The discount on physical gold has fallen across much of India this week after concerns about a second consecutive drought there were washed away by better-than-expected rainfall.
Discounts are still averaging around $4-5 per ounce to the London spot price on .995 gold in Ahmedabad, a gateway for gold into Mumbai, although some dealers are also reporting discounts up from $8 and above in the secondary market.
Rainfall across much of India’s key agricultural areas in eastern Maharashtra and the Northern states has been much better than forecast – at more than 20 percent of the long-term average in Western Rajasthan, Jammu and Kashmir and Haryana, according to Indian Meteorological Department (IMD) figures dated July 14.
While rainfall has been a little more subdued in the last 10-12 days, some local observers said, the IMD expects it to pick up again later this week.
The domestic agricultural sector accounts for as much as 60 percent of gold demand – having limited access to the formal banking system, farmers use gold as a primary store of wealth.
Improved monsoon-related sentiment has lifted gold but the Hindu festival of Adhik Maas is currently being observed so larger purchases such as gold and property are likely to be delayed.
But the market could swing back to a premium from mid-August, one trader said, thanks to purchasing ahead of key Hindu festivals in September as well as wedding-related purchases. The Indian market has not been at a premium since April, according to FastMarkets figures.
Also continuing to weight on the market are the large inventories amassed since late last year.
The country has imported a sizeable volume of gold since the removal of the 80:20 legislation in November – around 63 tonnes in May, 81 tonnes in April and 125 tonnes in March. Sources suggest another 55 tonnes came in to India in June; the official estimate will be released this week.
But much of the metal that has come into the country since January has been in the form of semi-pure doré bars, which can include large amounts of silver, rather than refined metal. Official estimates do not distinguish between the two forms.
Holders are likely to keep the metal until demand picks up and the market swings back to premiums particularly when much of India is monitoring the monsoon rains.
In other markets, the premium in Shanghai was quoted at $2 over the London spot price, remaining in the range that it has held since March.
Withdrawals from SGE vaults have remained higher, however. Withdrawals in the week ending July 3 of 44.33 tonnes mean that more than 200 tonnes passed through vaults in June compared with around 160 tonne in May. More than 1,200 tonnes have passed through the vaults this year.
This follows a 36-percent increase in gold imports into mainland China from Hong Kong in May although sources attributed this to restocking, saying that demand for bars has yet to materialise.
Still, many predict a ‘normalisation’ of demand soon particularly at current international prices at around $1,050 per ounce, which are not far from four-month and eight-month nadirs at $1,147.20 and $1,142.90 respectively.
In Hong Kong, local sources pegged the premium at $1 over spot although again there are reports of some dealers doing deals closer to parity.
The downbeat tone in Hong Kong and the weaker yen continue to subdue demand in Tokyo. The market is still in a discount, local traders said, at around 50 cents for fresh bars of reputable brand and around $1-2 on recycled and lesser brands.
In Turkey, the lira continues to strengthen after hitting an all-time low on June 9 amid political uncertainty stemming from inconclusive national elections, bringing the local price of gold off four-year highs of 3,294.10 to its current level of 3,028.60 lira per ounce – the lowest in four months. Still, gold is available at slight discounts of around 50 cents in some places on the favoured LBMA .995 1kg bar but is largely around parity overall.
Gold demand in Turkey could tick higher after the holy month of Ramadan – a time of discipline and self-restraint for Muslims – which ends this week after the three-day Şeker Bayramı festival. The end of the festival should be followed by many weddings for which it is customary to purchase gold.
Turkish imports of gold hit their lowest this year in June at 1.3513 tonnes, the lowest since February 2014. Still, much of Turkey’s supply comes from the secondary market and the country’s small mining industry.
In Dubai, the market is either side of level – sources quoted the market at parity to discounts of 50 cents on .995 bars. In Singapore, the premium remained at $1, sources said, while in Bangkok gold is at a premium of around $1 on bars direct from the refiner and at a discount of $1 on recycled bars.
(Editing by Mark Shaw)
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