Market News

(Bloomberg) -- China’s central bank is making plans to ease restrictions on gold imports, marking a small step toward liberalizing the world’s biggest market for bullion.

The People’s Bank of China has released a draft rule to speed up imports by expanding the application of “multi-use permits,” extending their validity to nine months from six, and removing limits on the number of times they can be used. More Chinese ports will also be authorized to clear bullion.

The yuan’s appreciation against the dollar makes it an opportune time to procure gold. More broadly, smoothing frictions in trade is a welcome development for local consumers as unprecedented global interest in bullion pushes prices to record highs. Chinese demand is an important driver of that rally, but buyers are often forced to pay a premium over international prices due to the government’s import controls.

“This is a small but meaningful step China is taking to align with international practices,” said Samson Li, an analyst in Hong Kong at Commodity Discovery Fund.

The central bank uses quotas to keep a tight rein on gold imports, which are important for managing its currency, so the new regulations are designed to add flexibility rather than open the floodgates. The proposals also apply to exports, although in practice approvals are even more tightly restricted because of the country’s broader capital controls and the PBOC’s desire to accumulate reserves.

Gold refiners accredited with the London Bullion Market Association, which represents the world’s largest venue for trading, should benefit from the easier rules because they import, process and then re-export bullion, said Doris Bao, founder of Gold Harvest Consulting. They should also help a struggling domestic jewelry sector fill more overseas orders, she said.

The timing of the bank’s move is linked to the currency market, said Philip Klapwijk, managing director of Hong Kong-based consultancy Precious Metals Insights Ltd. The yuan has been rising against the dollar since April and more gains are forecast, which is posing a challenge for the government as it tries to promote exports and combat deflationary pressures in the economy.

For Chinese consumers, a stronger domestic currency makes dollar-denominated bullion cheaper to buy. Easing the import rules may create demand for the greenback and help brake the yuan’s ascent, he said.

Pricing Influence

The wider context is Beijing’s ambition to strengthen its influence over the pricing of those commodities it imports, including gold.

“Every change toward more liberalization in the Chinese gold market must be seen in this light,” said Jan Nieuwenhuijs, an analyst at Money Metals Exchange. “However, since China’s capital account is still closed, I don’t think the domestic gold market will be fully opened anytime soon.”

Other moves to develop the market this year include allowing Chinese insurers to buy bullion, potentially adding a major source of demand. The Shanghai Gold Exchange, which operates under the PBOC, has also expanded outside the mainland for the first time with a new vault and contracts in Hong Kong. Now the central bank is taking additional steps to expand China’s global reach.

“The permit restrictions are one of the obstacles that stand in the way of China becoming a true international gold trading center with liquidity rivaling London,” said Nieuwenhuijs.

On the Wire

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