Discounts for gold against official domestic prices in India widened to three-month highs this week, even as an escalation in the trade dispute between China and the United States triggered safe haven buying in China, the world's biggest consumer.
Dealers in India were offering a discount of up to $5 an ounce, the highest since mid-June, as higher prices curtailed demand. Last week the discount was $2. The domestic price includes a 10 percent import tax.
"Demand is weak for the last few days. Buyers are waiting for prices to come down near 30,000 rupees," said Ashok Jain, proprietor of Mumbai-based wholesaler Chenaji Narsinghji.
Gold futures in India were trading around 30,738 rupees per 10 grams on Friday, up more than 5 percent from their lowest level in seven months hit on Aug. 17.
"The rupee is very volatile and is confusing jewellers about the price trend. They are expecting a correction in local prices with appreciation of the rupee," said a Mumbai-based dealer with a private bank.
The Indian rupee fell to a record low against the dollar this week.
Meanwhile, premiums in China hovered between $4 and $6.50 this week, up from $3-$6 previously, traders said.
"In China, the situation is a little better. There was some safe haven buying below $1,200 an ounce because of the trade war," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
Earlier this week, China and the United States imposed fresh tariffs in tit-for-tat measures. However, the tariffs were set at lower rates than expected, raising hopes that hostilities between the world's two largest economies may be easing.
The mid-autumn festival next week and the National Day Golden Week in early October are likely to slow activity in China over the next couple of weeks, traders said.
Meanwhile, premiums in Hong Kong and Singapore were unchanged from last week at 70 cents-$1.30 and 80 cents-$1.20 respectively as higher prices kept buyers on the sidelines.
"When gold traded below $1,200 per ounce earlier this week, we saw a large volume of bullion sales... Interestingly, as spot prices rose, we saw an increased number of customers coming into our store to sell to us," said Ronan Manly, precious metals analyst at Singapore-based dealer BullionStar.
"As seen early this week, any dip below the $1,200 level could bring out value conscious buyers who have demonstrated a resilience to buy at these levels."
Benchmark spot gold has risen about 1 percent thus far this week.
In Japan, prices were on par with the global benchmark, compared with a 30 cent premium last week due to higher domestic rates and reduced industrial demand, a Tokyo-based trader said.
