Gold Plunge: Indian Demand Weakens as Discounts Deepen Amid Global Volatility

Gold Plunge: Indian Demand Weakens as Discounts Deepen Amid Global Volatility​

Gold prices saw a retreat from last week's surge as international spot rates slipped to a two-week low. This shift in global momentum has been keenly felt in the domestic market, leading to deepening discounts for buyers in India amid persistent price volatility. While local buying sentiment slows down, China remains stable, driven by significant counter-cyclical purchasing from its central bank.

Deepening Gold Discounts Hit Indian Market Demand​

Domestic gold prices in India were reported trading around 144,800 rupees per 10 grams on Friday, following a previous week's high of 148,069 rupees. The softening sentiment led dealers to offer substantial discounts this week. Dealers offered gold at discounts of up to $19 an ounce over official domestic prices, even when factoring in the 15% import and 3% sales taxes.

The reversal in market mood is evident as demand weakens. A Mumbai-based gold wholesaler noted that buyers are now holding off, waiting for a more significant drop before committing to purchases. This indicates a shift from opportunistic buying to cautious waiting among consumers.

Retail Buying Slows Amid Inventory Changes​

A Mumbai bullion dealer with a private bank provided insight into the changed retail dynamics. The transactions are increasingly centered on the exchange of old jewellery for new pieces, rather than outright purchasing gold. Consequently, jewellers have reduced reliance on banking institutions for replenishing their inventories.

This sentiment shift is reflected in international comparisons. A week ago, dealers were offering premiums up to $5 an ounce and discounts up to $7 an ounce. The recent deepening of the discount suggests that the market pressure is focused on price correction rather than speculative gains.

Central Bank Buys Stabilize Gold Prices in China​

In stark contrast to the cautious mood in India, the Chinese gold market shows stability supported by massive central bank activity. MKS PAMP noted that the central bank added 480,000 ounces to its reserves during June. This sustained buying extends the streak of counter-cyclical purchases to twenty months.

The collective accumulation has lifted China's total gold reserves to 75.44 million ounces. Bernard Sin, regional director of Greater China at MKS PAMP, emphasized that this state-backed stability is helping anchor prices in the region. In the Chinese market, bullion was trading at discounts ranging from $1 to $5 an ounce compared to last week when it traded at par to discounts of $2.

Global Gold Trading Trends Across Asia and Middle East​

International markets continued to demonstrate varied pricing mechanics as gold moved across key financial hubs. In Hong Kong, the precious metal saw trade conducted between a $1 discount and a $1.70 premium. The city has recently launched a central clearing system for gold and revived dollar gold futures trading, aiming to become a regional reserve hub.

Meanwhile, Singapore reported gold being sold within a range of a $1 discount and a $2 premium. Japan's market activity showed a slightly tighter listing, with the metal selling at a discount of $0.40 per ounce.