Gold was sold at a discount to official prices in India for the first time in one-and-a-half months this week ahead of a new national sales tax regime that takes effect on July 1, while higher prices kept buyers on the sidelines elsewhere in Asia.
Spot gold hit a five-week high of $1,273.74 earlier this week, boosted by demand for safe-haven assets due to political tensions in the United States and Europe.
“The ongoing Ramadan festival could spur some buying, but demand is likely to remain slow afterwards,” said a Singapore-based bank dealer.
Demand remained tepid in India, the world’s second largest consumer, with dealers offering a discount of up to $1 an ounce to official domestic prices. Last week, they charged a premium of $1 an ounce. The domestic price includes a 10 per cent import tax.
“Jewellers have trimmed purchases despite offering discounts. They have ample inventories, but retail demand is faltering,” said Daman Prakash Rathod, a director at MNC Bullion, a wholesaler based in the southern city of Chennai.
Anticipating a higher tax rate, many jewellers advanced buying in the last few months and it could mean the country’s gold imports could plunge during the traditional period of peak demand in the second half of the year.
“Many jewellers advanced purchases expecting a higher GST rate. Now, they don’t need to buy,” said a Mumbai-based dealer with a private bank.