July 6, 2017 / 12:17 PM / a month ago

Gold demand in India, China tapers off; lower prices fail to lure

FILE PHOTO: A goldsmith works on a gold bangle at a workshop in Kolkata, India, May 18, 2017. Picture taken May 18, 2017.Rupak De Chowdhuri/File Photo

BENGALURU/MUMBAI (Reuters) - Gold demand in India lost its steam this week as consumers held off after advancing purchases ahead of a new tax policy effective this month, while fresh buys in China too remained sluggish despite a slide in global spot prices.

"Demand in the Indian market has fallen sharply due to tax factors. Demand from China too isn't as rosy as before. So people are cautious about investing their capital in gold at this point," said Brian Lan, managing director at gold dealer GoldSilver Central in Singapore.

However, lower prices have attracted buyers from centres including Singapore, Thailand, Vietnam, Indonesia, Malaysia, and Laos, Lan said, adding "generally, people in these countries prefer to save in gold rather than investing in the banking sector."

Spot gold was trading at around $1,223 an ounce on Thursday and hovered close to a two-month low.

Dealers in India were charging a premium of up to $2 an ounce this week over official domestic prices, compared to a premium of $10 last week, the highest in 7-1/2 months. The domestic price includes a 10 percent import tax.

"Fearing price rise after the implementation of the Goods and Services Tax (GST), many consumers made purchases last week. Now retail demand is very weak," said Ashok Jain, proprietor of Mumbai-based wholesaler Chenaji Narsinghji.

As part of a new nationwide sales tax regime that kicked in on July 1, GST on gold has jumped to 3 percent from 1.2 percent previously, with traders and buyers saying the move will likely force more transactions on to the black market.

"Many banks were not importing gold this week. They first wanted to understand implications of GST, but from the next week they will resume imports," said a Mumbai-based dealer with a private bank.

The hike in taxes on gold sales could pressure short-term demand from the world's second largest consumer of the metal, the World Gold Council said on Thursday.

In top consumer China, premiums ranged between $9 and $10 an ounce, mostly unchanged from $9-$11 last week, traders said.

Lower gold prices have not meant much as premiums have barely changed in China, said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

In Hong Kong, premiums remained unchanged from last week at 50 cents to $1, while gold was being sold in Tokyo with prices flat against the benchmark rates.

In Singapore, premiums rose slightly to $1.20-$1.30 an ounce versus $1 last week.

Editing by Koustav Samanta and Keith Weir

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