The domestic wholesale market for gold is expected to see a shift from a discount of $40 an ounce on international prices to a premium of $20 an ounce due to supply-side disruptions in the global markets. This change is primarily driven by concerns over the US Government potentially imposing tariffs on gold imports from the UK, leading to the withdrawal of over 8,000 gold bars from the Bank of England’s vaults to the US. This sudden movement of gold has caused delays in gold deliveries from the Bank of England to the US, exceeding the standard 14-day EFP rule.
Despite low demand for gold in India, the shifting of gold from the Bank of England to the US has reduced global supply and increased the premium in India. Suvankar Sen, MD & CEO of Senco Gold and Diamonds, mentioned that if global supply chain disruptions continue, the gold market could see a premium in the coming days depending on the revival of demand and depletion of inventory.
Moreover, with gold prices exceeding $3,000 an ounce, US banks, hedge funds, and traders are transferring their physical gold to New York to avoid potential import tariffs from the UK. This supply side disruption is expected to push the premium on physical gold to $20 an ounce from a discount of $23 an ounce seen last month.
Many central banks have also moved their gold reserves from London to their own countries anticipating geopolitical issues. In fact, the RBI moved 102 tonnes of gold from the Bank of England’s vaults to India last October, increasing its gold reserves within the country to 510 tonnes out of a total of 855 tonnes.
The physical movement of gold from the UK to the US has led to prices on the New York futures market trading at a premium over the London spot price. Concerns about potential tariffs on gold imports from the UK have further fueled this shift in gold reserves. The industry imported excess gold during the December quarter in anticipation of higher demand, but the sudden spike in prices led to weaker than expected demand.
As we move forward, the revival of gold jewellery demand during Akshaya Tritiya and potential price softening will play a crucial role in determining the premium in the domestic markets. Gold jewellery manufacturers are currently in a wait-and-watch mode, but if global supply uncertainty persists and domestic demand picks up, premiums are expected to firm up.
