Gold in India has moved into a premium as consumers react to the collapse in international prices, while demand ramps up ahead of the fast-approaching festival season.
Gold for immediate delivery has reversed from a discount of around $5 to a premium of $2 per ounce above the London spot price on .995 gold, traders in India told FastMarkets. The market in India has not been in a premium since April.
Just 14 days ago, discounts were around $8, however a collapse in the international spot price on Monday and better-than expected rainfall across much of the country has helped push the price back into a premium.
Despite the modest uptick in demand, much of the market still remains on the sidelines, expecting further declines in the gold price in the near-term, particularly following extended media coverage of the event that has seen much of the mainstream press pick up the story.
Metals Focus’ Chirag Sheth notes that should there be further contractions, a drop to 24,000 rupees per 10 grams would see “a sharp sharp increase in demand, especially as August is the month on the cusp of entering the peak demand season.”
Local traders say that there has also been a rush of fabrication demand ahead of the widely-anticipated India International Jewellery Show in early August.
Monsoons also continue to lift sentiment – rainfall across much of India’s key agricultural areas in eastern and western Maharashtra and the Northern states has been much better than forecast – 20 percent more than the long-term average in places, according to the Indian Meteorological Department dated July 23.
The domestic agricultural sector accounts for as much as 60 percent of gold demand as farmers use gold as a primary store of wealth because they have limited access to the formal banking system. Any disruptions to annual rainfall can have a profound effect on the local gold market.
Though, inventories remain high following the removal of the 80:20 legislation in November – around 52 tonnes were imported in June following 63 tonnes in May, 81 tonnes in April and 125 tonnes in March.
But sources suggest that July’s figure is likely to be smaller than June, though one importer claimed that should the market move into a premium before the end of the month; there could be a sudden rush of material into the country.
In fact, one source has suggested that there could be as much as 100 tonnes of gold being held by bullion dealers and jewellers collectively across the country – though this remains for the time-being, unconfirmed.
Though, it is worth noting that 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.
In other markets, the premium in Shanghai has yet to really react to that huge drop in the international price – spot gold in London is trading at its lowest level in five years at $1,080 per ounce – suggesting that either buyers still remain disinterested or that they are awaiting further contractions. Sources have quoted the local premium at $2-3 over the London spot price, remaining in the range that has held since March.
Interestingly, withdrawals from SGE vaults however surged in the past two weeks. For the week ending 17 July, withdrawals were at 69.18 tonnes – the highest amount of gold removed from the exchange’s vaults since early January. More than 1,330 tonnes have passed through the vaults this year.
In Hong Kong, sources pegged the premium at $1.30 over spot on Swiss brands and around 60-80 cents on Japanese brands.
A somewhat better tone in Hong Kong has pushed premiums higher in Tokyo. The market is still in a discount, local traders said, but fairing better than the usual spread of 50 cents to $1. Today, sources pegged the discount spread at around 30 to 80 cents.
In Turkey, the market also appears to have reacted to the recent slump in international prices – despite a weaker lira, which ultimately pushes higher the local price of gold. According to sources, a premium of around $3 has opened up on the favoured LBMA .995 1kg bar.
Turkey’s gold market had long been trading at discount in the face of political instability, economic weakness and double digit unemployment.
Gold demand however appears to have reacted to both the drop in prices and the conclusion of the holy month of Ramadan – a time of discipline and self-restraint for Muslims.
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 trading at a slight premium – sources quoted the market at 30 to 50 cents on .995 bars. In Singapore, the premium also shot higher at $1.75-2.25 on Swiss brands, sources said – the highest since March.
In Bangkok gold is at a premium of around $1.30 to $1.50 on 96.5 percent purity bars direct from the refiner and at around parity on recycled bars.
(Editing by Tom Jennemann)
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