The gold price enjoyed another up day yesterday – spurred on in part by news of record high imports of gold from Hong Kong to mainland China. Comex gold for delivery in February rose 0.5% ($8.10) to settle at $1,639.60 per ounce. Silver for March delivery settled up 0.3% (7.5 cents) to $29.89 per ounce. Platinum was the standout performer in the precious metals sector, with the April platinum contract up 2.3% ($33.10), settling at $1,497.70 per ounce on concerns about power supply problems at South African mines.

As GoldCore analysts note, the Hong Kong-China gold news is particularly bullish, as there is a ban on exporting gold from China, meaning a smaller amount of tradable gold elsewhere in the world. November’s imports were a 20% increase from October’s already high number, and marks a 483% year-on-year increase, as can be seen from the chart below, courtesy of Reuters.

width=460

In other news from China, the country’s inflation rate fell from 4.2% to 4.1% from November to December. Though this is still above the Chinese government’s “target rate” of 4%, this is considerably below the average 12-month rate of 5.4%. Analysts are thus expecting the People’s Bank of China to start easing monetary conditions – another bullish indicator for precious metals.

Aside from concerns over a rise in unemployment and falling property prices in Chinese cities, PBC officials will also be monitoring the Chinese yaun’s exchange rates against the euro and the US dollar. The yuan has been appreciating fairly steadily against the dollar since mid-2010, something that has hurt the competiveness of Chinese goods in America. At the same time, recent months have seen the yuan gain considerable ground against the euro as well, damaging Chinese export competitiveness in the world’s second-largest single-currency zone.

It seems doubtful that China’s leaders, so long reluctant to let the yuan appreciate lest this hinder export growth, will sit idly by while their currency appreciates against both the dollar and the euro. As has also been seen in the USA, Japan, Britain, Brazil, Switzerland and other countries in recent years, they are likely to engage in efforts to weaken ther currency. This could involve repegging to the dollar – a move that would be sure to incite angry denunciations from American politicians. This is especially so given that it’s an election year, as China bashing goes down well with many voters in the key electoral “swing states” of Pennsylvania, Ohio and Michigan – states that have been particularly hard-hit by manufactures’ outsourcing to China and other low-wage developing economies.

Chinese efforts to devalue the yuan will of course provide further fuel for advances in precious metal prices.