Asia gold demand sluggish as high prices deter buyers

MUMBAI/BENGALURU (Reuters) - The buying of physical gold remained muted across major Asian centres this week as higher prices dented demand, though seasonal demand could boost activity in top consumer China next month.

FILE PHOTO: A salesman arranges gold ornaments, on a display board, inside a jewellery showroom during Akshaya Tritiya, a major gold buying festival, in Kochi, India April 28, 2017. REUTERS/Sivaram V/File Photo

In China, gold was sold at a premium of $5-$9 an ounce over the global benchmark, down from the $7-$10 last week.

“Stable prices at higher levels have kept gold buying subdued,” said Dick Poon, general manager at Heraeus Metals Hong Kong Limited.

Though demand in China is fairly tepid at present, it could see an uptick in the first half of December, Poon added.

Orders from wholesalers usually start to pick up from December as traders build inventory ahead of the Chinese New Year, a major gift-giving period in China, said Cameron Alexander, an analyst with Thomson Reuters-owned metals consultancy GFMS.

Benchmark spot gold has traded in a range of $1294.73 to $1,274.86 an ounce this week, having gained more than 1 percent this month.

Spot prices have moved in a tight range over the past few days, with investors preferring to delay any aggressive decisions ahead of an expected interest rate increase by the U.S. Federal Reserve next month.

Higher interest rates tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

Demand also remained weak in India, with jewellers in the second-largest gold consumer postponing purchases.

“Jewellers are waiting for the Fed decision. They think a rate hike could lead to a correction in prices,” said Ashok Jain, proprietor of Mumbai-based wholesaler Chenaji Narsinghji.

“Retail buying for the wedding season is lower. Many buyers are replacing old jewellery for new.”

Gold is considered an essential part of weddings in India and is a popular gift for special occasions.

Dealers in India were offering a discount of up to $2 an ounce this week, unchanged from last week. The domestic price includes a 10 percent import tax.

“Banks are cutting down imports since last week as gold is trading at a discount. Demand is likely to remain weak at least for the next two weeks,” said one Mumbai-based dealer with a private bank.

Premiums in Hong Kong, meanwhile, were at $1 an ounce, compared with last week’s $1-$1.20, and were nearly unchanged at 50-70 cents in Singapore, traders said.

In Japan, gold continued to be sold at par with the global spot price, but demand turned upwards slightly as the dollar’s weakening against the yen made gold cheaper for local buyers, a Tokyo-based trader said.

Additional reporting by Arpan Varghese in Bengaluru; Editing by David Goodman