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Indian gold dealers offered the biggest discounts in 9 months as the severe second wave of Covid-19 stifled demand. Physical gold demand in India, the world’s second-biggest bullion consumer, has been negligible for the last two months as most jewellery stores have been shut due to lockdowns, forcing dealers to offer steep discounts. While local jewellers are offering discounts of about $4 an ounce, bullion dealers are now extending discounts of up to $12 an ounce.

Anuj Gupta, vice-president (VP), commodity and currency research at IIFL Securities spoke to Money9 and said, “Gold dealers are giving discounts of $11-12 an ounce. This is the highest discount since September 2020. The discounts have further risen from $10 an ounce which were seen in the first fortnight of June.”

This is despite the fact that gold prices have remained weak throughout the month and are now at a two-month low. In Indian markets, gold is down about Rs 2,300 so far this month.

The yellow metal continued to remain below Rs 47,000-mark on June 29. On the Multi-Commodity Exchange (MCX), gold futures dropped 0.46% to Rs 46,785 for 10 gm in the afternoon trade. Gold rates are down about Rs 10,000 from last year’s highs of Rs 56,200/10 gm.

Why is gold losing its sheen?

This comes at the backdrop of lacklustre price movement in the international prices and weak demand for gold amid the lockdowns and the second wave of Covid-19.

A stronger dollar in the international market has also led the bullion to become out of reach for other currency holders amid concerns that the US Federal Reserve will tighten its monetary policy sooner than later.

Why are dealers offering huge discounts?

Gold demand in India has remained muted due to lockdown-related restrictions however, experts see demand improving as the unlocking process gains momentum and we approach the festive season.

The second wave in India has severely hit household budgets and the recent lockdown forced most jewellery shops across the country to remain shut. Experts say that due to negligible demand for physical gold, jewellers were sceptical as they don’t know how quickly demand would recover. This is one reason why they are not showing interest in making purchases at the higher levels, forcing dealers to lure them with big discounts.

Another major reason for the heavy discounts by dealers is the continuously rising imports of gold.  Gold imports, which have a bearing on the current account deficit, zoomed to $6.91 billion (Rs 51,438.82 crore) during April-May 2021 due to low base effect in the wake of the COVID-19 pandemic, according to the latest data from the commerce ministry.

Physical gold prices in India had moved to a discount over official domestic rates for the first time in 2021 in May.

Not just in India, gold dealers in China too are offering huge discounts amounting to $20-$50 an ounce over international spot prices from premiums of $6-$7 earlier in the week.

Should investors buy gold now?

While the yellow metal is completely missing the bull action, experts are advising investors to buy gold for the long term on dips as the outlook remains bullish for the long term.

Anuj Gupta said, “We are advising investors to wait for some lower levels before investing in gold. We expect that gold may test $1,720 – $1,730 levels and in the domestic market, it may test Rs 45,800 to Rs 46,000 levels. Investor can start investing at these levels.”