Indian premiums ease on tepid demand, but Chinese buying robust

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Gold premiums in India fell this week as a quick rebound in prices prompted consumers to postpone purchases, but buying interest in China remained strong ahead of the spring festival early next year. Typically, the fourth quarter is a strong demand period for the top two gold consumers, but a weak monsoon in India has hurt incomes of farmers, a key gold-buying section of the population. Two-thirds of India’s gold demand comes from rural areas where jewellery is a traditional store of wealth.

Indian premiums ease on tepid demand, but Chinese buying robust

India’s gold demand in the key December quarter is likely to fall to the lowest level in eight years, industry officials have said. Demand this week was also hurt by a recovery in prices. Global gold prices fell to a near-six-year low last week due to a looming U.S. interest rate hike and dollar strength, but recovered modestly this week on short-covering.

Indian dealers were charging a premium of 20 cents to $1 an ounce over the global benchmark this week, compared to $1.25 to $2 last week. “Right now demand is very weak since prices have recovered,” said Ghanshyam Nichani, owner of Dhanraj Jewellers in Mumbai.

“People are making purchase for weddings. Such buying remains price-sensitive. They advance purchases if prices drop or they delay purchases if prices rise,” Nichani said. Indian prices moved to a premium in the early part of November, after being at a discount for over two months on weak demand and oversupply in the market. Prices, however, could move back to a discount soon, dealers said.

“In November, banks and others made ample imports. Supplies are more than enough,” said a Mumbai-based bank dealer with a gold importing private bank. “Gold could start trading at a discount if demand remains weak for the next few days.” Elsewhere, in top gold consumer China, the rebound in prices did not hit demand. Premiums on the Shanghai Gold Exchange have largely held between $3 and $5 over the last two weeks.

“Demand is much more than that in September and October as gold is near multi-year lows,” said a dealer with a gold importing Chinese bank. “As we get close to the spring festival and the Chinese New Year, more and more people are buying gold jewellery and gifts,” he said. Demand will stay robust until the Chinese New Year day in early February, he said.

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