Premiums for gold bars in India revisited their highest level in over two years on Tuesday, to $2 an ounce above London prices, on a lack of supplies amid firm demand.
The upward bias in premiums is likely to continue, traders and importers said.
"Some suppliers are now charging $2 (an ounce) as there is a big fight in getting supplies... If we place an order now, we get delivery only in 3-4 days," said a dealer with a state-run bullion importing bank in Mumbai.
At 4:43 pm international gold was trading at $1,324.89/1,325.66 an ounce as against the previous close of 1,334.25/1,334.95, after hitting a low of 1,322.70, a level last seen on November 3. Gold prices are down 7.2 percent from the all-time high of $1,430.95 an ounce struck on December 7.
The sudden spike has prompted traders to stock the yellow metal ahead of the wedding season and a slew of festivals in the coming months. But lack of supplies in the domestic market have exerted upward pressure on premiums, as foreign sellers were unable to keep pace with rising demand.
"Traders are booking because market was not expecting that gold would break $1,340 (an ounce). There could be further buying if prices fall below $1,280," said the state-run bank dealer. Premiums are expected to continue northward as refiners are unlikely to keep pace with rising demand from Asia.
"The refiners started the year with low inventory and now they are lagging in delivering goods by 8-10 days," said Pinakin Vyas, assistant vice-president with IndusInd Bank, which is also a large gold importer. India is the world's largest consumer of bullion, accounting for 20 percent of global demand.
Asia's physical gold market remained buoyant, as prices dipped to multi-month lows and buyers stepped in, betting on a price rally after the upcoming Lunar New Year holiday in China. Premium for gold bars in Hong Kong stayed around $3 an ounce above London spot prices, with the upside premium quoted at $3.50. Premiums in Singapore were steady at $1.90, but a $3 premium was also recorded.