China’s chief auditor discovered 94.4 billion yuan ($15.2 billion) of loans backed by falsified gold transactions, adding to signs of possible fraud in commodities financing deals.
Twenty-five bullion processors in China, the biggest producer and consumer of gold, made a combined profit of more than 900 million yuan from the loans, according to a report on the National Audit Office’s website.
Public security authorities are also probing alleged fraud at Qingdao Port, where copper and aluminum stockpiles may have been pledged multiple times as collateral for loans. Steps by the Chinese government to rein in credit by raising borrowing costs in recent years created a surge in commodities financing deals that Goldman Sachs Group Inc. estimates to be worth as much as $160 billion.
“This is the first official confirmation of what many people have suspected for a long time — that gold is widely used in Chinese commodity financing deals,” said Liu Xu, a senior analyst at Capital Futures Co. in Beijing. “Any scaling back by banks of gold-backed financing deals might lead to a short-term reduction in Chinese imports and also spur some sales by companies looking to repay lenders.”
As much as 1,000 metric tons of gold may have been used in lending and leasing deals in China, where commodities including metals and agricultural products are used to get credit amid lending restrictions, according to World Gold Council estimates.
Gold Price
Gold declined for the first time this week in London on concern that an advance to a two-month high is curbing physical buying and as investors weigh the outlook for the U.S. economy.
Bullion for immediate delivery traded at $1,314.75 an ounce by 3 p.m. in London, down 0.3 percent from yesterday, according to Bloomberg generic pricing. Prices dropped as much as 1 percent earlier today.
Any clamp-down by Chinese authorities on financing deals involving the metal would probably put downward pressure on gold prices in the short-term, said Jens Naervig Pedersen, a Copenhagen-based analyst at Danske Bank A/S.
China’s gold imports from Hong Kong fell 20 percent in May from a month earlier as increasing volatility in the Chinese currency made the precious metal less appealing to local investors.
Net imports totaled 52.3 tons last month, compared with 65.4 tons in April and 106 tons a year ago, according to calculations by Bloomberg News based on data from the Hong Kong Census and Statistics Department today.
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