EDITOR'S NOTE: Amid the geopolitically-induced surge in gold, where global investors are clamoring for more of the yellow metal, why is that local gold in India is trading at a discount? India is one of the world’s largest gold consumers. In addition to purchasing gold as a monetary safe haven, gold jewelry also plays an important cultural role in seasonal celebrations. So, what’s with the heavy selling trend in the yellow metal? And what are Indian consumers anticipating in the months ahead leading to the next set of celebrations, when gold buying ramps up once again on a seasonal pace?
Gold sold in India is trading at a discount in local markets. Sometimes in physical sales of the precious metal the demand factor has a big difference in the price. After the pandemic, the sales rates rocketed in India as weddings and national holidays began to kick in. After the initial boom period, it seems to have leveled off now and Prithviraj Kothari, MD & CEO of RiddiSiddhi Bullion said "The discount is currently $55-60 to the bank rate,".
He added that "It shows demand has slowed drastically, given the sudden surge in price. There are more sellers than buyers at these rates, leading to the discount widening.". The recent geopolitical induced surge in prices looks to have scared off the consumers and the real test will be the next big major Indian celebration of Independence day on 15th August and then the October holiday season after the summer.
Normally, the local gold rate trades at a premium of $1-2 an oz to the bank rate. The Reserve Bank of India permits select banks and star export houses, besides canalizing agencies like MMTC and HHEC, to import gold. Generally, when gold jumps suddenly, investors and those in need of liquidity sell their old gold in the market at a discount to the prevailing rate. Today the yellow metal is trading just under the $2000/oz level but is very susceptible to geopolitical shock as the Russia/Ukraine situation worsens.
Originally published by Rajan Dhall for Kitco News.