Asia Gold-Festive-buying spurs demand; Indian discounts narrow

Mumbai-India (Sept 2)   Asian physical golddemand improved slightly this week as a correction in pricesprompted consumers to buy for the upcoming festival and weddingseason, with discounts in India narrowing to the smallest inthree months.

The safe-haven bullion has shed about 1 percent this weekafter hawkish comments from Federal Reserve Chair Janet Yellenlast week left the door open to a U.S. interest rate hike inSeptember. Rate hikes increase the opportunity cost of holdingnon-yielding assets such as gold.

"There is a slight pick up in demand, but it is still verylight. We are still seeing quite poor demand in key physicalmarkets in South East Asia," said Cameron Alexander, an analystwith Thomson Reuters-owned metals consultancy GFMS.

"There are expectations that the prices might come downfurther if the Fed triggers a rate rise in September ... Untilwe see a significant leg-down in prices from current levels, wedon't see a big uptake in demand."

In India, however, demand firmed.

"Sentiments have improved. Retail buyers have started makingsmall purchases for Ganesh festival. Some buyers are even makingpurchases for weddings," said Kumar Jain, a jeweller in Mumbai.India celebrates the Ganesh festival next week.

Demand for gold is expected to strengthen further in thefinal quarter as India gears up for festivals such as Diwali andDussehra as well as for the winter wedding season, when buyingthe metal is considered auspicious.

Dealers in the world's second-biggest gold consumer wereoffering discounts of up to $16 an ounce over official domesticprices, the smallest since the first week of June. Last week,Indian discounts were at up to $25.

"Jewellers are restocking gold, but they are cautious. Manyfeel prices could fall below $1,300," said a dealer with aMumbai-based bank.

Benchmark spot gold prices hit near a two-month lowof $1,301.91 an ounce on Thursday.

Premiums in top consumer China varied between $3 and $4 anounce to the spot benchmark, versus $3 last week, as consumersmade purchases ahead of the mid-Autumn festival.

In Singapore, premiums remained flat from last week at about60-70 cents, while in Hong Kong, gold was sold within a premiumrange of 10-60 cents an ounce. Prices in Tokyo this weekremained unchanged at a discount of 25 cents per ounce.

Source: KitcoNews