Gold demand in key Asian hubs improves amid price correction

Physical gold demand in key Asian markets saw a modest uptick this week following a price pullback, with spot gold hitting a one-month low. While India experienced some buying interest and narrowed discounts, a weaker rupee partially offset price benefits, and the World Gold Council forecasts India's 2025 consumption to reach a five-year low due to sustained high prices. Conversely, China demonstrated increased physical trading volume on the Shanghai Gold Exchange, signaling 'buy the dip' interest, and Japan also noted robust demand for gold as an asset class amid low interest rates, indicating varied regional responses to gold price volatility and underlying asset appeal.

Analysis

Physical gold demand in key Asian markets is exhibiting a varied response to the recent price pullback, which saw spot gold hit a one-month low. In India, short-term buying interest has improved, reflected in a narrowing of dealer discounts from as high as $15 to $7 per ounce. However, this nascent demand is tempered by a weakening rupee that partially negates the lower USD-denominated gold price. More significantly, the World Gold Council has issued a bearish long-term outlook, forecasting India's 2025 consumption to hit a five-year low, citing prohibitively high local prices. In contrast, China is demonstrating a clearer 'buy the dip' sentiment, substantiated by a tangible increase in trading volume for the physical AU9999 contract on the Shanghai Gold Exchange, which recorded 11 tons traded in a single day. This renewed physical interest in China, along with steady demand in Japan where gold is sought as an asset class amid low interest rates, provides a supportive counterpoint to the structural weakness emerging in India.

Key Decisions for Investors

• Investors should monitor the divergence between physical demand signals in China and India, as strong Chinese buying may provide a near-term price floor while the negative long-term outlook for Indian consumption represents a significant headwind.
• The current price weakness offers a potential tactical entry point, but the conflicting regional demand data suggests caution is warranted; any position should account for the risk posed by the forecasted slump in Indian demand.
• Pay close attention to currency movements, particularly the Indian Rupee, as its depreciation is a key factor dampening demand in a major consuming nation and could continue to offset lower international gold prices.