Shanghai gold premium ticks higher, Mumbai discount widens

Otmane El Rhazi from The Bullion Desk.

Physical gold premiums in Shanghai have ticked higher while a surge in demand ahead of the Lunar New Year continues, although discounts remain in place in Mumbai while rumours circulate of a potential cut to import duties.

The premium in Shanghai was at $3 over the spot price, although some sources reported it at as high as $4 on the Shanghai Gold Exchange’s au9999 contract.

Chinese demand remains robust ahead of the Lunar New Year, which has continually underpinned gold prices this year. Still, volumes should drop precipitously during the one-week holiday that starts on February 19.

Withdrawals from the Shanghai Gold Exchange – a useful barometer for demand – surged to 255 tonnes in January, around 10 tonnes higher than the January 2014 total.

Withdrawals in February could be similar or even exceed that level, sources suggested, although year-on-year comparisons are complicated by the fact that Chinese New Year falls 19 days later in 2015 than it did last year.

Importers are carrying out business as usual following suggestions that some were encountering difficulties due to import quotas – China strictly controls how much gold its banks can import through a quota system.

In India, the discount continues to widen amid dwindling demand, reaching to $2-5 per ounce on one-kilo bars – importers are said to be keen to offload metal rather than hold onto it. Buyers are likely to be well stocked after the strong run of imports in the second half of last year.

Importers are said to be holding off on bringing in metal into the country as they await 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.

As little as 30 tonnes came into the country in January – most importers are well stocked following imports of around 29 tonnes in December and 152 tonnes in November.

Lower duties will help primarily to tackle the country’s smuggling problem, the source added, although the current 15 percent duty on jewellery will not be changed.

Domestic demand is unlikely to improve significantly until April or May, Metals Focus’ Chirag Sheth said – 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, the Hong Kong premium was down to $1, which sources suggested could be the result of a build-up of material in the region.

In Singapore, the premium edged up to $1.50, while the Dubai premium fell to parity. The same happened in Bangkok, where sources said demand has dropped significantly.

(Editing by Mark Shaw)

The post Shanghai gold premium ticks higher, Mumbai discount widens appeared first on The Bullion Desk.