Gold discounts in India expanded to their widest in nearly 3-1/2 months this week amid lacklustre demand elsewhere in Asia, with bullion’s recent rally dampening retail demand.
The safe-haven asset, which is highly sensitive to interest rates, has climbed almost 2 percent this week after weak U.S. payrolls data and comments from Federal Reserve Chair Janet Yellen undercut expectations of an imminent rate hike.
“Physical demand for gold has been quiet for the past two weeks. Most investors are on the sidelines and we are seeing more selling at the moment,” said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central.
In India, the second-biggest gold consumer, dealers were offering a discount of up to $46 an ounce to the global spot benchmark this week, the largest since Feb. 26. Last week dealers were offering a discount of $14.
“Consumers are very price sensitive. They are postponing purchases due to the recent rally in prices,” said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler in the eastern Indian city of Kolkata.
“Traditionally demand remains weak in June but we never witnessed such kind of a lull in the market.”
In rural areas farmers are purchasing seeds and fertilisers, while urban consumers are spending on their children’s education, said Daman Prakash Rathod, a director at MNC Bullion, a wholesaler in the southern Indian city of Chennai.
Two-thirds of India’s gold demand comes from rural areas, where jewellery is a traditional store of wealth. Farmers typically start sowing crops with the arrival of monsoon rains in June, when most schools and colleges also start.
“Indian demand is expected to remain sluggish for the next few weeks unless prices correct steeply,” Rathod said.
Meanwhile, demand in top-consumer China continued to remain weak as higher gold prices and a holiday break for the Dragon Boat Festival kept Chinese buyers away. Premiums in China dipped to $1 per ounce this week versus $3 last week.
“I think a one dollar premium is not enough to cover the cost for banks to import gold into the domestic markets,” said a gold trader in China.
Premiums in Singapore were quoted at 60-80 cents an ounce, nearly unchanged from last week. Hong Kong premiums were at 50-80 cents as against $1 last week.