Light buying emerges in Asian gold, sentiment cautious

Asia's physical gold buyers responded to sharp price falls in the past two days with moderate buying interest, although a shaky short-term outlook kept many buyers on the sidelines during a week shortened by holidays.

A binge of buying in the late hours of Wednesday slowed to a trickle on Thursday after spot gold prices bounced off $1,611.80, its lowest level in nearly three months.

Bullion fell more than 3% in two days, after the US Federal Reserve cooled hopes of another round of quantitative easing.

Expectations of more monetary easing had buoyed gold, given its role as an inflation hedge. The Fed pledged to keep policy accommodative to aid economic recovery, a supportive factor for gold, but investors were wary of its short-term prospects.

"There is not a lot of buying because there are many uncertainties in the market," said a Singapore-based dealer.

In Singapore, gold bar premiums stood at $1 above London prices, little changed from a week earlier despite some pick-up in physical buying, dealers said.

"Since demand from India has slowed down, we don't expect any shortage on physical supply," said a second Singapore-based dealer, "Premiums may go up to $1.20 but it would be difficult to rise beyond that level."

A jewellers strike in India is now in its third week, and heads of jewellers associations are scheduled to meet with the finance minister on Friday to discuss the budget proposal of excise on unbranded jewellery and tax collected at source of more than Rs 2 lakh.

India, the world's largest gold consumer, is in the middle of its wedding season, traditionally marked by heightened demand for gold as dowry and gifts

Imports in the first three months of 2012 were estimated to have fallen by 55% on the year to 125-150 tonne, said the head of the Bombay Bullion Association.

In Hong Kong, premiums were quoted in the range of $1 to $1.70 an ounce, dealers said.

Markets in Hong Kong, Singapore and Thailand will be closed on Friday for public holidays.

Week Ahead

The strike in India remains in the spotlight. A prolonged strike will effectively crash demand for the first half of the year, as demand for weddings will fade next month before picking up again after the monsoon season.