India's gold demand picks up, China premiums ease: What is driving the trend

Physical gold demand in India improved modestly this week as a decline in prices encouraged some jewellery purchases, while premiums in China eased amid subdued market activity, according to a Reuters report.

Domestic gold prices fell to ₹1.46 lakh per 10 grams on Thursday (June 11), their lowest level since April 2, and were down about 1.5% for the week. The correction prompted some buyers who had been waiting on the sidelines to return to the market.

"The recent price correction

has brought back some buyers, particularly those purchasing jewellery," Reuters reported, citing Chanda Venkatesh, Managing Director of Hyderabad-based bullion merchant CapsGold.

The improvement in demand was also reflected in dealer discounts. Gold was offered at discounts of up to $35 an ounce over official domestic prices, including import and sales taxes, compared with discounts of as much as $87 an ounce a week earlier.

However, trade participants said buying activity remains cautious despite some restocking by jewellers. A Mumbai-based bullion dealer quoted by Reuters said purchases are still measured as retailers remain uncertain about consumer demand in the coming months.

India, the world's second-largest gold consumer, last month increased import duties on gold and silver to 15% from 6% as part of measures aimed at reducing pressure on foreign exchange reserves amid elevated crude oil prices.

Higher import duties and a sharp rise in domestic prices also contributed to investor profit-booking.

It must be noted that physically backed gold exchange-traded funds (ETFs) in India recorded their first monthly net outflow in a year in May.

In China, the world's largest gold consumer, premiums narrowed to between $1 and $5 an ounce over global benchmark prices, compared with premiums of $7 to $10 an ounce last week.

"The $4,000 mark for gold was a good support level, and hence we can see some fresh buying interest," Reuters quoted Peter Fung, Head of Dealing at Wing Fung Precious Metals, as saying.

Spot gold touched a more than six-month low of $4,022 an ounce on Thursday (June 11) before recovering later in the session. Despite the rebound, prices remain on track to post a weekly decline.

Meanwhile, China's central bank increased its gold reserves for a 19th consecutive month in May, according to data from the People's Bank of China cited by Reuters.

Elsewhere in Asia, gold traded between par and a $1.90 premium in Hong Kong, at a discount of about $0.50 in Japan, and between a discount of $0.50 and a premium of $2 in Singapore, Reuters reported.