SINGAPORE - There is a global migration under way in the gold market as western investors dump bullion while Asian buyers take advantage of a tumbling price to snap up cheap jewellery and bars.

Rising rates that make gold less attractive as an investment mean that large volumes of metal are being drawn out of vaults in financial centres such as New York and heading east to meet demand in Shanghai's gold market or Istanbul's Grand Bazaar.

But logistical issues combined with quirks of the market are making it difficult for traders to get enough bullion where they are wanted. As a result, gold and silver are selling at unusually large premiums over the global benchmark price in some Asian markets.

"The incentive to hold gold is a lot lower. It is going from west to east now," said Mr Joseph Stefans, head of trading at MKS PAMP, a gold refining and trading firm. "We are trying to keep up as best as we can."

The rotation of metal around the world is part of a gold market cycle that has repeated for decades. When investors retreat and prices drop, Asian buying picks up and precious metals flow east - helping to put a floor on the gold price during times of weakness.

Then, when gold eventually rallies again, much of it returns to sit in bank vaults beneath the streets of New York, London and Zurich.

Since peaking in March, gold prices have tumbled 18 per cent as the United States Federal Reserve's aggressive rate hikes caused mass liquidation by financial investors.

More than 527 tonnes of gold have poured out of New York and London vaults that back the two biggest Western markets since the end of April, data from the CME Group and London Bullion Market Association showed.

At the same time, shipments are rising into big Asian gold consumers such as China, whose imports hit a four-year high in August.

While plenty of gold is heading east, it is still not enough to meet demand. Gold in Dubai and Istanbul or on the Shanghai Gold Exchange has traded at multi-year premiums to the London benchmark in recent weeks, noted MKS PAMP, a sign that buying is outstripping imports.

"Demand typically picks up when prices fall," said Mr Philip Klapwijk, managing director of Hong Kong-based consultant Precious Metals Insights. "Buyers want to source metal at the lower price; and in the local physical market in question, there may not be sufficient metal available when the price falls - so the local premium increases."

Gold in Thailand is also trading at a premium to London prices due to a lack of supply and weakness in the local currency, said Mr Jitti Tangsithpakdi, president of Thailand's Gold Traders Association.

In India, it is silver that is seeing big premiums. The differential has soared recently to US$1, more than triple the usual level, said consultancy Metals Focus.

"Right now, the demand for silver is huge as traders restock," said Mr Chirag Sheth, the firm's principal consultant in Mumbai. "Premiums could remain elevated during the festival season that concludes with Diwali."

Analysts said that much of the precious metals feeding Asia's appetite is coming out of vaults run by CME Group that back the Comex futures market in New York.

Market dislocations early in the pandemic drove a massive surge in prices there, forcing banks to build large stockpiles to cover their futures positions. In recent months, gold has traded at a discount on Comex compared with London, and those inventories are now being drawn down to meet Asian demand.

However, it can be slow-going, partly because Asian buyers tend to prefer 1kg bars over larger sizes. To fill a standard shipment box of 25kg of gold, physical traders must take delivery of multiple Comex gold futures, often backed by bullion in different warehouses.

Traders said they are facing other logistical challenges as well, which are contributing to the high Asian premiums.

"Getting stuff on boats or on planes is a bit harder than it used to be," said MKS PAMP's Mr Stefans. "It is really just a classic example of demand far outpacing supply." BLOOMBERG