Gold prices rose by 4 percent this week on worries over the Chinese economy and escalating geopolitical tensions. They hit a nine-week high on Friday. A rally in gold prices curbed the demand in key consumer India and sent local prices to a discount to the global benchmark for the first time in three weeks. Dealers in India are offering a discount of up to $3 an ounce to the global price for the first time since Dec. 17. Last week, prices were at a premium of up to $1.50.
"People are delaying purchases expecting a correction in prices," said Daman Prakash Rathod, a director at MNC Bullion, a wholesaler in the south Indian city of Chennai. "Retail demand is very poor."
"Some traders are clearing low-cost inventory they built during December. Even after offering discount, they are making huge profits," said a Mumbai-based dealer with a private bank.
"There is a cap of how much foreign exchange the Chinese can buy or sell. So some people might hedge the weaker yuan by buying gold," said a dealer in Hong Kong.
"If the yuan depreciation continues, demand for gold could pick up sharply," said another trader.
“We expect robust buying, as the trend suggests in the past. With prices moving up, consumers are booking more of jewellery instead of investment products like coins and bars,†said Kumar Jain, director, Umedmal Tilokchand Zaveri, a bullion dealer and jewellery retailer.
The People's Bank of China allowed the yuan's biggest fall in five months on Thursday, sending shivers to the regional currencies and global equities. Premiums on the Shanghai Gold Exchange, held at a healthy $4-$5 for most of the week. They fell to about $2-$3 on Friday due to the stronger yuan.
By Premji
