China returned to the physical gold markets strongly on 7 February, after a week-long break, as banks and retailers moved to replenish stock following solid sales during the Lunar New Year holiday.
The Chinese New Year, celebrated on 31 January, usually triggers a surge in bullion purchases as the period is considered auspicious.
7 February's increase in premiums and trading volumes on the Shanghai Gold Exchange, a physical platform, indicated that jewellery and bullion sales during the new year holiday period were robust in the world's biggest gold consumer.
Shanghai premiums for 99.99% purity gold climbed to $11 an ounce over London prices. They hovered at about $4 on 30 January just before China went on holiday. Trading volumes hit their highest in a month.
Caishikou, among the biggest jewellery retailers and dealers in Beijing, sold jewellery worth some 250m yuan in the first two days of the new year, according to data available on its website.
Gold and silver jewellery was popular among consumers for lunar new year purchases, the Beijing Municipal Commission of Commerce said in a statement.
India Premiums Drop
Gold premiums in India, the second largest gold consumer, fell to between $70 and $75 an ounce on 7 February, compared to $80 last week, owing to the higher availability of imported jewellery and smuggled goods.
Smuggled gold was available at a premium of $65 an ounce, trade body officials said, reported Reuters.
Premiums across the rest of Asia remained largely stable.
Earlier, in New Delhi, junior finance minister J D Seelam told lawmakers that the country had no plans at present to lower the tax on gold imports.
"Things were quiet this week till China came back today," said a dealer in Hong Kong. "But what we saw today was pent-up purchases, so we cannot say for sure the same pace will last."
"People prefer to buy smuggled gold [in India] as premiums are lower," said Harshad Ajmera, director, All India Gems and Jewellery Trade Federation, which represents over 300,000 jewellers.
India would not revise its record high import duty on gold and other restrictions on imports until the nation's current account deficit was firmly under control, finance minister P Chidambaram said in Davos on 23 January.
India has a record high 10% import duty on gold and a rule that says 20% of all bullion imports must exit the country as exports.
The subcontinent used to be the world's largest consumer of the precious metal until the government made three upward revisions to the import taxes on gold, to reign in a record current account deficit (CAD).
Pakistan Bans Imports
Pakistan has imposed a ban on gold imports in a bid to check smuggling into neighbouring India.
Islamabad said on 21 January the ban would last for 30 days and that exports, mostly jewellery, would not be restricted. Pakistan last banned gold imports for a month in August 2013 after the country purchased gold worth $514m (£313m, €380m) in the preceding month.
Pakistan also said the ban would curb speculation on its currency.