SINGAPORE Premiums for gold bars jumped to their highest in two years on Tuesday as worries about inflation drove investors in China, the second-largest consumer of the precious metal after India, to bullion ahead of the Lunar New Year.
China's inflation raced to a 28-month high of 5.1 percent in November, and it's not clear whether policy steps the government is taking will calm prices, benefiting gold which is traditionally seen as a store of value in times of uncertainty.
Gold bars were offered at premiums of $3 an ounce to the spot London price in Hong Kong, physical dealers said, matching a similar level seen in late 2008. Refiners were running out of stocks and some even quoted premiums as high as $6.
"I don't have any gold," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong. "Premiums are very high. Some say they have no stocks on hand."
In Singapore, premiums for gold bars were at their highest in nearly 10 months at between 70 and 80 cents as stocks tightened and dealers struggled to meet inquiries not only from China but also from Thailand and India.
"There's a sudden surge in demand. Demand from China is very good and they are paying very high premiums. Refiners can't meet the demand," said a dealer in Singapore.
"I would think people are buying gold as a hedge against inflation. Food prices are expensive, for instance."
Inflation worries and limited investment options have fuelled demand for gold from Chinese investors, especially as bullion staged a record-breaking rally in 2010.
Bullion's role as a hedge against inflation also boosted it in other parts of Asia, with dealers noting steady interest from Thailand, where the central bank expects rising inflationary pressure this year.
Leading central bank policymakers warned on Monday of the threat of resurgent inflation in fast-growing emerging economies and voiced their resolve to keep price pressures in check.
Demand ahead of the Lunar New Year was also behind the sharply higher premiums in China, some traders said.
"Demand is high ahead of the Chinese New Year. The jewellery sector is gearing up, and giving gold bars as a gift has been getting very popular," said an independent investor in China.
"If you look prices in Shanghai, they are even at higher premiums to London prices," said the analyst, adding that the current premiums stood at around $10.
China's Lion Fund Management, which last month launched the first gold fund in the world's biggest producer of the metal, has met its goal of raising $500 million for the fund, the company said in a statement.
Spot gold firmed to $1,378.56 an ounce on Tuesday, just over $50 dollars off the record over $1,430 hit in early December, on persistent worries about a debt crisis in Europe.
Gold of 99.99 purity on Shanghai Gold Exchange was last quoted at 299.75 yuan a gram.
China will release the remainder of its fourth quarter and December economic indicators, including gross domestic product, inflation and factory output, on Jan. 20, the statistics agency said on Tuesday.
(Editing by Michael Urquhart)