Gold Plummets Near 2.5-Month Low as China Shifts to Discount Amid Volatility

Gold Plummets Near 2.5-Month Low as China Shifts to Discount Amid Volatility​

Indian Demand Muted by Price Correction and High Volatility​

Domestic gold demand remained modest in India this week, largely due to falling prices coupled with ongoing volatility. Prices dropped significantly, reaching a two-and-a-half month low.

Dealers in India offered discounts of up to $54 an ounce above official domestic prices during the week. This figure is inclusive of the 15% import and 3% sales levies. This level of discount represents a widening compared to last week's offers, which ranged up to $35.

A jeweller based in Ahmedabad noted that while the price correction was helping bring buyers back into the market, excessive volatility was causing some consumers to hold off until they see a clearer price trend. Meanwhile, a bullion dealer based in Mumbai with a private bank observed that investment demand had remained weak in recent weeks. He added that jewellers were starting to show interest in building inventories.

China Flips from Premium to Discount on Gold Bullion​

In stark contrast to the domestic Indian market dynamics, consumer gold demand in China reversed its trend. Chinese top consumers shifted toward discounts for the first time since late December.

Bullion in China was trading at discounts ranging from $4 to $8 an ounce against the global benchmark spot price. This is a significant shift from last week, when premium levels were reported at $1 to $5.

Peter Fung, head of dealing at Wing Fung Precious Metals, stated that the physical gold market in Shanghai remained very quiet and he was not seeing much buying interest. Investors across China are currently concerned about uncertainty in the Middle East and are waiting for a clearer picture before committing funds.

Global Gold Price Trends Following Geopolitical Stress​

Gold prices have witnessed a considerable decline since late February, driven by geopolitical concerns. The price has fallen over 23% since the start of the U.S.-Israeli war against Iran.

This downward pressure is attributed to fears concerning energy-driven inflation and expectations regarding higher U.S. interest rates. This volatility has affected global market sentiment across various trading hubs.

In other markets, gold prices showed varying conditions. In Hong Kong, gold traded between par and a $2 premium. Meanwhile, in Japan, the metal was sold at a discount of $0.25. Singapore saw gold being traded with discounts ranging from $0.50 to a $1.80 premium.

Investment Flows and Market Indicators​

India's physically backed gold exchange-traded funds (ETFs) recorded their first net monthly outflow in one year during May. This trend was driven by profit-taking among investors following an earlier price rally, which occurred amidst higher import duties.