The gold market in Shanghai has wound down for the annual Spring Festival although premiums remained high in the final hours ahead of the start of the week-long holiday.
The premium in Shanghai for gold for immediate delivery was quoted at $3 over the spot price on kilobars, although some sources reported it at as high as $4 on the Shanghai Gold Exchange’s au9999 contract.
Sources reported high demand in the run-up to the festival in the face of lower gold prices after the influence of several factors that pushed up the price in January waned.
Withdrawals from the Shanghai Gold Exchange – a useful barometer for wholesale demand – hit 60 tonnes in the week ending February 13 and 59 tonnes in the previous week following withdrawals of 255 tonnes in January.
“The SGE premium has clearly been affected by the run-up to Chinese New Year, the timing of the holiday and, of course, the trend in the gold price,” Precious Metals Insights managing director Phillip Klapwijk told FastMarkets.
“This meant that the Chinese New Year effect kicked in fairly ‘late’ and then was dampened somewhat by gold prices tending to be fairly high over the last month or so,” he added.
With the Chinese market on holiday for a week, support that has been in place for some weeks now will begin to fade, particularly given that importers are already well stocked ahead of the festival.
“After the holidays re-ordering is not going to be so strong – bear in mind too that post-New Year jewellery consumption will be seasonally weaker and that retailers carry little stock compared to their sales volume due to very rapid turnover of their inventory – therefore the re-ordering effect should not be exaggerated,” Klapwijk added.
In Hong Kong, a build-up of material continues to weigh on premiums, which several market sources quoted at between $0.50 and $1 over spot.
“Demand in Hong Kong for kilobars is subdued because the local trade will have long since purchased for its Chinese New Year needs, both locally and especially for HK factories in mainland China and also because the mainland manufacturers are by now closing down or already closed for the holidays,” Hong Kong-based Phillip Klapwijk said.
In India, however, the recent discount trend appears to have reversed, with premiums rising to $3 over spot, reversing from discounts as low as $5 in the previous week.
Notably, importers are said to be holding off on bringing metal into the country while awaiting a prospective cut in import duties, which could be announced in the annual budget on February 28.
The Indian government may cut the import duty on gold by 2-4 percentage points later this month from its current level of 10 percent, sources told FastMarkets, although the cut in import duty could be to as low as two percent, according to some reports.
There have also been conflicting reports emerging on the true amount of gold that came into the country in January, according to sources.
While the Ministry of Commerce and Industry quoted imports in January at around 39 tonnes, several importers claimed that the figure is actually closer to 60 tonnes, of which more than 50 percent is said to have been gold doré, although this remains unconfirmed.
The differential would run contrary to the current perception that Indian demand continues to falter due to seasonal factors.
Metals Focus’ Chirag Sheth said last week that domestic demand is unlikely to improve significantly until April or May – after the budget has been digested and on buying ahead of important religious festivals – although there may be a small uptick towards the end of March for stocking ahead of the end of the financial year.
Elsewhere, premiums in Singapore slipped to $1 from $1.50 a week ago, while in Bangkok premiums swung to $1.50 from a discount.
In Dubai, premiums remained flat on gold kilobars owing to the UAE’s continual inflow of metals and high refining capacity.
In Turkey, the market was quoted at parity, having previously been at deep discounts.
(Editing by Mark Shaw)
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