The price increase lowers physical gold demand. India is freaking out for a discount

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By Karthika Suresh Namboothiri and Rajendra Jadhav

BENGALURU / MUMBAI (Reuters) – Physical gold buying was subdued this week in major Asian hubs as a price recovery dampened metal demand before the Chinese New Year.

In India, where futures were trading at around 40,000 rupees per 10 grams on Friday, gold returned to a discount after hitting a record high of 40,116 rupees earlier in the day.

"The sudden rise in prices has surprised everyone. Buyers are waiting for a correction," said Ashok Jain, owner of Mumbai-based gold wholesaler Chenaji Narsinghji.

Traders offered a discount of up to $ 13 an ounce compared to official domestic prices this week, compared to a premium of $ 1 an ounce last week. The domestic price includes an import tax of 12.5% ​​and a sales tax of 3%.

"The jewelry stores made decent purchases last month. They are now waiting for retail demand to pick up before they buy more," said a Mumbai-based dealer at a private gold-importing bank.

India's gold imports fell 12% year over year in 2019 to their lowest level in three years as retail purchases stalled in the second half of the year after a surge in local prices, a government source said.

China raised $ 3.50 to $ 4.50 in premiums compared to $ 4 to $ 5 a week earlier. Traders in Hong Kong charged a premium of $ 0.30 to $ 0.40, which was slightly higher than last week and was $ 0.30 an ounce.

"I think demand will continue to decline due to the higher gold price and poor consumer sentiment, particularly in China and India. The Joker card will, as always, be investment demand," said Samson Li, a Hong Kong-based precious metals company analyst at Refinitiv GFMS ,

The gold benchmark spot exceeded the key level of $ 1,550 an ounce and had the largest weekly gain since early August. It rose to a four-month high on Friday after a senior Iranian military official was killed in a US-approved airstrike.

"If prices move (higher), people will withdraw from the purchase, so we may see lower demand this Chinese New Year," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers, adding that demand is increasing could improve if prices dropped to around $ 1,500.

Demand generally picks up before the Chinese New Year, which falls in the last week of January, as gold is a popular gift at this time.

Gold was sold in Singapore at the same price as the previous week, with a premium of $ 0.60 to $ 0.80 per ounce above the reference price.

The markets in Japan were closed this week due to the Christmas and New Year holidays.

(Reporting by Rajendra Jadhav in Mumbai and Sumita Layek in Bengaluru; editing by David Evans)