Indian gold market still muted, China flips to huge discount

Indian gold dealers offered the biggest discounts in 8-1/2 months this week as COVID-19-related restrictions stifled consumption, while top consumer China flipped to a discount for the first time since late January.

India’s official tally of coronavirus infections crossed 28 million, with more than 2,500 daily deaths.

“Bullion dealers offered hefty discounts since prices are correcting overseas and demand is weak in the local market,” said a Mumbai-based bullion dealer with a gold-importing bank.

Dealers offered discounts of up to $12 an ounce, the highest since mid-September 2020, over official domestic prices - inclusive of 10.75% import and 3% sales levies - versus $10 discounts last week.

“Jewellers were only making inquiries as a few state governments are planning to ease lockdown restrictions. But they weren’t placing orders,” said another Mumbai-based bullion dealer with a gold-importing bank.

A combination of resurgent COVID-19 cases and recent regulations pushed Chinese gold prices to a discount of as much as $20-$50 an ounce over international spot prices from premiums of $6-$7 earlier in the week, traders said.

Last week saw premiums of $7-$10.

China’s central bank on June 1 issued a revised draft anti-money laundering law, covering accounting firms and precious metal exchanges.

This follows a clamp-down on lenders selling investment products linked to commodities futures to mom-and-pop buyers.

Bernard Sin, regional director, Greater China at MKS, said discounts rose to as much as $50, possibly due to newly imposed regulations, and deeper discounts could be seen going forward.

“Guangzhou has seen a surge in COVID-19 cases, resulting in a complete lockdown, affecting all gold manufacturers,” Sin said.

Singapore premiums were little changed at $1.2-$1.7.

Brian Lan, managing director at dealer GoldSilver Central, said there was more selling from jewellers, pawnbrokers and retailers due to higher prices at the start of the week, although demand has since improved.

Gold rebounded from an over two-week low hit on Friday after a rise in US non-farm payrolls fell short of expectations, although bullion was still on course to register its biggest weekly decline since March.

Spot gold jumped 0.9% to $1,886.80 per ounce by 9:43 am, having hit its lowest since May 19 at $1,855.59 earlier. It was down 0.8% for the week so far.

US gold futures gained 0.9% at $1,890.80.

“We’re seeing a modest rally in the wake of the slight miss on the non-farm payrolls ... more than a few market watchers were looking for a much bigger number and when that didn’t occur the gold market bulls kind of gave a sigh of relief,” said Kitco Metals senior analyst Jim Wyckoff.

“The rebound that we’ve seen today keeps the uptrend on the daily chart alive in the gold market, and that’s encouraging for the bulls.”

The dollar index eased from a three-week high, making gold affordable for holders of other currencies, while benchmark 10-year yields also moved lower.

“Part of what we’re seeing in terms of the strength in gold are inflation expectations and those are partly based on the stronger economic data, like higher jobs growth, broader recovery in the U., parts of Europe and China is still doing well,” said Jeffrey Christian, managing partner of CPM Group.

“gold prices will probably continue to trade between $1,855 and $1,920 an ounce levels.”

gold is often viewed as a hedge against inflation.

Silver gained 1% to $27.71 per ounce and was on track for its biggest weekly fall since late March.

Separately, copper prices rebounded on Friday as investors scooped up material at lower prices after heavy losses the previous day on fears that strong US economic data could spur tighter monetary policy.

Three-month copper on the London Metal Exchange (LME) had gained 1.8% to $9,960 a tonne by 1400 GMT, having lost as much as 3.8% in the previous session.

Copper hit a record peak of $10,747.50 last month, fuelled by optimism over global economic recovery and new demand from an expected green revolution including the shift to electric vehicles.

“It’s bouncing today because of bargain hunting. The overall attitude is still bullish for industrial metals and commodities in general,” said Julius Baer analyst Carsten Menke in Zurich.

“The fundamentals for industrial metals are good, but expectations have been excessive as to where prices should be based on the fundamental backdrop.”

In China, prices fell to their lowest in nearly six weeks, with the most-traded July copper contract on the Shanghai Futures Exchange dropping as much as 3.6% to 70,470 yuan ($11,001) a tonne.