Physical Demand Wavers as Gold Price Rally Tempts Sellers

GOLD - BEIJING. A rally in bullion prices sparked by the global banking rout forced Indian dealers to offer steeper discounts on physical gold to lure retail customers and led to a drop in China premiums this week, while tempting some to resort to selling.

"Sentiments completely changed in a week because of rising prices. Buyers have stopped making purchases," said Ashok Jain, proprietor of Mumbai-based gold wholesaler Chenaji Narsingji.

Discounts in India widened to their highest in six weeks, as local gold prices jumped to 58,661 rupees per 10 grams this week, not far from the record high hit last month.

Domestic rates are tracking a broader rally in international gold prices that have jumped over $100 an ounce since last Friday's open as the collapse of Silicon Valley Bank rattled global markets.

While demand for jewelry remains low, traders noted the ongoing financial risks have, however, increased interest in gold bars and coins, while some people have been selling gold to take advantage of higher rates.

Local prices have risen 6% in ten days, and it has been prompting some investors to liquidate their stocks, one Mumbai-based dealer said, adding the scrap supplies have been rising.

Herman Chong, business development manager at Rotbart & Co, said they saw a spike in inquiries to move fiat money into physical precious metals investment which is outside of the banking system, due to the fear of systemic risk of the financial system.

"Most people are now moving their cash assets to bigger banks and at the same time utilize a portion of their cash assets into buying physical precious metals as a store of value."

Indian dealers were offering a discount of up to $27 an ounce over official domestic prices — inclusive of the 15% import and 3% sales levies, up from $2 last week.

Premiums in top consumer China slipped to the $20 to $26 range over global benchmark spot prices, compared with last week's $26 to $40 range.

Bullion changed hands at par to a $0.50 premium in Japan, while it traded at a premium between $1.50 and $2.50 in Singapore.

Prices in Hong Kong traded in the range of discount of 50 cents to a $2.50 premium.