Gold buyers in India are stepping back from the market, pushing discounts to their widest in recent weeks as jewelers struggle to move inventory. In China, by contrast, premiums on physical gold have held steady, even as investment funds pulled money out of gold-backed exchange-traded funds (ETFs). The divergence highlights how different forces are shaping demand in the world's two largest gold-consuming nations.
India: Deep Discounts Signal Weak Demand
In India, dealers are offering discounts of as much as $45 an ounce to the official domestic price, according to Reuters. That is a sharp jump from about $19 an ounce the previous week. The official domestic price includes a 15% import duty and a 3% sales levy, so a bigger discount typically means sellers are cutting their margins to clear unsold stock.
Traders report that shoppers are waiting for lower prices before making purchases. Many jewelers are recycling old gold jewelry into new pieces rather than buying fresh metal from dealers, which reduces the need to restock. This pattern can slow overall demand and put further pressure on prices in the local market.
The discount widening comes at a time when the Indian rupee is under pressure, hovering near record lows against the U.S. dollar. A weaker rupee makes gold imports more expensive in local currency terms, which can dampen buying appetite. The Reserve Bank of India has also recently tightened rules on derivatives trading, which may be affecting speculative demand for gold-linked instruments. For more on that, see our coverage of RBI funding curbs on derivatives.
China: Premiums Hold Despite ETF Outflows
In China, the picture is different. Premiums on physical gold—the amount buyers pay above the international benchmark—have remained relatively steady. That suggests that demand for bars, coins, and jewelry is still supporting prices, even as gold ETFs in China have seen outflows. Investors pulling money from ETFs can indicate a shift in sentiment, but the steady premiums show that physical buyers are still active.
China's gold market has been supported by a mix of factors, including a weakening yuan and geopolitical tensions that boost safe-haven demand. The yuan has slipped recently as Middle East tensions increased demand for the U.S. dollar, making gold more attractive as a hedge for Chinese investors. For context, see our report on yuan weakness and dollar demand.
What It Means for Investors
The split between India and China matters for global gold prices because these two countries together account for a large share of physical gold consumption. When Indian demand softens, it can weigh on the market, while steady Chinese demand provides a floor.
For everyday investors, the widening discounts in India are a signal that retail buyers are price-sensitive and may be waiting for a better entry point. If discounts persist, it could indicate that global gold prices are too high for local buyers, potentially capping further upside. On the other hand, if Chinese premiums hold, it suggests that demand from that region remains resilient.
Investors should also watch the broader economic backdrop. High interest rates globally have made gold less attractive compared to yield-bearing assets, but central bank buying and geopolitical uncertainty have kept prices elevated. In India, the upcoming bond auction of 320 billion rupees will test market demand and could influence liquidity and investor sentiment. For more, see India's bond auction details.
Ultimately, the divergence in Asian gold demand is a reminder that gold prices are not driven by a single factor. Local taxes, currency moves, and consumer behavior all play a role. For investors, understanding these regional dynamics can help in assessing whether current gold prices are sustainable or due for a correction.
