India’s gold demand improves, China buyers wary of lockdowns

Physical gold demand improved slightly in India and discounts narrowed this week after prices eased, while concerns over fresh coronavirus outbreaks kept a leash on activity in China.

“Buying was nearly halted for few days after the duty hike. But as global prices corrected, demand started to improve,” said a Mumbai-based dealer with a private bullion importing bank.

Local gold prices were trading around 50,700 rupees per 10 grams on Friday after rising to 52,300 rupees on Monday.

This week, dealers were offering a discount of up to $28 an ounce over official domestic prices - inclusive of the 15% import and 3% sales levies - down from last week’s discount of $40.

Some buyers are postponing purchases as they were confused by volatile global prices and fluctuations in the Indian rupee, which hit a record low this week, said a New-Delhi based bullion dealer.

Meanwhile, jitters over sporadic COVID-19 flare-ups weighed on sentiment in top consumer China with gold changing hands at $3-$5 an ounce premiums over the global benchmark spot prices.

“Many fear there will be more lockdowns in scattered regions, and are sitting on the sidelines, even though China plans to increase stimulus spending to boost the economy,” said Bernard Sin, Regional Director, Greater China at MKS PAMP.

“Investors are expecting to see lower gold in RMB prices,” Sin added.

In Hong Kong, gold was sold at premiums of $0.80-$1.70 an ounce and in Singapore dealers charged premiums of $1.30-$1.60 an ounce.

“Gold and silver demand has increased even with prices under $1,800 and $20 respectively... It’s usually the astute investors who begin buying when prices are low,” said Vincent Tie, sales manager at Singapore dealer, Silver Bullion.

In Japan, gold was sold between a premium of $0.50 and at par with the benchmark.

Meanwhile, gold firmed on Friday as the dollar came slightly off two-decade highs, but bullion was set to post its biggest weekly drop in more than a month as the elevated greenback hit demand. Spot gold firmed 0.3% to $1,744.07 per ounce by 0106 GMT. US gold futures rose 0.2% to $1,742.50.  The dollar edged down from 20-year highs, taking some weight off greenback-priced gold. Gold prices have lost about 3.7% this week. It is likely to be their fourth straight weekly fall, and worst since mid-May. US equities rose with Treasury yields overnight, as investors bet on economic light at the end of the Federal Reserve’s rate hiking tunnel, while oil prices rose on supply concerns. Benchmark US 10-year Treasury yields dipped on Friday, buoying gold.

The number of Americans filing new claims for unemployment benefits unexpectedly rose last week and there are growing signs that demand for labour is cooling, with layoffs surging to a 16-month high in June, as the Federal Reserve’s aggressive monetary policy tightening stokes recession fears.

Two of the Fed’s most vocal hawks on Thursday said they would support another 75 basis-point interest rate increase later this month but a downshift to a slower pace afterward, even as both downplayed the risk of higher borrowing costs pushing the US into recession. Rising short-term US interest rates and bond yields increase the opportunity cost of holding gold, which yields no interest. Spot silver rose 0.5% to $19.28 per ounce, and platinum gained 0.6% to $878.40, but both were set for weekly losses.  Palladium climbed 0.8% to $2,006.51, and has gained about 2.3% for the week.

On Thursday, gold rose as the dollar pulled back slightly and some investors scooped up bargains after two sessions of heavy losses that plunged prices below the crucial $1,800 level.

Spot gold was up 0.3% at $1,742.63 per ounce by 1057 GMT. It has declined by more than $300 since the Federal Reserve began raising interest rates in March to tame unruly inflation, raising the opportunity cost of holding non-yielding bullion. US gold futures were up 0.3% at $1,741.20.

“There’s a modest recovery (in gold) after a significant fall as bargain hunters come into the market. The direction of travel though is clear, that the bears are in control and likely will push lower until physical buyers establish a price floor,” said independent analyst Ross Norman.

 “gold is also seeing some relief from a correction in the US dollar, which appears to be topping out, although this is partially offset by modestly higher 10-year Treasury Yields.”

The dollar index was 0.2% lower after reaching a near 20-year high in the previous session, making greenback-priced bullion more appealing to overseas buyers. Minutes of the Fed’s June meeting - when policy makers raised rate by 75 basis points, the most since 1994 - revealed their concern that worsening inflation would erase faith in the central bank’s ability to control price pressures.