July 10, 2015 / 6:38 AM / 2 years ago

Gold price drop fails to spark demand in Asia as China picks stocks

A salesman helps a customer (R) to select gold bangles at a jewelry showroom in Mumbai, May 21, 2015.Shailesh Andrade

MANILA/MUMBAI (Reuters) - Gold demand remained tepid this week as prospective investors in top consumer China chased bargains in equities after a market rout, while those in India delayed purchases, keeping prices there at a discount over the global spot benchmark.

Bullion dropped on Wednesday to its lowest since March at $1,146.75 an ounce, but the price decline failed to spark demand, limiting any upside potential. The global benchmark was trading at $1,161 on Friday.

"The Chinese would rather buy cheap blue chips in the market. I don't think they have any intention to buy gold for the time being," said Dick Poon, general manager at Heraeus Precious Metals in Hong Kong.

That kept premiums for gold prices in Hong Kong at 50 cents to $1 an ounce over the international benchmark, about the same level as last week, said Poon.

China's stocks climbed sharply for a second day on Friday after Beijing moved to arrest a rout that knocked key indexes by around 30 percent from mid-June, banning shareholders with large stakes in listed firms from selling.

Some investors hit by the massive selloff couldn't move funds in other assets, such as gold, with their holdings trapped in shares that have sought trading suspensions.

"There's no rotation of funds simply because there's no funds to rotate. You have all your money locked up in stock that has halted trading, so I don't think you'll be looking to buy gold anytime soon," said Howie Lee, analyst at Phillip Securities in Singapore.

In India, the world's No. 2 gold consumer, demand improved slightly, but domestic prices were still trading at discount of $6 to $8 an ounce over global spot, against last week's discount of $8 to $15.

"Compared to last week demand is better, but it is quite weak if we compare with last year," said Ashok Jain, proprietor of Mumbai-based wholesaler Chenaji Narsinghji.

"The crash in prices of base metals and Chinese stocks this week has hurt sentiment. Anticipating further fall in gold prices, consumers are delaying purchases," Jain said.

Gold supply in India was ample but demand was weak with the wedding season over and no major festivals scheduled this month, said a Mumbai-based bank dealer, adding poor monsoon rains over the last two weeks also hurt sentiment in rural areas.

Two-thirds of India's gold demand comes from rural areas, where jewellery is the traditional store of wealth for those with no access to formal banking. 

Editing by Himani Sarkar

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