London 27/05/2016 - Spot gold premiums have increased this week in most locations after the international gold price fell to an eight-week low on Friday morning in London, succumbing to weaker oil prices and a stronger dollar.
The exception was India, where discounts have deepened because of poor demand and high domestic stock levels.
Spot gold prices broke down through $1,230 earlier this week and traded recently at $1,212.90 per ounce on Friday afternoon, failing to hold onto the gains from a short-lived rally on Thursday back to $1,234.30.
"The dollar index has strengthened, which put downside pressure on gold, and we are not optimistic on gold in the short term unless the June [US rate rise] does not materialise," a trader said.
DEEPER DISCOUNT IN INDIA AMID WEAK DEMAND
- The discount in India has deepened to $15-13 per ounce on 99.5-percent kilobars from $9-7 previously.
- Indian consumers have been sitting on the sidelines in what is a quiet period after Akshaya Tritiya and before the wedding season kicks into gear later this year.
- "We have not seen big demand for buying physical gold after the Akshaya Tritiya festive season and people would rather buy ETFs if they want to make investments" - trader in India.
- He expects demand to be stable at low levels until the third quarter when the festival seasons picks up pace again.
- As well, a good monsoon season would boost demand, traders pointed out - demand from rural areas represents more than 60 percent of total domestic buying.
- "Another key factor would be the monsoon season. If it is a good one, then farmers would have more money to buy gold" - trader.
- For now, though, domestic stock levels are relatively high, forcing traders to make attractive offers to sell.
PREMIUMS UP IN CHINA DUE TO RESPONSE LAG
- In Shanghai, the premium for four-nine kilobars edged 50 cents higher to $2.00-3.00 per ounce over the London spot price this week.
- Various sources attributed the move to a sharp fall in international gold prices ahead of a speech from Federal Reserve chair Janet Yellen that could shed more light on the US central bank's thinking on when to raise interest rates.
- "The London gold price fell quickly but it takes time for the Chinese gold price to follow due to a response lag - that's why the premiums went up" - trader in China.
- But the higher rate does not accurately reflect supply and demand - physical demand is still lacklustre in the world's largest consuming country.
- "Buyers came to us for gold last week because the prices started to fall but now they are hesitate to buy because the price fell too much this week" - source in Shanghai.
- Gold-backed ETFs and other wealth products are still preferred by Chinese investors - these are cheaper than coins, bars and other physical gold, according to a bank source.
PREMIUMS UP MOSTLY IN SOUTH-EAST ASIA ON DIP-BUYING
- Four-nines gold in Bangkok improved to between a discount of $0.40 and a premium of $0.80 over the London spot price, mainly on strong dip-buying interest. Locally produced brands are available at much cheaper levels.
- The market in Tokyo remained at a discount in quiet trading conditions although several refiners said they have started stocking up to take advantage of the lower local gold price.
- Premiums in Singapore were last at $0.25-0.80 per ounce, up slightly from $0.25-0.75 last week, while rates in Hong Kong narrowed to $0.00-0.50.
TURKISH PREMIUMS SLIGHTLY FIRMER, DUBAI UNCHANGED
- Rates in Turkey have narrowed to $0-0.50 premium from between a discount $1 and a premium of $0.50 last week in what remains a thinly traded market.
- "People are not keen on spending and are only bidding on the sidelines. The lira has also appreciated a bit recently" - trader in Turkey.
- But the increase does not look sustainable and could be easily eroded while political insecurity remains a concern.
- "People are worried about the uncertainty of the political situation in Turkey - the prime minister just changed so people are hesitant to buy" - second source.
- Even a fall in the local gold price failed to attract much fresh interest
- "They bought a huge amount when the gold price hit a really low level last month" - second source.
- Rates in Dubai were stable this week either side of parity, with Swiss brands at higher end of the range.
SMALL DISCOUNT EMERGES IN ZURICH ON AMPLE SCRAP
A discount - the first since FastMarkets records began in 2014 - has emerged on four-nines gold in Zurich. Amid ample scrap supply, metal is now available between a discount of 30 cents and a premium of $1.00 to the London spot price.
The presence of scrap shipped from Istanbul and Dubai is weighing although it is hard to sell locally, a dealer in Europe said.
Another source in East Asia sold locally produced brands at the same discount to clients in Switzerland to swap for stocks in London, he said.
Still, Swiss and other LBMA Good Delivery bars are still fetching premiums in the country, the major centre for refining and processing of gold from around the world.
Gold exports from Switzerland reached a three-month high in April, with the country exporting a net 147.8 tonnes, according to the latest official date this week.
(Reporting by Vicky Chen and Meimei Qin, editing by Mark Shaw)