Lower gold prices fail to spark post-Diwali lull in demand

Prices in India were at premium of up to $3 an ounce over official domestic prices this week, up from $2 last week

The physical gold market remained quiet in most Asian centres this week despite a drop in prices with India witnessing a lull in fresh purchases as key festival season demand cooled off in the world's second biggest consumer.

Gold prices in India slipped to 29,209 rupees per 10 grams on Friday, the lowest level in about two months.

Prices in India were at a premium of up to $3 an ounce over official domestic prices this week, up from $2 last week. The slight increase in premiums was due to traders looking to cover for purchases made when rates were higher.

"After Diwali, demand falters every year. This year, even during Diwali demand was lower than usual," said Daman Prakash Rathod, a director at MNC Bullion, a wholesaler in Chennai.

Last week, Indians celebrated the Diwali and Dhanteras festivals, when buying bullion is considered auspicious.

"Jewellers have to replenish inventory after Diwali sales. Since prices are falling, they will do it very slowly," said a Mumbai-based dealer with a private bank.

"In the last few days the government was selling gold bonds. Some investors are giving preference to bonds over physical gold due to tax benefits."

Meanwhile, benchmark spot gold prices were headed for an about 1 percent weekly decline, having hit a near three-month low of $1,264.15 on Friday.

The drop in rates, however, failed to reignite interest for gold in most Asian hubs.

"In Singapore, several businesses in the region referred to as 'Little India' have said that the festival sales were not great and that it had come down when compared to the Diwali season in the last two years," said Brian Lan, managing director at dealer GoldSilver Central in Singapore.

"Physical demand didn't really pick up despite lower prices. While we did have businesses and individuals calling us today due to the price drop, prices had been stagnant for the rest of the week."

Premiums of 50 cents were being charged over the benchmark in Singapore this week, unchanged from the previous week, while in Hong Kong, they rose to the 60 cents to $1.30 range, as against 50 cents last week.

"There are sporadic large transactions, by buyers who take advantage of the price level and the low premiums, but overall, the market is quiet," said Joshua Rotbart, managing partner of J. Rotbart & Co in Hong Kong.

In top consumer China, premiums of $6.5-$10 an ounce were being charged over the benchmark, compared with $8-$12 in the previous week.

"There has been some amount of buying in China," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong. He, however, said there seems to be a shift toward stocks rather than gold in terms of investments.

In Japan, gold continued to be sold flat versus the benchmark due to a lack of momentum in local rates.