India Gold Market: Retail Demand Moderates as High Prices and Season End Impact Sales

Gold demand was subdued in India as buyers stayed on the sidelines due to volatile overseas prices, while premiums in China eased slightly.

Domestic gold prices were trading around 158,400 rupees per 10 grams on Friday.

Dealers quoted discounts of up to $87 an ounce over official domestic prices this week, inclusive of 15% import and 3% sales levies, down from last week's discounts of up to $106 an ounce.

"The wedding season is drawing to a close. Retail demand continues to moderate, and jewellery stores are reporting lower footfall across the country," said a Mumbai-based bullion dealer with a private bank.

Weddings are a major driver of gold purchases in India, with bullion in the form of jewellery forming a crucial part of a bride's attire and a popular gift from family and guests.

"The market is trading at a deep discount, as demand has remained subdued over the past few weeks. Older gold stocks are getting sold in cash at a deeper discount," said Nitin Suryavanshi, marketing head at Ashta Siddhi Bullion & Jewellers.

The South Asian country last month raised import tariffs on gold and silver to 15% from 6% as part of efforts to reduce overseas purchases of the metals and ease pressure on foreign exchange reserves from higher oil prices.

India's physically backed gold exchange-traded funds (ETFs) recorded their first net monthly outflow in a year in May, as investors booked profits following a sharp rise in prices triggered by higher import duties. In top consumer China, bullion traded at premiums <XAU-CN-PREM> of $7 to $10 an ounce over the global benchmark price, compared to premiums of $9 to $12 last week.

"Physical demand in China has been somewhat subdued recently, partly as a result of anxiety over potential interest rate hikes and the impact of rising bond yields. These factors seem to be weighing on investor appetite for gold," said Bernard Sin, regional director of Greater China at MKS PAMP.

"However, there is a sense of optimism that some resolution to the conflict could ease inflationary concerns and potentially reduce expectations for prolonged higher rates, which might help stabilize demand going forward."

In Hong Kong, gold <XAU-HK-PREM> traded at par to premiums of $2, while in Japan, gold was sold at a discount of $0.25. In Singapore <XAU-SG-PREM>, gold was sold at a discount of $0.50 to a premium of $3. 

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