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Gold price spike keeps Asian buyers at bay

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[MANILA] Gold's longest run of price gains in three months kept Asian buyers on the sidelines this week, steadying physical premiums in top consumers China and India.

Yuan-denominated gold prices in China, the world's biggest consumer of the metal, spiked more than 5 per cent this week, boosted in part by investors seeking a secure store of value after Beijing devalued the yuan, traders said.

But gold's upturn stalled as the yuan firmed after China's central bank said there was no reason for it to fall further given the country's strong economic fundamentals.

Spot gold slipped from a three-week high of US$1,126 an ounce on Thursday after a five-day rally that was its longest since May. "At the moment, there are more sellers than buyers in Hong Kong or in China," said William Wong, assistant head of dealing at Wing Fung Precious Metals in Hong Kong.

Gold is sold in Hong Kong at a premium of US$1-$1.20 an ounce over the global spot benchmark, unchanged from last week, said Ronald Leung, chief dealer at Lee Cheong Gold Dealers.

There was some physical buying when gold breached US$1,100 an ounce, but it fizzled when the price rose to US$1,120, said Leung. "The (yuan) devaluation is making people uncertain about the economy," said Leung. "If gold prices hold at current levels, maybe some physical demand will come back a bit." China's gold demand this year is expected to at least hold steady with last year at just under 1,000 tonnes and is unlikely be dented by the yuan devaluation, the World Gold Council (WGC) said on Thursday.

Premiums on the Shanghai Gold Exchange recovered to about US$4 an ounce, around the same level as last week, after diving into a deep discount shortly after China's yuan devaluation on Tuesday.

Premiums in India, the world's No. 2 gold consumer, hovered between US$1.10 to US$2 an ounce over global spot, from US$1.30-$2.10 last week, as supply outstripped demand. "The spike in prices moderated retail jewellery demand. Investment demand is negligible right now," said Daman Prakash Rathod, director with Chennai-based wholesaler MNC Bullion.

Gold prices in India have risen more than 6 per cent since hitting their lowest level in four years in late July. "The depreciating rupee is making buyers nervous. They don't know how the rupee will behave in coming weeks," Rathod said. The Indian rupee fell to its lowest level in nearly two years on Thursday.

India's gold demand in the second half of 2015 could rise by more than a quarter from a year before as lower prices encourage buying during the peak festival season towards year-end, the WGC said. "Jewellers have healthy inventory due to higher purchases made since the last week of July. Now they are waiting for prices to correct before large-scale buying," said a Mumbai-based bank dealer.

REUTERS