Steep discount in domestic spot gold to bank rate raises eyebrows

Spot gold prices in the domestic market have been trading at a steep discount to the metal's bank rate for an extended period, a departure from the typical premium it trades at, especially during the wedding season.

- Ram Sahgal

Spot gold was trading at an $18-25/ounce (approximately 31g) discount, against a typical premium of $1, for a record 40 days now because of a supply-demand mismatch driven by a sharp jump in price, rise in circulation of recycled gold, a trade pact with the UAE that facilitates import of the metal at lower duty, and suspected leakages, traders said.

Gold of 99.5% purity has risen 10% in the past two months to 155,359 per 10gon 3 January, according to the India Bullion and Jewellers Association (IBJA), whose rates the Reserve Bank of India uses to price sovereign gold bonds.

The discount works out to a whopping 48,000-66,700 per kg based on Monday's dollar-rupee closing rate of 82.75. Debajit Saha, lead analyst at Refinitiv Metals, pegged the discount at $25-30 an ounce, which he says has "distorted" the market.

A senior banker said that the discount would narrow in the second half of January.