Manila/Mumbai, January 21

Physical gold demand in Asia slowed this week as prices rose, curbing seasonal buying in China ahead of the Lunar New Year holiday and moving Indian offers to a discount. Spot gold touched a one-and-a-half-week high of $1,109.20 an ounce on Wednesday as tumbling equities and oil prices burnished bullion’s safe-haven draw.

“There’s a bit of speculative demand. Some Chinese people are buying with stock markets collapsing, but not huge,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers Ltd in Hong Kong.

Gold in Hong Kong sold at a premium of $1.20 to $1.50 an ounce over global spot benchmark this week, unchanged from last week, said Leung.

In China, the world’s top gold consumer, Shanghai Gold Exchange prices were at a premium of between $3.50 and $5 an ounce to spot prices from $2 to $3 last week, according to Reuters calculations.

Traders expect a surge in Chinese buying next week as Lunar New Year approaches, usually a brisk period for gold demand.

But buying ahead of Chinese New Year is unlikely to be aggressive amid a slowing economy, said William Wong, assistant head of dealing at Wing Fung Precious Metals in Hong Kong.

China’s economy, the world’s second-biggest, grew 6.9 per cent in 2015, the slowest in 25 years. Japanese investment bank Nomura expects growth to slow to 5.8 per cent this year.

In India, world’s second-largest gold user, domestic prices have risen to highest in nearly three months, slashing demand and sending physical prices to a discount to global benchmark.

“Demand is very poor at every level in the supply chain due to the sudden rise in prices,” said Harshad Ajmera, proprietor of JJ Gold House, in Kolkata.

Indian dealers were offering a discount of between $1.25 to $2 an ounce to the global price after charging a premium of up to $1 last week. India’s gold prices have risen six per cent this year, peaking at INR 26,658 ($392) per 10 grams on Wednesday, the highest since October 29.

“Consumers have seen gold trading below INR 25,000 just three weeks back. Now they are struggling to adjust with prices above INR 26,000,” said a Mumbai-based dealer.

Earnings for Indian farmers have declined as they contend with first back-to-back drought in nearly three decades. This has crimped demand in rural areas that account for about two-thirds of India’s consumption.