Physical gold demand in Asia slowed this week as prices rose, curbing seasonal buying in China ahead of the Lunar New Year holiday and moving Indian offers to a discount.
Spot gold touched a 1-1/2-week high of $1,109.20 an ounce on Wednesday as tumbling equities and oil prices burnished bullionâ€™s safe-haven draw.
â€śThereâ€™s a bit of speculative demand. Some Chinese people are buying with stock markets collapsing, but not huge,â€ť said Ronald Leung, chief dealer at Lee Cheong Gold Dealers Ltd in Hong Kong.
Gold in Hong Kong sold at a premium of $1.20 to $1.50 an ounce over the global spot benchmark this week, unchanged from last week, said Leung.
In China, the worldâ€™s top gold consumer, Shanghai Gold Exchange prices were at a premium of between $3.50 and $5 an ounce to spot prices from $2 to $3 last week, according to Reuters calculations.
Traders expect a surge in Chinese buying next week as the Lunar New Year approaches, usually a brisk period for gold demand.
But buying ahead of the Chinese New Year is unlikely to be aggressive amid a slowing economy, said William Wong, assistant head of dealing at Wing Fung Precious Metals in Hong Kong,
Chinaâ€™s economy, the worldâ€™s second-biggest, grew 6.9 percent in 2015, the slowest in 25 years. Japanese investment bank Nomura expects growth to slow to 5.8 percent this year.
In India, the worldâ€™s second-largest gold user, domestic prices have risen to the highest in nearly three months, slashing demand and sending physical prices to a discount to the global benchmark.
â€śDemand is very poor at every level in the supply chain due to the sudden rise in prices,â€ť said Harshad Ajmera, proprietor of JJ Gold House, a wholesaler in Kolkata.
Indian dealers were offering a discount of between $1.25 to $2 an ounce to the global price after charging a premium of up to $1 last week.
Indiaâ€™s gold prices have risen 6 percent this year, peaking at 26,658 rupees ($392) per 10 grams on Wednesday, the highest since Oct. 29.
â€śConsumers have seen gold trading below 25,000 rupees just three weeks back. Now they are struggling to adjust with prices above 26,000 rupees,â€ť said a Mumbai-based dealer with a private bank.
Earnings for Indian farmers have declined as they contend with the first back-to-back drought in nearly three decades. This has crimped gold demand in the rural areas that account for about two-thirds of Indiaâ€™s total consumption.