)
Gold's plunge to three-year lows last week is drawing a muted response from Asian consumers and not a repeat of the buying frenzy seen in April, as India's curbs on trade of the precious metal and renewed concerns about China's growth dent demand.
India and China are the world's two top consumers, so their retail appetite plays a key role in international gold prices. A drop in gold prices in April to a then two-year low unleashed years of pent-up demand, triggering a wave of buying of coins and jewelry across Asia.
With much of that demand sated, an even deeper price fall this month has failed to draw consumers, gold traders said today. Asian cash premiums to benchmark London gold prices, the best measure of the strength of demand for the precious metal, are now down from record highs in May.
And with physical demand failing to match the flow of investment out of exchange-traded gold funds, prices are likely to come under further pressure. Spot gold is already down about 25 per cent this year.
"There is only a slight improvement in demand right now due to the price drop," said Dick Poon, general manager of Heraeus Metals in Hong Kong. "It's definitely not up to April levels."
"Part of the reason is weak seasonal demand. But economic factors and China growth are also hurting."
Shanghai shares slumped more than six per cent at one point today to their lowest since early 2009 amid concerns that Chinese central bank moves to rein in credit growth could hurt the country's economic growth.
The cash crunch has prompted several brokerages to downgrade their economic growth forecast for China.
In no 1 gold buyer India, a recent hike in import duty and constraints on financing the trade have put a brake on the flow of gold into the country. The passing of the peak wedding season in May has also reduced demand for the metal.
"It is unlikely the demand in China will be able to match the lost demand in India," said a trader in Hong Kong. "I highly doubt the markets will hold only with the support of China." Since last Monday, the metal has fallen 8 per cent, or about $100, to hit $1,268.89 - its lowest since September 2010 - after the Federal Reserve laid out its strategy to wind down its $85 billion monthly asset purchase programme.
Premiums ease
Premiums remained well below levels seen in April and May, dealers across Asia said.
In Hong Kong, dealers were quoting up to $2.50 an ounce for gold kilo bars. Hong Kong, which sells mainly to buyers in China, had seen premiums climb to $6 last month. Premiums in Singapore fell to $2 from highs of $7 last month, while those in Tokyo saw a slight uptick due to tight supplies.
In India, premiums jumped to $5-$7 an ounce as against $2-$3 last week, a trade body head said, as supplies were tight due to import restrictions.
"Demand is not as high as we saw in April," said Brian Lan, managing director of Singapore-based dealer GoldSilver Central Pte Ltd, referring to appetite for the metal in Asia. "In April, it was sustained buying. Now, we saw a spike on Thursday but now it's back to normal levels."
Heraeus' Poon said buyers were skeptical of the markets right now and were inclined to wait until the price stabilizes.
Several brokerages, including HSBC, Goldman Sachs, Morgan Stanley and Deutsche Bank, took down their gold price forecast this week.
"Although we expect a positive physical demand response to eventually cushion gold's drop, we do not believe it will be of the scale or magnitude of the reaction in April," HSBC analysts wrote in a note yesterday.
