Mixed picture for physical gold demand as dollar price remains well bid
London (Jan 11) Demand for gold was mixed Monday in the two main markets of China and India, with the latter seeing a discount to the dollar price while Chinese demand was reported firmer.
Gold moved above $1,100/troy oz last week as the Chinese stock market fell sharply, setting the tone for global equities.
The Shanghai Composite closed Monday at its lowest level since September, brokerage ETX Capital said, "as worse than expected inflation data over the weekend and continuing investor anxiety over the economy and the trajectory of the yuan panicked investors and caused a further sell off in an already bearish market".
In reaction, gold has fared well as investors sought to park their cash.
"Gold prices had a strong run for the week amid rising global volatility and strong safe-haven demand," ANZ said in its daily research.
"However, India, the world's second-biggest consumer, is not buying into the gold rally, with domestic prices in India trading at a discount to international prices. The key reason for the discount is some traders are clearing low-cost inventory built-up during December."
The London Bullion Market Association Gold Price, administrated by Intercontinental Exchange, settled Monday morning at $1,104.70/tr oz, up from a Friday January 8 morning settlement of $1,096/tr oz.
Platts reported discounts paid to the international price by dealers in Delhi and Mumbai of up to $2/oz Friday and again Monday, with stocks still high from increased buying in December when international prices were more than $60/oz lower.
Ahmedabad was heard around flat to the international price Monday, but demand remained slack with some dealers reporting no buying at all near the end of the Indian wedding season, a period that usually sees strong local demand for gold in December and January.
"High day-time temperatures in parts of [India] are starting to affect the development and potential yield of spring (Rabi) crops. That, in turn, has jewelers concerned about the potential effect on gold demand during the spring," ICBC/Standard Bank strategist Tom Kendall said Monday.
Platts Gold Premium 995 India was assessed down $1/tr oz Monday at minus $1/tr oz.
In China a premium of around $3-$4/tr oz was heard on the Shanghai Gold Exchange.
UBS analyst Joni Teves said gold appeared to be struggling to break above the 100-day moving average of $1,109/tr oz.
Barclays said of action in China, the world's number one consumer and producer of the yellow metal, "SGE volume for 99.99 purity gold averaged 21.8 mt for the past week, slightly lower than the 24.1 mt daily average for December 2015. Daily trading volumes picked up strongly in last two days of the week, after gold rallied above $1,100/oz."
The bank's data on the premium level against SGE 995 gold went against others.
Barclays said the premium to COMEX futures dropped last week as the dollar price rallied, averaging minus $3.6/oz.
"This is in contrast with the positive premium SGE gold had over COMEX during last week of December 2015," it said.
However, on Monday and, indeed, since the start of 2016, Platts has been hearing a premium of around $2-$4/tr oz.