Physical Gold Demand Dented by Asia’s Gold-price Surge as India Flips to Discount

Major Asian hubs subdued Physical gold buying this week as a rally in prices dampened the demand for the metal ahead of the Chinese New Year.

Ashok Jain, proprietor of Mumbai-based gold wholesaler Chenaji Narsinghji said “The sudden price rise has surprised everyone. Buyers are waiting for a correction.”

Gold reversed to discount in India, where futures were trading around 40,000 rupees per 10 grams on Friday, after hitting a record high of 40,116 rupees earlier in the day.

Discounts of up to $13 an ounce over official domestic prices were being offered by dealers this week, compared to a premium of $1 an ounce last week. The domestic price is inclusive of a 12.5% import tax and 3% sales tax.

A Mumbai-based dealer with a private gold-importing bank said “Jewellers have made decent purchases last month. They are now waiting for retail demand to pick up before buying more.”

In top consumer China, premiums of $3.50 to $4.50 were being charged, compared with $4-$5 in the previous week. Traders in Hong Kong charged a premium of $0.30-$0.40, slightly higher than last week’s flat to $0.30 an ounce.

Samson Li, a Hong Kong-based precious metals analyst at Refinitiv GFMS said, “I think demand will likely continue to fall, especially in China and India, due to higher gold price and poor consumption sentiment. The wild card, as always, will be investment demand,”

Benchmark spot gold raced past the key level of $1,550 an ounce, and was set for its biggest weekly gain since early August. It rallied to a four-month high on Friday after a senior Iranian military official was killed in an air strike authorized by the United States.

“If prices move (higher), people will back away from buying, so we might see reduced demand this Chinese New Year,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers, adding that demand could improve if prices retreated to around $1,500.