Gold quotes at a huge discount in late trades as buyers desert market

The metal was trading at a discount of Rs 1,500 per 10 grams, or $65-70 an ounce, to the cost of imports, the highest since 2016, post demonetisation

The price of gold surged Rs 1,200 in opening trade at Mumbai’s Zaveri Bazar on Monday to Rs 38,800 per 10 gram, before moderating a bit to close at Rs 38,560, which was still 2.53 per cent or Rs 960 more than the closing price last Friday.

At this high price, gold demand has significantly fallen. The spot price of the yellow metal is Rs 1,500 per 10 gram or $65-70 per ounce cheaper than the cost of import. This discount is the highest since the demonetisation.  

Gold opened on a high following the developments on Friday when China decided to impose fresh tariffs on American goods and US President Donald Trump, in response, asked American firms to look for markets other than China. Today, in early international trade, gold was trading at $1,544 per ounce but the price later eased to $1,528.

In Mumbai, the price of gold, inclusive of GST, reached Rs 40,000 per 10 gram. A jeweller said without any discount on the import price, gold would have traded at Rs 40,000, excluding GST.

He said due to such a high price, there is little demand for gold and the business has reached a “risky level”, with the operating cost and costlier finance hurting the trade badly.

An analyst who tracks physical gold market said that “the situation is very bad” and jewellers are finding it difficult to do business. “Smuggled gold is selling far cheaper than the market price,” the analyst said. Smuggled gold is selling Rs 2,000 per 10 gram cheaper in the grey market. After an increase in import duty, from 10 per cent to 12.5 per cent, following the Budget, import of gold through unofficial route has increased, he added.

Fall in the rupee has also made gold costlier by at least Rs 2,000 per 10 gram in the past few weeks. The price of silver has also witnessed a jump. In Mumbai, it closed at Rs 45,215 per kg — the highest since 11 November 2016. 

Pritam Kumar Patnaik, head - commodities, Reliance Commodities, said: "We expect the trend to continue. On the MCX, gold is likely to move towards Rs 39,900-Rs 40,000 levels. Similarly, we expect the price of silver to reach as high as Rs 48,000 per kg in the coming days."

On Monday, MCX October futures for gold were quoted at Rs 39,340 per 10 gram before a slight moderation. February futures quoted in the morning were above Rs 40,000, but trading was thin.