SINGAPORE (Reuters) - Chinese firms could have locked up as much as 1,000 tonnes of gold in financing deals, an industry report said, indicating a big a slice of imports has been used to raise funds due to tight credit conditions, rather than to meet consumer demand.
The financing-related buying in the world's biggest bullion consumer means gold prices could come under pressure if imports are hit by a broader government crackdown on using commodities to raise finance.
Gold has been increasingly reliant on China for support due to outflows from exchange-traded funds and as the United States Federal Reserve unwinds its stimulus.
"Imported gold is being used via gold loans and letters of credit (LC) to raise low cost funds for business investment and speculation," according to a report by the World Gold Council (WGC) released on Tuesday.
"The use of gold for purely financial operations is a form of demand that represents a small part of the much wider growth in shadow banking. It is feasible that by the end of 2013 this could have reached a cumulative 1,000 tonnes."
That accounts for almost a third of annual global production and is worth about US$43 billion (S$53.8 billion) at current prices The estimates come from Precious Metals Insights, a Hong Kong-based consultancy firm that was commissioned by the WGC to lead the survey on China.
Most of the gold stuck in financing deals has been built up since 2011, the report said, adding that borrowers typically hedge the gold risk.
The WGC, a producer-funded industry body, forecast Chinese demand for gold would increase by 25 per cent to at least 1,350 tonnes by 2017. However, growth in 2014 could be limited after a sharp jump in buying last year, it said.
Gold prices have gained 10 per cent so far this year, buoyed by heightened geopolitical tensions in Ukraine and volatile equities.
Chinese firms have been using various commodities to obtain credit after a tightening of traditional sources. Copper, iron ore, rubber, soybeans are all being used along side gold. China has up to US$160 billion of outstanding loans using commodities as collateral, about 31 per cent of the country's short-term foreign exchange loans, according to Goldman Sachs.
Last month, copper and iron ore prices took a hit on concerns that an increasing crackdown on such financing models could release a huge amount of stock into the market.