KIS Asia Gold Ask Premiums See Largest Monthly Increase Since January 2024; Gold Declines as Rate Cut Expectations Pare; Shanghai Gold Returns to Prem

KIS Gold Market Price Commentary – December 2024

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Asia Gold Premiums

KIS ask (sell) premiums for wholesale freshly minted gold kilobars over international gold prices averaged US$1.62/oz for Loco Singapore, US$1.57/oz for Hong Kong, and US$1.59/oz for Bangkok in December 2024.*

Gold kilobar premiums increased strongly in all three locations following the final rate cut of the year, which led to a dip in the international gold price due to expectations of a slower pace of rate cuts next year. Ask premiums in Singapore and Bangkok saw the largest MoM increases since October 2023, rising by $0.45/oz (38.4%) and $0.28/oz (21.6%) respectively, while ask premiums in Hong Kong rose by $0.26/oz (20.1%), the largest MoM increase there since January. These increases were further driven by the earlier-than-usual Lunar New Year coming up at the end of January, which boosted demand, with the lower gold price also spurring additional purchases. A continued recovery in gold premiums across Asia is expected through January.

India Gold Premiums

The Reserve Bank of India (RBI) continued its gold accumulation, raising reserves to 876 tonnes (10.2% of total RBI reserves) as of November 2024. Throughout December, domestic gold prices in India traded at a discount to international prices, ranging from US$3.09/oz (INR -84.67/10g) to US$20.54/oz (INR -565.38/10g). The discount widened toward the end of the month, coinciding with the inauspicious gold-buying period (mid-December to mid-January) as per the Hindu calendar. Since Diwali in October, jewellery demand has remained subdued, with high gold prices deterring consumers from making purchases.

Spot Gold

In December, Gold extended its decline for the second straight month, completing nearly a round trip to close ~$14 lower at $2,624.26/oz on the month. The precious metal had erased a large chunk of the ~$60 loss seen in the wake of the Fed’s monetary policy decision on December 18, with the move lower driven by a further moderation in rate cut expectations after the Fed’s updated economic projections were less dovish than expected.

From December 2 to 5, gold operated in limited ~$30 trading range prior to the release of US NFPs report for November, falling ~$18 to close at ~$2,632/oz on December 5. The lower close had come despite a decline in the dollar, after weekly jobless claims surprised to the upside (224k vs BBG median 215k)

The next day, gold was marginally higher by ~$1 at ~$2,633/oz following the release of the labour report (+227k vs BBG median +225k; vs +12k prev) where more jobs than expected were added to the US labour market, but unemployment inched higher to 4.2% (vs 4.1% prev), pointing to moderately loose labour conditions. The mixed labour data boosted rate cut expectations, with Fed funds futures pricing seen rising to 85% odds of a rate cut in the December FOMC.?

Between December 9 to 11, the yellow metal surged by ~$83 to settle near a two-week high at ~$2,718/oz on December 11. The move higher in gold was driven by a surge in haven demand as geopolitical tensions escalated in the Middle East and Asia alongside rising political uncertainties in the US. The collapse of Syrian President Bashar al-Assad's regime on December 8 intensified Middle East tensions, with Turkey targeting Kurdish groups and Israel expanding its Golan Heights presence through airstrikes to secure strategic positions.?

As for the latter, North Carolina Republicans overrode a veto to reduce the Democratic governor's powers, transferring control of the State Board of Elections to the state auditor. Meanwhile, US CPI report (headline CPI +2.7% YoY) for November released on December 11 matched expectations, reinforcing expectations for a Fed rate cut.

Over the next two days, gold erased nearly all its gains, falling ~$69 to settle at ~$2,680/oz on December 13 after US PPI for November surprised to the upside. The decline in gold was driven by a firmer dollar, supported by the lowering of policy rates by key central banks on the same day.?

On December 18, gold fell sharply by ~$60, falling from $2,646/oz on December 17 to settle near a one-month low at ~$2,585/oz after the Fed cut its policy rate by 25bps to 4.25-4.50% in the December FOMC, as widely expected. Market’s reaction however came from updates to the Fed’s economic projections for 2025, with forecasts for inflation (+2.5% YoY vs +2.1% YoY prev) and interest rates (3.9% vs 3.4% prev) revised sharply higher. This was reflected in the latest dot plot, where the median dot now points to 50bp of cuts in 2025 (vs 100bp of cuts prev), signalling expectations for just two rate cuts instead of four previously.?

Gold staged a rebound heading into the holiday period (December 19 to 31), rising a net ~$39 to settle higher at ~$2624/oz on December 31, erasing more than half of the ~$60 loss seen post-FOMC (December 18). With no major calendar risk events, the precious metal traded within a narrow range during the holiday-thinned trading week.

Turning to rate cuts, Fed funds futures priced in a cumulative ~38bp of rate cuts through December 2025 on December 30, considerably lower than the 50bp of cuts pencilled in by Fed officials per the latest FOMC. The reduction in rate cut expectation points to market participants anticipating further slowdown in the pace of rate cuts in 2025, likely in consideration of the slowdown in progress to bring inflation back down to 2% and uncertainty of the impact of incoming US president Trump’s policies.

Shanghai Gold Market

In December, Shanghai gold returned to premium on December 20 after trading at a discount against international prices for twenty-seven straight sessions. The measure rose from -US$21.54/oz at the start of the month to close December higher at US$15.13/oz, staying in premium for eight sessions (December 20 to 31). This reflects a surge in local gold demand, with the increase likely driven by festive buying ahead of the Chinese New Year amid lower domestic gold prices during the same period. ?

Mirroring the movement in international gold prices, the Shanghai Gold Benchmark PM (SHAUPM) closed the month marginally higher at RMB 616.26/g (USD 2,625.98/oz) from RMB 611.57/g (USD 2,615.71/oz) at the start of the month. The measure briefly breached the 620 mark (December 11, 12, and 13), but reversed its gains to operate below 620 for the rest of the month.

Turning to the yuan, USD/CNY rose from ~7.2714 at the start of the month to close December higher at ~7.2988. Despite dollar rallying to a two-year high, the pair remained just below 7.30 throughout the month in part due to the setting of daily yuan fixes below 7.20 by the PBoC during the same period, pointing to efforts to manage yuan volatility.

On the economic front, Chinese policymakers announced plans to loosen monetary and fiscal conditions to boost economic growth during the December Politburo and Central Economic Work Conference (CEWC) meetings. The shift from a "prudent" to a "moderately loose" monetary policy, the first in 14 years, along with pledges for extraordinary counter-cyclical measures and a more proactive fiscal policy, raised expectations for further stimulus and rate cuts. Additionally, officials are reportedly considering allowing the yuan to weaken next year to counter potential U.S. tariffs, while increasing the budget deficit and debt issuance to maintain a “steady economic growth rate”.?

These developments could enhance gold's appeal as a hedge against currency weakness and inflation in the near term. A further weakening of the yuan in response to U.S. tariffs could make gold more appealing to domestic investors as a store of value. In the long run, increased government investment in infrastructure and growth initiatives may also stimulate industrial demand for gold, especially in sectors like high-precision electronics and renewable energy.

*?KIS gold kilobar ask (sell) price premiums reflect the average ask premiums over spot reported by market participants for each location. To see bid and ask data for each region, visit?www.kallindex.com

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