The demand for physical gold in India has noticeably softened this week as fluctuating prices, driven by escalating conflicts in the Middle East, have made buyers hesitant to invest. The ongoing geopolitical tensions have disrupted supply chains, particularly air freight routes, leading to a reduction in gold imports and causing a tightening of discounts available to Indian consumers. This combination of factors has made gold purchases increasingly unaffordable for many retail buyers in the country.
Varghese Alukka, managing director of the well-known jewellery chain Jos Alukkas based in Thrissur, Kerala, highlighted the challenges faced by Indian consumers. He explained that the steep rise in gold prices has put considerable strain on buyers, many of whom are now reluctant to commit to purchases amid such volatility. Domestic gold prices hovered around 160,000 Indian rupees (approximately $1,745.96) per 10 grams on Friday, after peaking at nearly 170,000 rupees earlier in the week. This surge has made gold less accessible, especially for the average household.
Meanwhile, bullion dealers in India have been offering discounts of up to $28 per ounce against official domestic gold prices, which include import duties of 6% and sales taxes of 3%. This is a significant narrowing compared to the previous week’s discounts that reached as high as $65 per ounce, marking the smallest discount in nearly ten months. The sharp reduction in discounts is largely attributed to the near halt of gold imports from the United Arab Emirates, a key supplier to India, due to widespread flight cancellations and airspace restrictions triggered by the Middle East conflict.
Adding to the subdued demand, the traditional wedding season in India, which typically drives substantial gold purchases, has seen a slowdown. Weddings are culturally significant occasions where gold jewellery plays a vital role, both as part of the bride’s attire and as a customary gift from family and guests. However, with prices remaining unstable and high, many potential buyers are postponing their purchases, waiting for a more favorable market environment.
In contrast, the Chinese market has maintained robust physical gold demand despite the elevated spot prices. Gold in China traded at premiums ranging from $13 to $15 per ounce over global benchmark prices this week, slightly higher than the previous week’s $12 to $13 premiums. Peter Fung, head of dealing at Wing Fung Precious Metals, noted that these steady premiums indicate sustained investor interest in physical gold, even with prices surpassing $5,000 per ounce. Chinese buyers appear to be focusing on gold as a long-term investment, undeterred by recent price hikes.
Globally, gold prices surged more than 8% in February, marking a seventh consecutive month of gains amid increasing political and economic uncertainties worldwide. However, this week saw some volatility, with prices declining roughly 3% due to diminishing expectations of interest rate cuts and inflation concerns fueled by rising energy costs. By Friday, spot gold was trading around $5,135 per ounce.
Regional variations in gold premiums were also observed across Asia. In Hong Kong, physical gold traded at or near par to premiums of $2 per ounce, while in Japan, premiums ranged from par to $1. Singapore saw premiums around $2.25, a decline from the $3.50 to $4.80 range recorded the previous week. These fluctuations reflect differing local market dynamics and investor sentiment across the region.
