LAUNCESTON, Australia, Nov 28 (Reuters) – The spot price of gold has climbed to a six-month high, buoyed by hopes that monetary tightening in Western countries is largely over.
While signs that the US Federal Reserve and other western central banks have finished raising interest rates is a definite positive for the precious metal, it’s not the only factor.
China and India account for more than 50% of the physical gold market, giving the two Asian heavyweights a major influence on the likely path of prices.
In local currency terms, gold is close to record highs in both China and India, and there are signs that this is starting to impact retail demand in both countries.
Spot gold hit a six-month high of $2,017.82 an ounce on Monday and is up 11.5% from its recent low of $1,809.50 on the 6th.
In Indian rupee terms, gold reached Rs 168,145 an ounce on Monday, close to its all-time high of Rs 169,401 set on the 4th. It has gained 11.8% from its recent low of Rs 150,401 on the 6th.
While Indian gold demand has been solid so far in 2023, in line with the strength of the domestic economy, there appears to be some momentum coming out of the market.
Dealer discounts off official domestic prices, including 15% import duty and 3% sales tax, doubled to $6 an ounce last week amid reports of weak demand ahead of the upcoming wedding season.
It’s a similar story in China, where the premium over spot prices fell to $20-$40 an ounce last week from $43-$58 previously.
Another proxy for China’s demand is its imports from Hong Kong, which fell for the second consecutive month in October.
China’s net imports from Hong Kong fell 23% to 26,793 tonnes in October from 34,757 tonnes in September, data from the Hong Kong Census and Statistics Department showed.
Higher prices and continued economic uncertainty in the world’s largest gold consumer are the most likely reasons for the subdued import demand.
Spot gold in the Chinese currency reached 14,433 yuan an ounce on Monday, close to the record high of 14,701 yuan set on 27th October. The price is now 15.7% higher than the 2023 low of 12,479 yuan reached in mid-February.
The high price of gold for Chinese consumers could further dampen demand in the fourth quarter, after the World Gold Council reported a decline in the third quarter.
China’s jewellery demand was 153.7 tonnes in the third quarter, down 6% from 163.2 tonnes in the same quarter last year, the council said in its latest Gold Demand Trends report.
The Council says this was actually quite a strong performance, pointing out that the third quarter was a record high in yuan terms.
However, the big question is whether China’s consumers are prepared to keep buying gold at high prices, and lower imports from Hong Kong and falling premiums suggest a growing reluctance.
The same is true for India, which also saw reasonable jewellery demand in the third quarter, with the Council reporting a 7% increase to 155.7 tonnes from 146.2 tonnes in the same period last year.
It’s worth noting, however, that the third-quarter increase came amid a slump in domestic prices, which were in a downtrend from May to early October.
The recent price rally is likely to reduce demand growth in India in the current quarter.
Overall, gold tends to rally on a sustained basis when the three main drivers of demand work in tandem.
These are investment buying, typified by rising holdings in gold exchange-traded funds (ETFs), central bank buying and, finally, jewellery and bar and coin buying.
Flows into ETFs have been rising in recent weeks, although they are still well off their 2023 highs.
Central bank buying was robust in the third quarter, with the Council reporting 337 tonnes, the second strongest third quarter on record.
However, these positive factors are countered by signs that high prices are undermining demand growth in the key markets of China and India.
That doesn’t mean gold can’t go higher, but it may not be as safe a bet as the likely end of monetary tightening in Western economies would suggest.
