October 18, 2013 / 10:39 AM / 5 years ago

Asia Gold-India premiums stay above $100/oz as demand exceeds supply

SINGAPORE/MUMBAI, Oct 18 (Reuters) - Gold premiums in India stayed above $100 an ounce for most of this week as supplies were inadequate to feed growing festive demand, even as buying in other parts of Asia remained lackluster.

Spot gold in Mumbai XAU-24C-INB was trading $115 an ounce higher than London prices as India began its year-end festive season last week. Demand tends to peak around the Diwali festival, which this year falls in the first week of November.

India has not received any fresh supplies for domestic use for almost three months after the central bank introduced a rule that required 20 percent of all imports be re-exported.

A lack of operational guidance on the rule stopped imports and even though imports have resumed, bullion is currently going only to the exporters.

“All banks are postponing deliveries,” said Daman Prakash Rathod, director with MNC Bullion. “Most of the demand is met by smuggled or recycled material.” Banks are the main importers of the metal into India.

A record high import duty of 10 percent has encouraged smuggling in India. Higher premiums and scarce supplies from the official channel have led to a rise in purchases through illegal channels.

Banks in Singapore that usually supply to India say they are seeing very limited purchases due to the so-called 80/20 rule that gives priority to exporters.

A dealer in one bank said suppliers were wary that their shipments could get stuck at Indian airports, as has happened before when Indian customs refused to provide approval.

In other parts of Asia such as Hong Kong, Singapore and Tokyo, premiums remained stable from last week.

Dealers said China and Indonesia saw a slight increase in demand when spot prices were below $1,300 an ounce but slowed after the jump on Thursday. Gold is currently trading at about $1,320.

On the Shanghai Gold Exchange, gold was trading at about $7 an ounce higher than London prices, compared with peak levels of $30 earlier this year, indicating that demand remained soft.

Physical deliveries from the Shanghai Gold Exchange totaled 1,709.056 tonnes as of Friday, data on the exchange’s website showed. (Reporting by A. Ananthalakshmi and Siddesh Mayenkar; Editing by Muralikumar Anantharaman)

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