SINGAPORE/MUMBAI: Asian buyers rushed into the market after prices fell from record highs to look for bargains, betting on growing demand and a bright price outlook for the rest of the year.
Premiums in Hong Kong had risen to as much as $1.50 an ounce over London prices, from 70 cents to $1 at the end of last year.
"Supply is tight in the physical market," said a Hong Kong-based dealer. "Two days ago when we had the big drop, premium went up to $1.50, but today it is a little quieter ahead of the U.S. employment data."
Spot gold prices fell to as low as $1,363.8 an ounce this week, down nearly five percent from its peak of $1,430.95 hit on Dec. 7. Gold was trading at $1,368.50 by 0609 GMT on Friday.
As long as prices stay below $1,400, physical purchase is expected to remain active, dealers said.
Jewellers, bullion traders and investors across the region, from India , Thailand to China , have joined the buying spree, betting on a rosy price outlook for the precious metal in 2011.
The price of gold is expected to average nearly $1,500 an ounce this year, as investors keep buying the metal as a safe haven on bullish factors such as low interest rates, currency weakness and inflation fears, Barclays Capital said.
Bullion traders in India, the world's top gold consumer, rushed in to place deals after prices remained steady in the vicinity of their lowest since late November, as they sought to stock up for the upcoming harvesting festivals, when demand for gold goes up, dealers said.
"Sales are much better as people are comfortable at current prices, they are all preparing for wedding and harvesting season," said Haresh Acharya, head of bullion desk, Parker Agrochem , an Ahmedabad-based wholesaler.
The most-active gold for February delivery on the Multi Commodity Exchange (MCX) was trading 0.22 percent lower at 20,383 rupees per 10 grams, trading near its lowest level since Nov 29.
"People would get attracted more at sub-20,000 rupees level," said Acharya.
"I have sold a tonne of gold in the last 2-3 days itself, there's a renewed enthusiasm among traders, especially before the weddings," said an official with a state-run bullion importing bank. Wedding season will re-start in February.
WEEK AHEAD
A key U.S. employment report due later Friday is expected to shed light on the health of the world's biggest economy, and give a clear direction to gold prices.
U.S. nonfarm payrolls are expected to have increased 175,000 in December, according to a revised Reuters poll. The estimate was revised up from a prior 140,000 forecast after data showed a surprise jump in private jobs earlier in the week.
If the non-farm payrolls number turned out stronger than expected, it would further buoy the dollar and pressure gold prices.
"Clients are waiting for prices to go even lower, then they'll buy on dip," said a second Hong Kong-based dealer.
