Asia shuns gold on higher prices; India discounts hit record high

Asian physical gold demand slowed this week as consumers opted to wait out the metal's biggest rally in years, with discounts in key consumer India hitting a record high as some investors cashed-out holdings.

Gold has rallied 13.7% this year amid a tumble in global stocks that stoked demand for the safe-haven metal. But physical buyers have so far shied away from making big purchases as they wait to see if the rally will last.

"Buyers are closely watching the wild movement in gold prices in the last one month. They are making enquiries but conversion ratio is low," said Tanya Rastogi, a director at Lala Jugal Kishore Jewellers in Lucknow, India.

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In India, the world's second biggest consumer, discounts surged to a record high of $50 an ounce to the global spot benchmark this week, widening from the $35 discount offered last week, dealers said.
 

 

 

Indian consumers were also waiting to see if the government will cut the gold import duty from a record 10% in the annual budget to be presented on Feb. 29.

There was also little buying interest in other Asian markets.

"Demand has been slow across the region for the past few days. It's almost dead," said a Singapore-based dealer at an international bank. "A lot of people are looking to sell at these levels."

India and top consumer China bought record amounts of gold in 2013, when the price dropped by 28% after a 12-year rally, believing that the decline was a one-off and that prices would rise again.

But gold dropped for two more years before rising in early 2016, leaving investors to take a more cautious outlook on prices.

"The spike in prices is giving investors an opportunity to liquidate old stocks they bought at lower levels. Many investors are selling coins and bars," said a Mumbai-based dealer with a private bank.

In China, demand was quiet following the Lunar New Year holiday last week, which marked the end of the peak buying season there.

China has seen strong demand for gold investment products during the holiday, but for the momentum to continue bullion would have to maintain its price rally, a World Gold Council official said Thursday.

Prices in China were largely on par with the global price, giving banks little incentive to import bullion.

"We haven't seen much demand after the spring festival. The premiums are also not very good. So we haven't imported a lot recently," said a dealer with an importing bank.