The global surge in gold prices to record highs has sparked contrasting effects on the world’s two largest gold consumers, India and China. While India’s wedding season faces a potential dampening of demand due to soaring prices, China is anticipated to witness robust safe-haven buying throughout the year.
On Thursday, benchmark spot prices for gold hit an all-time high of $2,164.09, primarily driven by expectations of U.S. monetary easing. This surge has led to record domestic prices in India, with gold reaching 65,587 rupees per 10 grams. Consequently, Indian consumers have shown reluctance in purchasing gold, resulting in dealers offering discounts of about $14 per ounce over official prices.
Prithviraj Kothari, President of the India Bullion and Jewellers Association Ltd., expressed concern over the impact of these high prices on demand during India’s ongoing wedding season, a period traditionally marked by significant gold purchases. With prices at unprecedented levels, Kothari predicts negligible imports in March.
Meanwhile, in China, where dealers have reduced premiums to $25-$36 over benchmark prices, overall demand remains resilient. Despite some selling in response to the price spike, traders anticipate a rebound in demand driven by safe-haven considerations. Peter Fung, Head of Dealing at Wing Fung Precious Metals in Hong Kong, believes that while the initial price shock may prompt selling, demand will likely pick up as consumers acclimate to the new price levels.
In India, consumers are increasingly turning to scrap supplies, exchanging old jewelry for new purchases, according to Ashok Jain, proprietor of Mumbai-based gold wholesaler Chenaji Narsinghji.
Ross Norman, an independent analyst based in London, highlighted a potential shift in mindset among Asian buyers, suggesting that as gold prices rise, it validates the rationale behind purchasing gold as a hedge against economic uncertainties.
Analysts also anticipate that the surge in gold prices could attract new investor interest in regions like Germany, a key retail hub for gold coins and bars. Alexander Zumpfe, Senior Precious Metals Trader at Heraeus, believes that a sustained rally in gold prices could revive buying activity in Germany.
As gold prices continue to soar globally, the divergent impacts on key markets underscore the complex dynamics influencing gold demand and investment behavior across different regions. While India’s wedding season faces a subdued outlook, China’s resilience and potential investor interest in other regions may shape the trajectory of the gold market in the coming months.