Silver at 33-month low, gold corrects further

Yet, with gold supply low in the wake of new RBI clamp, traders still charge huge premium for spot delivery

Gold and silver plunged further today, a reminder of last month’s low levels, when both precious metals had crashed.

Gold was below $1,350 an ounce today. Silver was at a 33-month low (since September 2010), at $21.5 an oz. At Zaveri Bazaar here, silver  lost Rs 830 or 1.9 per cent to close at Rs 42,970 a kg. Gold lost Rs 220 or 0.8 per cent to  close at Rs 25,900 for 10g. In India, silver closed at a 29-month low.

However, traders were still charging huge premium on gold for spot delivery, since imports by banks on a consignment basis have been halted by official order and fresh supply is negligible. After the fall in gold prices last month, physical stock was in short supply as demand soared globally. Mining companies have been charging a premium for spot delivery, at $10-12 an ounce.

In India, says Barclays Commodities, after the RBI’s banning import of gold on a consignment basis, banks have stopped importing and gold has been in short supply. The report said the premium for spot delivery in India has been $14-21 an ounce or Rs 300-450 for 10g.

Premiums again went up today. Haresh Soni, president of the All India Gems and Jewellery Federation, said: “People have already purchased for Akshaya Tritiya and Gurupushyamrut (an auspicious occasion) and we don’t have ready material (now). For ready stock, we need to pay additional premium of Rs 700-1,500 (per 10g).”

Even compared to futures, the spot trade is at a premium. Spot gold is trading at Rs 250 per 10g premium, compared with MCX June futures.

Bullion importing banks and traders are waiting for detailed guidelines from the RBI on consignment gold imports. Of India’s imports, 65-70 per cent has been on this route. Around 230-250 tonnes goes to exporters and the other 350 tonnes is meant for the domestic market. This latter portion is to now be imported only on firm orders.

Barclays agreed that with demand for gold moderating as banks are not placing orders, “prices are likely to find reduced support from the physical market and are exposed to further downside risk in the near term”.

Today, both precious metals saw profit booking, as stronger US retail sales and a six-year high in consumer sentiment raised hopes of strong economic recovery in America and reduced gold’s safe haven appeal.

In 2012, investment demand for silver fell 80 per cent to a little over 300 tonnes, according to GFMC Thomson Reuters. Hence, the further fall is considered interesting, with so many investors having already left.