either legally or illegally, in China or Hong Kong As an indication how beholden North Korea is to China, the isolated dictatorship is the biggest supplier of gold-bearing ore to China, producing 31 percent of the total imported, arriving in 1,441 shipments in 2011. Australia was ranked second, with 13 percent at 24,951 tonnes, followed by Tanzania at 24,618 tons. Together the top three countries provide 56 percent of gold ore imports to China.

In August 2012, Thomas Reuters GFMS, a precious metals consultancy, reported that 56 percent of Philippine gold comes from small-scale miners and estimated that 90 percent of it is smuggled out of the country. A Reuters news investigation found that much of the gold smuggled out of the country is headed for China, whether through Hong Kong or through other Chinese ports.

In the first nine months of 2012, a total of 2,542 shipments of imported gold ore – not pure gold -- were declared at 59 ports in China, with a total shipment quantity of 170,883 tonnes. Sixteen shipments of that came from the Philippines, which is ranked 18th in overall quantity of imported gold ore under the “country of origin” category, or 1,028 tonnes in addition to the gold apparently transshipped through Hong Kong.

The Department of Environment and Natural Resources agreed with the assessment, saying the gold was being shipped out to China, Hong Kong and Malaysia. The overseas Chinese in all of the Southeast Asia countries have traditionally seen gold as a hedge against disaster. Legend has it that when Nguyen Van Thieu, the last president of South Vietnam, left the country, he had so much gold aboard his aircraft that some of it had to be offloaded.