Chinese buying, India's festival season prop up gold demand in Asia

Physical gold demand in Asia firmed up this week on strong buying by leading consumer China while prices in India were at a premium for the first time in several months ahead of the festive season.

Spot gold was set to end the week up 1 per cent on steady physical buying from China and exchange-traded funds.

Gold prices in India, the world's second-largest consumer, were at a premium for the first time in nine months as a drop in prices prompted jewellers and dealers to step up purchases for upcoming festivals.

Dealers in India were charging a premium of up to $2 an ounce over official domestic prices this week - the first time since mid-January. Last week they were offering discounts of $2.

 

"Many retail buyers had postponed purchases in last few months. They are now making purchases for festivals since prices have come below 30,000 rupees," said Ashok Jain, proprietor of Mumbai wholesaler Chenaji Narsinghji.

Gold prices in India have fallen over 8 per cent since hitting a peak of 32,455 rupees per 10 grams in July, their highest level in nearly three years.

Demand for gold usually strengthens in the final quarter as India gears up for the wedding season and due to festivals such as Diwali and Dussehra, when buying the precious metal is considered auspicious.

India's overseas purchases of gold likely hit a nine-month high in October, as a flip in domestic prices to a premium prompted banks and refiners to resume imports ahead of the festival season.

"Gray channels have limitations. They can import 25 to 30 tonnes per month. They could not cater to entire demand during the festive season. Jewellers have to buy from banks," said a Mumbai-based dealer with a private bank.

Premiums in China were quoted around $4-$5 an ounce against the international benchmark, indicating strong demand.

"There was a lot of opportunistic buying (in China) at lower levels and the banks have been reducing their stocks and took the opportunity to replenish at lower price levels," said Cameron Alexander, an analyst with Thomson Reuters-owned metals consultancy GFMS.

"That's been the case with most of the countries across Southeast Asia."

In Singapore, premiums were mostly unchanged at 50 to 60 cents an ounce.

Japanese markets saw a slight fall in demand and prices were flat compared to a premium of 25 cents an ounce last week.