Gold Market Subdued Ahead of India’s Holiday Season

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India is almost on the cusp of this year’s festival and wedding season, but the domestic bullion market remains subdued, contrary to historical norms.

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The reason? Gold prices in India have rallied 20% this year based on several internal and external factors, Livemint reported.

Over the past week, spot prices touched a high of U.S. $558.45 (Rs 40,000) per 10 grams. The futures market showed a similar trend, though prices later dropped. Gold futures had hit a record high of U.S. $543.44 per 10 grams (Rs 38,666).

The Livemint report said the spread between MCX and international prices narrowed on Tuesday from near $51/ounce to about $42/ounce, sparking some buying interest in the physical market. But even then, the higher domestic price and higher taxes continued to dampen demand.

Bullion experts forward many reasons for the highest-ever spurt in gold prices, including: a hike in import duty, the weaker rupee versus the U.S. dollar, the ongoing U.S.-China trade war, the U.K.’s impending Brexit and buying by global central banks.

India’s gold imports this July fell by 55% from a year ago, down to a three-year low, Yahoo Finance reported.

The gold scene in most of Asia is equally depressing.

News agency Reuters reported steep prices prompted Asian consumers to sell back physical gold for profit this week.

Some amount of buying, even at the current price range, did happen because of gold’s appeal as an instrument to hedge against risk.

In China, the biggest gold consumer in the world, premiums eased slightly to $6-$9 per ounce over the benchmark, down from $9-$10 last week.

The Reuters report quoted Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong, as saying interest was mostly from the investment side.

In India, dealer discounts of up to U.S. $33 an ounce over official domestic price saw some amount of buying activity. Most dealers, however, were not in the mood to place new orders, preferring to wait and let the situation unfold, according to the Economic Times.

Almost everyone is waiting for a price correction, which is a far cry from the positive situation at the start of 2019.

Demand grew 9% from January-June this year, sparking hopes that consumption towards the latter half of the year would go up.

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But experts are of the opinion that if things do not improve soon, consumption could slump to a low of over 650 tons (comparable to the 2016 low).

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