Singapore: Jewellers in India entered the physical market on Wednesday despite gold’s rally to an 18-month high, reflecting expectations of further rises in prices ahead of a major Hindu festival, dealers said.
Purchases by India, the world’s largest gold consumer, helped offset selling by holders in Indonesia and Thailand and kept premiums for gold bars steady at 50 to 70 US cents an ounce to the spot London prices in Singapore.
Gold hit a high of $1,017.75 an ounce, its strongest since March 2008, after the US dollar dropped to 2009 lows against the euro. Bullion has gained around 16% this year as investors sought a safe heaven due to the dollar’s weakness.
“It seems the jewellery sector is covering some (stocks). Recently, we’ve seen order from customers from jewellery sector,” said Dick Poon, manager of precious metals at Heraeus in Hong Kong.
India’s gold demand normally rises between August and October, when consumers buy bullion for auspicious reasons to celebrate festivals which peak with the Diwali festival of lights next month. A strong rupee also helped local consumers cope with rising gold prices.
“Demand has been good this morning. It slowed down a bit after gold rallied,” said a dealer at a private bank in Mumbai. “I think gradual increase in the prices will not impact demand but any sudden jumps in the prices will.”
Weddings usually take place during the festive season, when parents give gold jewellery to their daughters for financial security. India accounted for more than 20% of global demand for gold jewellery in 2008.
“India is still buying despite the high prices. Maybe they are afraid that prices will go up again,” said a dealer in Singapore. “But people are complaining sales to Indonesia have been slow,” he said.
Dealers have expected demand from Indonesia, the world’s most populous Muslim nation, to pick up during the Ramadan fasting month which culminates with the Eid al-Fitr festival later this month.
Instead, the physical market saw steady sales of scraps from Indonesia, which suggested that local dealers still had excess stocks because of poor demand earlier this year.
“If gold price continue at this level through the end of September, we will probably see more scraps coming in,” said another dealer in Singapore. Gold prices are likely to correct after their current run above $1,000 an ounce, but may rebound to as high as $1,100 within the next six months if inflation fears grow, metals consultancy GFMS said on Monday.
In Hong Kong, gold bars were on par with the London spot prices, unchanged from last week, although there were also offers at 10 to 20 cents premiums, dealers said.