Gold premiums have tumbled in India and Hong Kong, signaling that the buying frenzy that followed bullion’s biggest slump in three decades last month has weakened in the largest consumers. Prices fell.
Premiums paid by jewelers to banks in India are being quoted between $3 and $3.50 an ounce over the London cash price, compared with $10 to $12 early this month, said Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation. In Hong Kong, consumers are paying about $3 an ounce compared with $5 to $6 last week, according to Heraeus Metals Hong Kong Ltd.
Gold plunged into a bear market last month as investment holdings fell, spurring demand for jewelry and coins across Asia and the Middle East as buyers were lured by prices at the cheapest in more than two years. The increased physical demand, which helped bullion to rebound, may now be weakening even as holdings in exchange-traded products shrink further.
“Premiums have come down as demand is slower and there is more supply,” Dick Poon, general manager at refiner and trader Heraeus, said in an interview today. “Last month, when the price dropped, many people rushed to buy gold and that created a shortage.”
Gold for immediate delivery sank as low as $1,321.95 an ounce on April 16 amid speculation that a recovery in the U.S. would prompt the central bank to taper asset purchases. Prices, which had rebounded to $1,488.09 an ounce by May 3, traded at $1,378.95 at 7:34 p.m. in Singapore after dropping 1.2 percent.
Gold is 18 percent lower this year as record reductions from ETP holdings outweighed stronger physical demand. The increased buying last month was comparable to cash-for-clunkers in autos, bringing forward activity, not adding to overall purchases, Ric Deverell, head of commodities research at Credit Suisse Group AG, said on May 16. Cash-for-clunkers refers to the U.S. program during the financial crisis that offered incentives for people to trade in older cars for new ones.
ABN Amro Group NV said in a report on May 1 that the recovery in the gold price would prove to be temporary, forecasting that physical demand would soon be overshadowed by further investor sales.
Global ETP holdings have declined every week for the past 15, taking reductions to 473.5 metric tons this year. Assets have fallen 17 percent in 2013 after expanding every year since the first product was listed in 2003, data compiled by Bloomberg show. ETPs trade like shares and enable investors to hold commodities without taking physical delivery.
After gold plunged 14 percent in the two days through April 15, the biggest such drop since 1983, bars were cleared from display in the souks in Dubai and Chow Tai Fook Jewellery Group Ltd. (1929) sold a record 10,000 bracelets in Hong Kong. The U.S. Mint also ran out of its smallest American Eagle gold coin.
India’s gold imports in May are expected to be lower than April’s 117 tons as demand tapered off after the main gold-buying festival of Akshaya Tritiya on May 13 and as the wedding season ends, Soni said. Premiums have fallen as demand decreased and supply improved, he said.
Premiums in Hong Kong are seen as a guide to demand in China, the largest consumer after India in 2012. Volumes for the benchmark contract on the Shanghai Gold Exchange, China’s biggest cash market, exceeded 273 tons between April 16 and 26, according to data compiled by Bloomberg. Volumes, which reached a daily record 43.3 tons on April 22, were 15.6 tons today.
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