Gold demand slumps as prices rise, seasonal consumption slows in India

Gold demand in Asia eroded this week due to higher prices with a seasonal slowdown denting the lure for the precious metal in second-biggest consumer India.

Dealers in India offered discounts for gold, as the absence of key festivals kept demand subdued, especially as the wedding season has passed.

"Every year, demand remains weak in July. There is no major festival this month. Wedding season is almost over," said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler in the eastern Indian city Kolkata.

"For the next three to four weeks, demand will remain on the lower side. It will improve from the second half of August."

Dealers were offering a discount of up to $1 an ounce this week over official domestic prices, compared to a discount of $1.20 last week, said four sources from jewellers, banks and gold dealers. The domestic price includes a 10 per cent import tax.

Local gold prices have risen 2.7 per cent since July 10 after falling to the lowest level in six months.

"The recent rebound in prices is also keeping buyers on the sidelines. They are waiting for a clear trend," said a Mumbai-based dealer with a private bank.

High prices kept buyers on the sidelines elsewhere in Asia as well.

"Demand has softened again at current price levels. It had picked up when gold was trading closer to $1,200 but has again abated as the market waits for a clearer indication as to which way it may swing," said Cameron Alexander, an analyst with Thomson Reuters-owned metals consultancy GFMS.

The international spot gold benchmark hit a three-week high of $1,248.35 an ounce on Friday, with prices set for an about 1.5 per cent weekly gain, bolstered by weakness in the US dollar, which was at multi-month lows.

In top consumer China, premiums were slightly below the $10 per ounce level reported last week, while in Hong Kong, the premiums were at 60 cents to $1 against 70 cents to $1 in the previous week.

Singapore premiums were in a range of 75 cents to $1.10 per ounce, compared with a range of 80 cents to $1.10 last week.

"Demand should remain quiet in the near-term, especially with the upcoming summer holidays in the region," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

In Tokyo, gold was being sold between flat and a 25 cents per ounce premium over the benchmark rates, said a trader based in the city. The rates were flat last week.