Premiums for gold bars rallied to all-time highs in Hong Kong and Singapore on Thursday after bullion's steepest drop since its April sell-off fuelled another round of buying, constricting supply.
Gold bars in Hong Kong fetched premiums of up to $5 an ounce over spot London prices, driven by tight supply and strong demand from China, the world's second-largest consumer after India. Premiums stood at $3 an ounce last week.
"Honestly, we don't have enough physical gold to supply to the Chinese. I just heard one Hong Kong party is quoting premiums at $6. This is mad," said a dealer in Singapore.
Gold was little changed at $1,392.21 an ounce after falling for a fifth straight session on Wednesday, its longest daily losing streak since January 2011, lifting premiums in Singapore to $3.50 an ounce.
Gold plunged to a 2-year trough around $1,321 in mid-April, the steepest decline in 30 years, after worries about central bank sales and a drop below $1,500 led to a sell-off that stunned ardent gold investors and bulls.
The price drop triggered a buying frenzy across the world, which led to tight supply after consumers snapped up gold bars, coins, nuggets and other products.
The latest price fall, which lopped about $80 off the price of gold in just five sessions, has renewed physical buying interest, particularly in China.
CHINA DRIVES TOKYO PREMIUMS
Tracking Hong Kong higher, premiums in Tokyo jumped to their highest since March 2011, when a devastating earthquake meant Japanese bullion houses struggled to get new supply from other centres in Asia.
"Hong Kong premiums are very high, so trading houses here are trying export gold there. That's why premiums are increasing at this moment," said a dealer in Tokyo.
"But buying interest from the general public in Japan is basically low. The high premiums in Hong Kong are supported by demand from China."
Chinese gold imports are likely to swell further after more than doubling to an all-time high in March, supported by a lack of investment alternatives.
"But the delivery is not immediate. The thing is that kilobars are not easy to find. They seem to take time to make," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
"There's not much scrap to sell at around this level."
Gold investment nearly halved in the first quarter as a brighter view of the U.S. economy prompted investors in the West to favour other assets, but Chinese coin and bar demand hit a quarterly record of 109.5 tonnes, the World Gold Council said on Thursday.
Net gold flows from Hong Kong to China jumped to 223.519 tonnes in March from 97.106 tonnes in February, smashing a previous record of 114.372 tonnes in December, data from the Hong Kong Census and Statistics Department showed on Tuesday