As gold trades near its highest in a year on a wave of safe-haven buying, traditionally active buyers of physical gold in the major Asian markets have shown little interest so far.
Consumers in China and India tend to typically buy gold in jewellery form, swooping in to hunt bargains or if they are confident of a sustained rally.
A lack of interest from China and India – which together account for about 45% of world gold demand – could put a dent on the metal’s biggest rally in years, though panic buying of gold coins and bars led by Western consumers could cushion the impact.
“We had a client call up this morning and order a million dollars of gold,” said Bron Suchecki, the manager of analysis and strategy at Australia’s Perth Mint, adding that the client was an individual investor and that much of the interest is from Western clients.
“We have had a really big pick-up in the first couple of weeks of February,” he added.
“The question is whether the Western-fear money flow could outweigh the lack of love from India and China?”
Signs this week point to a pullback in demand in Asia immediately following the spike in prices, a bearish sign for Chinese demand when they are back in the market next week.
Dealers in India, the world’s second-biggest consumer, were offering a record discount of $40 an ounce to the global benchmark, with one Mumbai-based jeweller saying retail demand had “almost vanished.”
Prices in other major trading centres have also dropped. In Hong Kong, premiums fell to 80 cents to $1 an ounce, from 90 cents to $1.10 last week, against the global price. In Singapore, they have dropped to $1 from up to $1.20 last week.
“Our buyback amount from consumers is more than our sales amount,” said a source at one of Japan’s biggest bullion dealers. Tokyo gold prices were also at a discount.
Consumers who bought gold over the last few years had their fingers burnt as prices fell by a third between 2013 and 2015. Gold had enjoyed a 12-year bull rally before that.
The metal is up 16% this year as mounting concerns over the global economy have hit stock markets.
The Western interest in gold bars and coins backs up a belief that the rally is spurred by safe-haven buying.
The US Mint has sold 40,000 ounces of American Eagle gold coins so far this month, already much higher than the 18,500 ounces sold in all of February 2015. Sales of gold coins surged in Europe last month on safehaven demand.
Gold-backed exchange traded funds have seen inflows as well.
But the real test for gold will be when top consumer China returns on Monday after a week-long Lunar New Year holiday.
Gold prices are currently about $70 an ounce higher from last Friday, when the Chinese markets were last open.
Chinese prices were already at a small discount of 20 cents an ounce last week, and some fear that could widen once they are back as traders and consumers take profits from the rally.
“We could end up seeing some selling from China,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers Ltd in Hong Kong. “Right now it is the investment demand that is pushing up gold. Physical buyers are hesitant to buy.”