India demand slows, China purchases seen up post holiday

Indian gold dealers offered price discounts this week amid weak demand as a weaker rupee lifted local prices to near-record highs, while buying in China picked up after a holiday.

Indian dealers offered a discount (XAU-IN-PREM) up to $16 an ounce over official domestic prices – inclusive of 6% import and 3% sales levies.

Dealers had initially offered a discount of up to $24 per ounce early last week, but started charging a $3 premium in the second half.

A sharp decline in the rupee USDINR lifted local gold prices (MAUc1) and weakened retail demand, said Ashok Jain, proprietor of Mumbai-based gold wholesaler Chenaji Narsinghji.

The rupee fell to 85.63 against the dollar on Friday, after hitting a high of 83.76 last week.

Domestic gold prices were trading around 96,000 rupees per 10 grams on Friday after falling to 92,055 rupees last week.

"Akshaya Tritiya and a price drop gave sales a quick boost last week, but once the festival ended, footfall dropped across the country," said a Mumbai-based dealer with a private bank, referring to the Indian festival where buying gold is considered auspicious.

Elsewhere, dealers in top gold consumer China charged premiums of $42-$49 an ounce over the global benchmark spot price, compared with premiums of $34-$48 last week. (XAU-CN-PREM)

After China's holiday, traders returned on May 6 with strong buying interest, said Peter Fung, head of dealing at Wing Fung Precious Metals.

There is robust "retail demand for coins and bars, speculative demand for futures and options, institutional demand via the ETFs (exchange-traded funds) and even the official sector are all buying," said Ross Norman, an independent analyst.

Meanwhile, China's central bank approved foreign exchange purchases by some commercial banks to pay for gold imports under recently increased quotas, two people with direct knowledge of the matter said.

In Hong Kong, gold (XAU-HK-PREM) was sold at par to a $2 premium, while in Singapore (XAU-SG-PREM) gold traded at par with the global benchmark to a premium of up to $2.50 per ounce.

In Japan, bullion (XAU-TK-PREM) was sold at a discount of $0.50 to a $0.50 premium.