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Indian dealers offer hefty discounts as high prices dent sales

FILE PHOTO: A saleswoman displays a gold necklace to a customer inside a jewellery showroom on the occasion of Akshaya Tritiya, a major gold buying festival, in Mumbai

By Rajendra Jadhav and Arundhati Sarkar

(Reuters) - Physical gold dealers in India offered the steepest discounts in 10 months this week to lure customers, as a sharp rally in local prices squeezed demand in the world's second-biggest bullion consumer.

Local gold prices hit an all-time high of 57,125 rupees ($700.02) per 10 grams this week, forcing dealers to offer discounts of as much as $42 an ounce over official domestic prices, inclusive of 15% import and 3% sales levies, versus a discount of $24 last week.

"Consumers are struggling to adjust with higher prices. Demand is very weak for the past few weeks even as the wedding season has started," said Prithviraj Kothari, managing director of RiddiSiddhi Bullions.

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Dealers and jewellers have been postponing purchases on hopes the government would cut import duty in the upcoming budget, said a Mumbai-based dealer with a private bullion importing bank.

India's budget will be presented on Feb. 1 and it's expected to slash the gold import duty to undercut smugglers.

Trading in top consumer China was closed for the Lunar New Year holiday.

"The easing of restrictions in China and the normalising of arrangements with the West according to the announcements at Davos (World Economic Forum), augers well for the macro as well as for gold specifically," said independent analyst Ross Norman.

Norman, however, expressed concern over the "the sharp downturn in physical sales from price-sensitive India."

Hong Kong markets were closed from Monday to Wednesday, with premiums of $0.50-$2.50 quoted over global spot prices for the rest of the week. [GOL/]

Dealers in Singapore and Japan said individuals sold gold to cash in on higher prices.

"As gold continue to print higher, we reckon premium will start to cool off, hence we expect recycled and secondary materials to flow back into the market," Bernard Sin, regional director, Greater China at MKS PAMP said.

In Singapore, gold traded at a premium of $1-$2.50.

($1 = 81.6050 Indian rupees)

(Reporting by Ashitha Shivaprasad and Arundhati Sakarin Bengaluru, Rajendra Jhadav in Mumbai; Editing by Vinay Dwivedi)