GOLD PHYSICALS WEEKLY - Key Indian festival fails to lift gold demand, China steady

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London 13/05/2016 - Physical demand for gold was mixed this week - despite the drop in the international price, buyers continue to hold off in the hope of an even lower price.

In the key markets of China and India, physical demand is underperforming, albeit for different reasons. China is characterised by price indifference and reduced appetite for jewellery while political issues and disappointing sales during a key festival in India has pushed premiums there further into discount.

The gold price has dropped around $16 so far this week and is looking to close out the week around $1,270 per ounce, down from the January 2015 highs hit late in April just short of $1,300.

DISCOUNTS IN INDIA WIDEN, BUYING DURING KEY FESTIVAL DISAPPOINTS

  • Local dealers in Mumbai are still reporting discounts on gold kilobars after Akshaya Tritiya - one of the most auspicious periods in the Indian calendar for the purchase of the metal - proved relatively disappointing.
  • Discounts were reportedly between $7 and $9 for .995 kilobars in India from $5-8 last week. Some international dealers are still holding out for premiums but are struggling to place business due to illiquid conditions.
  • General indifference on the price, particularly with most jewellers not passing discounts onto customers, appears to have stayed the hand of many prospective buyers.
  • And despite imports falling below 40 tonnes in April, bullion dealers, banks and refiners are sitting on large stockpiles of metal and are offering material at competitive discounts to secure deals.
  • In the run-up to local elections in some states, a code of conduct has been re-introduced. It dictates that private individuals and businessman cannot travel with more than 50,000 rupees in cash without documentary proof to crack down on bribes for votes. Since India is still predominantly a cash-based economy, some buyers that would usually be in the spot market are holding off in fear of having cash seized, locals said.
  • Still, with monsoon season imminent, many will be hoping a solid period of rains - particularly given signs that El Nino is subsiding - to rejuvenate one of the world's largest gold markets.


CHINESE PREMIUMS STEADY, INVESTMENT DEMAND OUTWEIGHTS PHYSICAL BUYING

  • In Shanghai, the premium on four-nine kilobars was unchanged at $1.00-2.00 per ounce over the London spot price.
  • Physical demand has been weak over the past month and there are no signs that it will pick up in the short term, various sources said.
  • Higher gold prices curbed China's appetite for jewellery, which accounts for 61 percent of its gold consumption, against a backdrop of slowing growth.
  • But investment demand remains strong - inflows into gold-backed ETFs in China have risen exponentially in recent months, the World Gold Council reported this week.
  • "Strong investment demand has very limited impacts on premiums as it only accounts small part of China's total gold consumption" - banking source.
  • Central banks continue to purchase gold - diversification remains a top priority. China's gold reserves climbed to 58.14 million ounces at the end of April from 57.79 million ounces at the end of March, according to data released on Monday.
  • Demand across Asia remains soft due to the relatively high gold price and with more scrap being shipped out of southeast Asia, a trader in Europe said.


POLITICAL CHANGES WEIGH ON SENTIMENT IN TURKEY; ZURICH HOLDS

  • The discount on 99.5-percent kilobars held in Turkey at between $1.00 and parity this week - political changes further weighed on sentiment.
  • A new prime minister is expected to be in place next month after the incumbent, Ahmet Davutoglu, said he will step down.
  • If anticipation for an early parliamentary election grows, the lira would weaken and boost local gold prices barring a decrease in dollar gold price. If so, the discount is expected to widen, a local source said.
  • Premiums for four-nine kilobars in Zurich were steady at $0.5-1.25 per ounce.
  • "We've seen a trend in Switzerland and the US that buyers are changing their paper gold to physical bars" - local trader.


(Reporting by Meimei Qin and Ian Walker, editing by Mark Shaw)



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