Gold discounts in India widen to 3-month high; China demand tepid

Dealers in India offering a discount of $7 to $11 an ounce to the global benchmark

Gold discounts in India widened to a three-month high this week as retail demand remained sluggish amid ample supplies and higher prices.

Buying elsewhere in Asia was also lacklustre. Top consumer China disappointed with moderate post-holiday demand and physical prices fell in some other major trading centres.

Prolonged weakness in Asian demand could hamper a rally in global gold prices, which hit a three-month high earlier this week before giving up some gains.

In India, the second-biggest gold consumer, dealers were offering a discount of $7 to $11 an ounce to the global benchmark, compared to $6 to $8 last week. The demand woes — from higher prices and a weak monsoon — were worsened by an oversupply of bullion following robust imports earlier in 2015.

“Dealers who had imported earlier this month are taking advantage of higher global prices and selling at steep discounts,” said Daman Prakash Rathod, a director at Chennai-based wholesaler MNC Bullion.

Flows of smuggled gold also remain high, dealers said, as the import duty stands at a record 10 percent.

“Smugglers are quite active in the market. The competition between smugglers, dore importers and banks has been widening discounts,” said a Mumbai-based dealer with a private bank.

A lower import duty of 8.24 percent on dore, versus the 10.30 percent on refined gold, is helping refiners offer a bigger discount than banks. Demand could improve soon as the festival season kicks off. The nine-day Hindu festival of Navratri started on Tuesday, to be followed by Dussehra, Dhanteras and Diwali in the next few weeks - all considered auspicious periods to buy gold.

In China, premiums were steady at $1 to $2 an ounce, but dealers noted tepid demand since the return from the National Day holiday earlier this month. The holiday is a time when millions of people travel and spend more than usual, boosting retail sales. It also marks a pick-up in weddings, triggering demand for gold jewellery.

“Demand is not very good because the gold price is higher than last month,” said a trader with a bullion bank in China. “Physical demand at our bank has fallen after the holiday.”

Overall retail sales growth slowed during the week-long National Day holiday earlier in October, Chinese government data showed.

“We have seen only moderate buying from the Chinese since they came back,” said a dealer in Hong Kong, where premiums dipped to 80 cents to $1.20 from around $1.30 last week.

Discounts in Tokyo widened to $1 this week from 25 cents in the previous week.