March 7, 2013 / 9:37 AM / 4 years ago

Asia Gold-China buying slows as onshore inventory builds

* Shanghai-spot spread shrinks as onshore supply boosted

* India buying slows at end of fiscal year

By Rujun Shen

SINGAPORE, March 7 (Reuters) - Buyers in China slowed on Thursday their robust purchases of gold in the international market as the material bought in previous weeks started to arrive onshore and eased a supply shortage.

China's domestic gold prices had been trading at premiums of over $20 above international prices in the past few days, but that spread shrank to just over $10 on Thursday. It could further narrow to single-digit figures in the absence of another sharp fall in international market, traders said.

"Delivery has finally arrived in the onshore market and physical stock seems widely available now," said Peter Tse, director at ScotiaMocatta in Hong Kong.

Chinese commercial banks, which hold licenses to import gold, rushed to buy the metal after they returned from a week-long Lunar New Year holiday in mid-February, during which spot gold dropped more than 3 percent. Demand from China usually wanes after the Lunar New Year.

"It (buying) should be done for now, and eventually the premium should move back to normal, about $5-$6 an ounce," Tse said.

The popular gold forward contract on the Shanghai Gold Exchange stood at 318.91 yuan a gram, or $1,595 an ounce, after having dropped to a two-week low of 317.5 yuan earlier in the day.

Spot gold traded little changed at just below $1,584 an ounce, up nearly 2 percent from a seven-month low of $1,554.49 hit in late February.

Traders said it takes time for purchased gold to enter mainland China, as shipments have to go through regulatory approvals and logistical arrangements.

"It isn't like Zurich/London or Johannesburg spread which can be flattened easily with minimal logistics," said a Hong Kong-based trader, adding that it could take a week to process a shipment.

Gold bar premium in Hong Kong was steady at $1.40-$1.60 an ounce, traders said.

TAX CONCERNS IN INDIA

Buying from India, the world's No.1 gold consumer, also slowed as the approach of the end of the fiscal year dented interest in purchasing the metal.

"Buying is slow because of March end as all have to pay tax this month," said Harshad Ajmera, proprietor of Kolkata-based JJ Gold House. "There could be a revival in sales from April."

Weddings and festivals season will re-start in April and continue till first week of June.

The rupee rose to its highest level in nearly a week against the dollar, but didn't manage to pull itself far away from a near two-month low hit earlier this week, as sputtering economic growth and persistent concerns about India's current account and fiscal deficits weighed on sentiment.

WEEK AHEAD

Market participants will check on the health of the global economy from key data releases, including the February U.S. job market report on Friday. A rise in risk appetite could push gold lower, which would trigger physical buying interest from Asian nations. (Additional reporting by Siddesh Mayenkar in MUMBAI; Editing by Muralikumar Anantharaman)

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