Physical gold demand in top consumer China firmed this week as a depreciating yuan and growing tension in the Middle East spurred safe-haven buying, while elevated prices kept activity muted in India.

China demand is still strong despite higher prices and we expect this trend to continue as traders are worried about continued currency devaluation and heightened geopolitical concerns, Joseph Stefans, Group Head of Trading at MKS PAMP said.

China’s yuan weakened to a five-month low against the dollar, pressured by reports of an Israeli attack on Iran that sparked rising safe haven bets.

Dealers in China charged premiums of $30-$50 per ounce over benchmark prices, unchanged from last week range.

“Physical demand still strong (in China). People still have interest, still would like to buy some gold as a safe haven, even the small investor,” said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

Meanwhile, Indian dealers offered discounts of up to $15 an ounce over official domestic prices - inclusive of 15% import and 3% sales levies, versus last week’s $17 discount.

Asia Gold: Record price rally takes toll on India demand; China premiums firm

“Due to record prices, jewellery demand is negligible. Those who still need to buy jewellery are mostly opting for exchanges of old jewellery for new,” said a Chennai based jeweller.

In India, the world’s second-largest gold consumer and a major importer, domestic prices rose to a record 73,958 rupees per 10 grams last week.

Supply conditions were a bit tight this week as flooding in Dubai disrupted the flow of gold from that country, said a Mumbai-based dealer with a private bullion importing bank.

“However, due to weak Indian demand, the market experienced minimal impact,” he added.

In Singapore, bullion was sold at between par to $2.50 premiums, while dealers charged premiums of $0.5 to $2 in Hong Kong.

In Japan, dealers sold gold at $0.5-$1 premiums.