Physical gold demand in Asia was muted this week as higher prices turned off buyers, with discounts in India widening ahead of a festive season that could spur appetite in the world’s second largest consumer.
Gold, often perceived as a hedge against financial uncertainties, has risen about 26 percent this year to trade at $1,339 an ounce on Friday, and is on track for its biggest annual gain since 2010.
In India, discount over the global spot gold benchmark widened to $60 an ounce, from up to $58 last week, as demand remained sluggish.
“Jewellers are running their businesses with thin inventory levels. They are likely to increase purchases from this month-end,” said a Mumbai-based bullion dealer with a global bank.
Gold consumption in China and India is set to drop 15-20 percent in 2016 on lower investment demand and jewellery sales, an official at Scotiabank said.
In India, gold demand in the first half of the year fell 30 percent from a year ago to 247.4 tonnes, the lowest since 2009, due to a jewellers’ strike and higher prices, the World Gold Council said.
“In the second half traditionally demand remains higher. This year, since monsoon rainfall is good, demand will pick up during festive season,” said Somasundaram PR, managing director of the WGC’s Indian operations.
The quarter ending in December typically accounts for about a third of India’s gold sales since it includes the start of the wedding season and festivals like Dhanteras and Diwali. Two-thirds of demand in India comes from villages, where jewellery is a traditional investment.
Bullion prices in top consumer China were at a premium of $1-$2 an ounce to the global benchmark, unchanged from last week, dealers said. Premiums in Hong Kong also stayed at 20-60 cents an ounce.
“People are choosing ETFs (exchange-traded funds) rather than physical gold,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
“The price is not really attractive for buying gold and the jewelry side is not really exciting.”
China’s peak season for gold demand kicks off around the National Day holiday in early October. However, sales this year will not be good due to higher prices, a China-based trader said.
In other major trading centres, bullion was sold at 25 cents per ounce discount in Tokyo, narrowing from last week’s discount of $1. Premiums in Singapore eased to 20-30 cents from 60 cents on lower demand. (Reporting By Nallur Sethuraman in Bengaluru and Rajendra Jadhav in Mumbai)