Asia gold: Dealers grapple as sky-high rates erode demand in key hubs

Physical gold demand in Asia dwindled on the back of sky-high prices as consumers abstained from making fresh purchases, forcing dealers to offer deep discounts last seen a year earlier in India and lower premiums in China this week.

“Gold is behaving in a characteristically price elastic way which is to say consumers are responding to elevated prices by scaling back purchases rather than chasing the market higher,” said Ross Norman, an independent analyst based in London.

In top consumer China, gold premiums slipped to $15-$25 per ounce over benchmark prices, from $20-$36 a week earlier. Premiums were at their lowest levels since July this week, as per Reuters records.

Bernard Sin, regional director of Greater China at MKS PAMP, however, said there is still investor interest in gold as a safe haven due to concerns about the country’s uneven economic recovery.

“Despite this, the People’s Bank of China is likely to maintain its current policy of issuing conditional import quotas unless the RMB exchange rate exhibits excessive volatility.”

In India, the world’s second-largest gold consumer, domestic prices rose to a record 66,356 rupees per 10 grams on March 8.

“Jewellery stores are tumbleweeds these days. People think prices won’t stay this high forever,” said Harshad Ajmera, a gold wholesaler in Kolkata.

Indian dealers offered discounts of about $36 an ounce over official domestic prices – inclusive of 15% import and 3% sales levies, the highest since March 2023 – versus last week’s $30 discount.

Since retail buyers are exchanging old jewellery for new, jewellers have ample scrap supplies and do not need to buy from banks, said a Mumbai-based bullion dealer with a private bank.

In Singapore, bullion was sold at anywhere between at par to $2.25 premiums, while dealers charged premiums of between $1-$2.5 in Hong Kong.

There is more selling than buying, because most consumers are taking profit as prices are near all-time highs, said Brian Lan at Singapore dealer GoldSilver Central.

In Japan, dealers sold gold at par to $0.5 premiums.