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Weak Asian gold demand ‘to test historic lows’ but not impact price rally

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(Kitco News) Gold imports into China and India continue to surprise on the downside but weak demand is not likely to impact the overall price rally, said Capital Economics. 

“Imports of gold into China and India continued to contract at a double-digit pace in March. But the plunge in physical demand has had little impact on the gold price, as it has been outweighed by strong investment demand due to the virus-related uncertainty. We suspect that this will remain the case until a lifting of virus containment measures enables the global economy to turn a corner later this year,” Capital Economics assistant commodities economist Kieran Clancy said on Monday. 

Demand for gold has tumbled in China and India as lockdowns and high local gold prices are preventing people from going out and purchasing the yellow metal.

In March, China’s gold imports fell by more than 80% on an annual basis in March, which led to a more than a 60% drop in the first quarter, according to the Chinese Customs Authority (GACC).

“By our calculations, China imported just 17.5 tonnes of gold in March, the lowest total since GACC records begin in January 2018. What’s more, the breakdown shows that the decline was broad-based across China’s trading partners,” Clancy wrote. 

India’s gold imports are looking “to test historic lows,” the economist added. “On an annual basis, gold imports fell by over two-thirds last month. That translates to just under 22 tonnes of gold, the lowest monthly reading since 2013,” he said. 

And while China could see a recovery as soon as this month, India is looking at a more prolonged slump in demand, Clancy pointed out, citing India’s lockdown. 

“The increase in withdrawals from the Shanghai Gold Exchange in March suggests that Chinese gold demand was already starting to recover … Meanwhile, India’s lockdown remains in place. In fact, a higher nominal gold price and a weaker rupee have sent the rupee gold price even higher, which will continue to weigh on Indian gold demand even if the lockdown there is lifted in May,” he noted. 

Lockdowns are making gold purchasing very difficult, even on Akshaya Tritiya — the second-most auspicious day in the Hindu calendar to buy the metal, which fell on April 26 this year, one Indian buyer told Bloomberg on Friday.

“This Sunday I am wondering how to buy gold,” Mamta Vinay Gokarn said. “Buying online is not an option for me as it is too risky to trust and I don’t know how the delivery will work out. From past experience, I have also seen that the cost of buying gold from bigger brands or banks are higher than what I would pay at a local store.”

But despite weak Asian demand, gold prices have been making gains in Q1 and Q2 with the slump in demand outweighed by North American and European investor interest, Clancy added.

“For at least the next few months, physical demand for gold is likely to remain moribund. However, we doubt that this alone will be enough to send the gold price lower. In our view, gold’s rally will only come to an end once signs emerge that the global spread of coronavirus is being contained,” he said. 

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