Premium Disappears As Gold Futures Rise Above Spot Gold Prices

Record High Gold Prices on Rupee Bashing Triggers Physical Selling in India surprised many who read with disbelief. Also an earlier article - Could this be the Peak for Gold Prices in India and Bottom for the Rupee?

Here is an article from the Business Standard that now confirms the same. Gold at a discount to discourage customers

From Business Standard-

The falling rupee has rapidly changed sentiment in the gold market from a massive premium a few weeks earlier to a healthy discount now.

Gold was trading at a Rs 800-900 for 10g premium a few weeks before, due to the shortage of supply from the import control measures of the Reserve Bank of India. With the rupee hitting a record low of 68.80 against the dollar, the price of gold set a new high record of Rs 33,265 per 10g on Wednesday. This resulted in buyers turning sellers. Now, spot gold is being quoted at a discount of Rs 300 per 10g of import cost and Rs 1,000 per 10g of the price for near- month delivery on the Multi Commodity Exchange (MCX). “Everybody has become a seller; there is no buyer. The price rise of five per cent in just one session has persuaded investors to offload gold without any interested buyers,” said Bhargav Vaidya, an analyst with B N Vaidya & Associates.

While gold moved up marginally in global markets to touch $1,425 an ounce, high fluctuations in the value of the rupee has made the price highly volatile. Jewellers fear fresh purchases might mean a huge loss in case the rupee appreciates or the gold price falls in the global market, with its immediate repercussion in the home market.

“We are committed to take our own ornaments back from customers and pay them cash after deducting the making charges. But we have kept coins and bars’ purchase on hold, albeit temporarily,” said Samir Sagar, director, Manubhai Jewellers. “Gold above jewellers’ average daily requirement has to be sold in the open market. Today, no one is interested in its purchase. They are asking customers to hold on for a day or two. We have seen very high rise and fall in gold prices in the past. But volatility of today’s kind was never seen. Hence, it is better to avoid purchase at this level.”

To discourage customers from offloading their gold holdings, Tribhovandas Bhimji Zaveri (TBZ) is deducting three per cent from the value of the bullion in cash buys. “Instead of paying cash, we prefer to sell ornaments to customers who wish to offload Gold coins and bars to us. For those who insist on cash, we pay with a three per cent deduction from the prevailing price,” said a sales executive at TBZ.

Umedmal Tilokchand Zaveri, a jewellery retailer at Zaveri Bazaar, purchases gold coins and bars at a discount of Rs 300 at current prices and only at company’s discretion. Kumar Jain, owner of UTZ and spokesperson of Bombay Bullion Association, said customers seek a selling price in the spot market commensurate with prices on the MCX. “Since, gold futures prices are higher than spot gold prices, it impossible to pay that to customers,” a jeweller said.