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How the Fall in Gold Pushed Asian Buyers

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Asian demand soared

The fall in precious metal prices has likely spurred demand for the time being, but whether that could continue in the long run remains a question. The premium in China rose to $10 per ounce against the international benchmark from $5 per ounce last week.

Analysts predicted that this increase in demand by the world’s largest gold consumer could be driven by the panic following the recent depreciation of the yuan. In Hong Kong, sellers were offering a premium of up to $1.00 per ounce compared with $0.50–$0.70 in the previous week. In Singapore, the premium was unchanged at $0.80.

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India’s retail demand

India’s retail demand for gold was subdued due to a cash crunch following the government’s demonetization move. However, dealers are charging a premium of up to $12 per ounce over official domestic prices, which include a 10% import tax. Acceptance of the banned 500 rupee and 1,000 rupee notes is also a reason behind the larger premiums. This premium is the highest since mid-November 2014.

Many gold dealers have complained about their stalled businesses due to the country’s demonetization move. Two-thirds of the gold demand in India comes from rural areas, where jewelry is a traditional way to store wealth.

Gold and silver have fallen about 4.5% and 4.2%, respectively, during the past 30 trading days. During the same timeframe, platinum and palladium have risen 1.7% and 20.2%, respectively. Among the mining funds, the Sprott Gold Miners ETF (SGDM) and the iShares MSCI Global Gold Mining ETF (RING) fell 11.8% and 15%, respectively, on a 30-day trailing basis.

The mining shares that also fell include Agnico-Eagle Gold Mines (AEM), Silver Wheaton (SLW), Barrick Gold (ABX), and GoldCorp (GG).

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