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Asia gold-price dip perks up demand ahead of festive season
February 10, 2018
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MUMBAI: Physical gold demand in Asia picked up towards the end of the week, as a pullback in prices spurred purchases ahead of the Lunar New Year in China and the wedding season in India.

Spot gold has declined about 1 per cent so far this week and was headed for a second straight weekly drop due to a recovery in the dollar.

“Retail buyers are comfortable with the current price range,” said Aditya Pethe, a director at Waman Hari Pethe Jewellers in Mumbai.

Local gold prices have declined more than 2 per cent since rising to 30,720 rupees per 10 gram last week, the highest since Nov. 9, 2016.

Dealers were charging a premium of up to $1.5 an ounce on Friday over official domestic prices, down from $2 last week. The domestic price includes a 10 per cent import tax.

“Demand is not great but the market is still in premium due to limited supplies. Imports were lower last month,” said a Mumbai-based dealer with a private bank.

India’s gold imports in January dropped 37 per cent from a year earlier to their lowest in 17 months as buyers postponed purchases in expectation of a cut in the import tax.

Gold demand in India is likely to remain below its 10-year average for a third year in 2018 as higher taxes and new transparency rules on purchases may cap last year’s rebound in buying, the World Gold Council said on Tuesday.

In top consumer China, premiums rose to $9-$10 an ounce from $6-$8 last week as demand picked up after prices fell later in the week, traders said.

In Hong Kong, premiums remained unchanged from last week at between 60 cents and $1 an ounce.

Demand in Southeast Asia remained strong ahead of the Chinese New Year that starts from Feb. 16, as dealers stocked up in anticipation of strained supply during the festival week when gold refineries and businesses will be on holidays.

“Supply-wise, we see some issues... That’s why the market is getting squeezed a bit and premiums are a little higher now,” said Brian Lan, managing director at dealer GoldSilver Central in Singapore.

“Dealers generally try to get in more inventory during this period to at least get through the one tight week during the Chinese New Year.” Premiums for the precious metal in Singapore were slightly higher this week at between 80 cents and $1 an ounce, compared with 60-80 cents last week.

“There’s no shortage of gold or anything, but it’s because of the festival season and the production schedule,” said Lan.

In Japan, gold was sold at par after being on discount for the past few weeks, according to a Tokyo-based trader.

Meanwhile, gold slipped on Friday, under pressure from tumbling equity markets, a firmer dollar and worries about rising global interest rates, but still found some support as a safe haven asset in times of market turmoil. The dollar rose against a currency basket, heading for its best week since late October, while a 4 per cent drop in Chinese shares dealt a fresh blow to world markets that have been reeling on worries about rising borrowing costs and soaring volatility.

 “Just like any other commodity gold is getting caught up in risk reduction, but overall the stock market gyrations have most certainly provided underlying support,” said Ole Hansen, head of commodity strategy at Saxo Bank. Although the dollar had strengthened, he said investors were watching to see if the US administration’s planned tax cuts boosted the economy. “If it doesn’t, it could have a negative growth impact, that’s not going to be dollar-positive,” he said.

A strong dollar makes dollar-priced gold costlier for non-US investors. Spot gold fell 0.2 per cent to $1,316.61 an ounce at 1300 GMT. Prices touched their lowest since Jan. 4 at $1,306.81 on Thursday, and the precious metal is down 1 per cent for the week so far, heading for a second straight weekly drop. US gold futures were flat at $1,318.90 per ounce. The yield on benchmark 10-year US Treasuries, which tends to be the driver of global borrowing costs, was hovering at 2.86 per cent, just short of both its Thursday peak and Monday’s four-year high of 2.885 per cent.

“The threat of rising interest rates will have some downside pressure on gold,” said Argonaut Securities analyst Helen Lau. “However, in the near-term gold will gain due to volatile markets.” Rising yields increase the opportunity cost of holding non-yielding bullion.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, have fallen over the last three sessions, and declined 1.7 per cent so far this week, the worst since the week ended July 30, 2017.

Silver fell 0.4 per cent to $16.36 an ounce, after touching its lowest since Dec. 22, 2017 at $16.22 on Thursday. Platinum rose 0.1 per cent to $970.20 an ounce. It hit its lowest since Jan. 10 at $965 in the previous session. Palladium rose 0.9 per cent to $971.47. It marked its lowest since Oct. 25, 2017 at $958.95 on Thursday.


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