Gold discount in local market to bank rate rises to $55/oz
MUMBAI: Demand for new gold jewellery purchases has taken a hit as reflected in the discount between the local rate and the bank rate (international price) widening to as much as $55 an ounce (31.10 gms) from around $14-15/oz by February end, industry sources told TNIE.
“The discount is currently $55-60 to the bank rate,” said Prithviraj Kothari, MD & CEO of RiddiSiddhi Bullion. “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.”
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 canalising 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. Fresh buying takes a pause in events resulting in a steep and sudden surge.
Gold of 99.5% purity rose 7% through Rs 53,380 per 10 gm (ex GST) as of noon March 9 from February 23, a day before Russia invaded Ukraine, according to data from India Bullion & Jewellers Association (IBJA), whose rates are used to price sovereign gold bonds (SGBs). “Such a steep rise in so short a period has obviously resulted in jewellery buyers pressing the pause button, for now,” said Surendra Mehta, national secretary of IBJA.
Kumar Jain of UT Zaveri in Mumbai’s famous Zaveri Bazaar gold market said customers were using recycled gold to meet marriage demand, given the recent jump in prices. This means physical buyers melt the old gold they possess in the form of jewellery or bars and exchange the same for new jewellery for marriage demand as prices have jumped beyond their comfort level. Gold of 99.5% purity hit a record high of Rs 56,029 per 10 gm on August 7, 2020. India is the world’s second-largest gold consumer, after Greater China.