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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Record Lows Instead Of Highs For Gold Prices In This Key Market

Very unexpected updates coming out of India this week. A nation I’ve been writing about a lot lately — in terms of rapidly-falling gold demand.

And it appears that India’s gold buyers are still staying away from the market. In fact, the situation in terms of physical demand is one of the most dire ever seen in the country.

Reuters reported Friday that discounts being offered by India’s gold sellers have soared to a record. With many dealers offering gold at up to $100 per ounce less than spot price by the end of last week.
That was a big jump from the previous week. When discounts to spot were running at an average $57 per ounce — still very high by historical standards.

The $100 discounts hit last week are in fact the highest ever seen across India. Showing that Indian gold buyers are avoiding purchases to an unprecedented degree right now.

That’s reportedly because of one factor: prices. With last week’s surge in gold to $1,365/oz taking global prices to levels not seen in nearly three years.

Sources in India’s gold sector said that, at such elevated prices, “no one wants to buy”. With sellers noting that consumers believe current prices are unsustainable, prompting them to wait for a correction before jumping into the market.

All of which shows that the current rally in gold prices continues to be driven by investment demand. With purchases by big buyers like exchange-traded funds and banks driving gold upward, even as physical demand in the world’s go-to consuming nations remains absent. Related: Strong Dollar And Demand Concerns Weigh On Oil Prices

That suggests a couple of things. First, a correction is possible if now-bullish investment sentiment cools off — although any notable decline in prices would likely see sideline buyers in India jump into the market, preventing a freefall.

The other question is: how long can India’s buyers hold off? Prices have now remained elevated for a few months, and if gold doesn’t correct buyers will at some point be forced to bite the bullet and pay more. A capitulation that could spur another leg up for bullion.

Watch for continuing news on gold buying and discounts across India. The next three to six months could be pivotal for this key market.

Here’s to the waiting game

By Dave Forest

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