BD: India gold still in heavy discount but better rainfall offers boost
Heavy discounts remain in place on gold across India, sources told FastMarkets, but better-than-expected monsoon rains are lifting sentiment.
Discounts are averaging around $8 per ounce below the London spot price on .995 gold in Ahmedabad today, a gateway for gold into Mumbai, though larger international dealers are holding out for smaller discounts or even parity on some higher-quality brands, they said.
Still, some regional dealers are still struggling to find buyers even with discounts of around $10 on some brands compared with premiums of nearly $20 at the same stage last year.
But rainfall has been much better than expected across some areas of the country, according to local reports, prompting many of India’s farmers to accelerate some crop preparations.
In some areas, there have even been some concerns over flooding, which is a surprise given the delay to the start of the crucial annual monsoon season, as well as expectations that rainfall would be below the long-term average, pushing the country into drought territory.
As much as 60 percent of domestic gold demand comes from farmers who, often having no access to the formal banking system, use gold as a primary store of wealth.
What will now be crucial is whether the heavier rains will be sustained, one observer said. If so, farmers are more likely to sell stored crops and spend on items such as jewellery.
In other markets, the premium in Shanghai stepped higher this week when buyers reacted to the drop in the international price, local traders said, The premium in Shanghai was quoted at $3-4 over spot on fresh bars, with the upper end of that range the highest in around three months.
Withdrawals from the SGE – a useful barometer for local wholesale demand – for the week ending June 12 were 46.15 tonnes, a seven-week high. More than 1,060 tonnes have now passed through the vaults this year.
In Hong Kong, traders have once again noted an uptick in enquiries. With the price now just above three-month lows around $1,170 per ounce, local sources pegged the premium back at $1 over spot.
Still, deals are still being done at parity on good delivery .995 bars on some of the lesser brands, one local trader claimed.
The somewhat subdued tone in Hong Kong and weaker yen continues to keep gold demand in the doldrums in Tokyo. The market is still in a discount, local traders said, with discounts of around 50 cents for fresh bars of reputable brand and around $1-2 on recycled and lesser brands.
In Turkey, political uncertainly has followed the general election earlier this month, though the lira has been strengthening in recent sessions on increased optimism over Greece clinching a deal with its creditors. The Turkish currency hit an all-time low on June 9, keeping the local price of gold near four-year highs. Today, gold is in slight premiums in places on the favoured LBMA .995 1kg bar but is around parity overall.
In Dubai, the market continues to fluctuate either side of level – sources quoted the market in a premium of around 50 cents this morning on good delivery .995 bars.
In Singapore, the premium has moved up to $1.50, sources said, while in Bangkok gold is at a premium of around 50 cents on recycled bars and of $1 on bars straight from the refiner.
