Temporary Dip in Asia Gold Prices Ignites Purchase Spree in Major Markets, China Premiums Remain Stable

Domestic gold prices in China temporarily dipped this week, sending investors in major Asian hubs into a much-needed gold-buying spree. With central bank demand continuing to climb, China’s gold premiums remain stable.

Last month alone, China’s central bank purchased 15 tons of gold, sustaining the three-month trend of building its reserves to embrace the de-dollarization movement. The People’s Bank of China purchased 30 tons in November 2022, 32 tons in December, and now 15 in January, which “takes its total gold reserves to 2,025 tons,” Krishan Gopaul, an analyst from the World Gold Council, explains.

India’s local gold prices plummeted to 56,496 rupees per 10 grams after hitting an all-time high just last week of 58,826 rupees. The local price dip offers rebounding positive effects in the gold market.

While many of gold’s demand sectors continue rising, jewelry and retail industries have shown poor demand rates in recent months due to dwindling economic conditions. As the economy worsens and inflation spikes, consumers hesitate to spend their funds on extravagant purchases, like gold jewelry.

The silver lining with this temporary dip in gold prices is a sudden surge in the jewelry and retail demand sectors. Ashik Jain, the proprietor of Chenaji Narsinghji, a gold wholesaler in Mumbai, refers to this effect as a price correction rather than any means for concern.

We’re now seeing dealers offering discounts as high as $18 off each ounce according to the official domestic prices, including 3% sales and 15% important deductions. Last week, the average discounts reached a high point of $48 off each ounce, displaying how temporary these price decreases are. If investors need a sign to jump on low prices, this is it.

“After two months, there’s some momentum in the market,” a dealer from a Mumbai-based private bank explains. “Many buyers who postponed purchases hoping for a reduction in the import duty will start purchases if prices fall further.”

Bullion industry demands left many analysts expecting India to cut gold import duty prices during its annual budget presentation on February 1. Despite these demands, India increased the import taxes on silver to meet gold’s increased level from July 2022. “I also propose to increase the import duty on silver dore, bars, and articles to align them with that on gold and platinum,” Nirmala Sitharaman, India’s Finance Minister, explains.

China’s top consumer dealers raised gold premiums to $12 to $15 per ounce over the benchmarked global spot prices. Last week, the averages were $10 to $12 over.

“Demand from retail is starting to slow. However, China will continue adding gold into the basket of reserves, perhaps to defend the RMB,” Bernard Sin, the regional director for the Greater China division of MKS PAMP, explains.

The renminbi (RMB), also called the yuan, is China’s official currency and the fifth-most traded currency in the world. Once Chinese yuan currently equates to $0.15.

To increase the yuan’s strength, China started urging Middle Eastern countries to use the currency during oil exchanges in 2022. As the world’s largest oil supplier, this movement may quickly increase the yuan’s strength.

Further attempts to decrease dependency on U.S. currency involve stocking up on gold. “Emerging markets central banks, on average, have something like two-thirds of their reserves in dollar-denominated assets and less than 5% in gold. And they want to change that ratio. They want fewer dollars, and they want more gold,” George Milling-Stanley, the vice president of State Street Global Advisors, explains.

Most expect the People’s Bank of China to continue stocking its gold reserves throughout 2023 to strengthen global credibility, boost the yuan’s strength, and decrease the U.S. dollar’s global power. At the end of December, the nation’s gold reserves were valued at $117.24 billion. At the end of January, the value reached $125.28 billion.

China isn’t the only nation stocking up on gold. In 2022, central banks across the globe purchased a total of 1,136 tons of precious metals, breaking all year-end records since 1967.

Rates for bullion in Hong Kong currently meet the benchmark at $2 premiums. Premiums refer to the amount dealers charge over the price per ounce. Singapore premiums show similar rates of around $1 to $2 over spot prices.

Peter Fung, the head of dealing at Wing Fung Precious Metals, explains that the slight dip in gold prices should create more buying interest. Most analysts expect substantial price surges for the remainder of 2023, so now may be the perfect entry point for many investors.

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