London 20/05/2016 - Physical gold markets remained largely at a discount in a week where the dollar surged to a one-month high on hawkish comments from the Federal Reserve, which the market interpreted as foreshadowing higher interest rates.
A resurgent dollar caused gold prices to soften on the whole; physical markets slowed accordingly. Most buyers remain on the sidelines while awaiting lower numbers while most sellers are willing to take a hit on premiums/discounts to take advantage of high prices.
"People are seeing whether this price is going to continue to drop - if it does, they'll continue to gently scale down buying but, should the market reverse and any news come to turn the pressure back up, some will jump in and buy a bit more quickly," a trader said.
JAPANESE DISCOUNT WORSENS ON DOLLAR STRENGTH; HONG KONG WIDENS; SHANGHAI FIRMS
- In Japan, 99.99 percent kilobars slipped further into negative territory this week when local prices for the metal rose and producers looked to cash in.
- Physical kilobars moved to a discount range of $1.5-0.50 from a $1 discount to flat last week.
- Local gold producers are working at full capacity to smelt and sell as much metal as possible to take advantage of improved prices but demand is suffering as bars get more expensive.
- "The gold price in Japanese yen is going a bit higher than last week so physical demand is worse than last week" - trader.
- Rates widened in Hong Kong to a dollar either side of parity - jewellery demand is thin but some investors are willing to pay higher premiums for Swiss bars, sources said.
- In China, premiums firmed to $1.5-2.5 per 99.99 kilobar, with more buyers in the market due to London gold prices softening.
INDIAN DISCOUNTS HOLD ON HIGH INVENTORIES
- The Indian market remains at discounts of $9-7 per ounce on 99.5-percent kilobars.
- Imports are slowing and have been low for months, highlighting slack demand. Jewellers are abble to call on inventories or force competitive offers out of dealers.
- As an indictment of current market conditions, India's biggest refiner, MMTC PAMP, has supended production until demand improves and while it offloads stocks built up during this year's 42-day jewellers' strike.
- Bullion dealers are said to be sitting on high stocks and are willing to sell at a discount amid relatively high prices.
- "There has been ample inventory in the market for some time but now it is visible because imports are down and people are using stocks to fulfil demand" - source in India.
- Demand has suffered - Indian gold prices are close to seven-month highs set late in April and due to the end of the May festival period.
- "After Akshaya Tritiya, demand is not at all picking up" - second source.
TURKISH MARKET SLOW ON FRESH RECORD PRICES, DUBAI EITHER SIDE OF PARITY
- The Turkish gold market firmed slightly to a between a $1 discount to a 50-cent premium in a quiet market this week, with local gold prices breaking fresh record highs on a firming dollar.
- This week the lira dropped to its lowest against the dollar since late January and local gold prices surged to record highs of 123.22 lira per kilo amid continued political uncertainty in the country.
- On Friday, the ruling AK Party nominated a new prime minister loyal to President Erdogan, who is expanding his power base in the party and is widely expected to introduce new executive powers for his position.
- The Borsa Istanbul 100 Index of Turkey's top shares has fallen 9.7 percent since the start of the month, in part due to increased political risk.
- Despite higher gold prices, there is little liquidity in the Turkish market while particpants await fresh direction.
- "Sellers already sold too much around these prices, they're waiting for direction - either to buy back or sell more if it goes higher" - Turkish source.
- In Dubai, gold continues to trade either side of parity - top brand still command premiums but high inventories mean that buyers of material bound for India are able to get discounts.
- "Those who are more linked to India realise that they can use that to negotiate lower physical prices" - trader.
(Reporting by Archie Hunter, Vicky Chen and Ian Walker, editing by Mark Shaw)