* India discounts narrow to up to $2 vs $3 last week
* China gold premiums slip from near three-year peak
By Rajendra Jadhav and Swati Verma
MUMBAI/BANGALORE, Dec 23 Gold demand in India
remained subdued this week despite a sharp fall in prices to
over 10-1/2 month lows as a severe cash crunch and holidays kept
buyers away from the market, while premiums in China fell from
near 3-year highs touched in the prior week.
Dealers in India, the world's No.2 consumer of the metal,
were offering a discount of up to $2 an ounce this week over
official domestic prices that include a 10 percent import tax.
In the previous week, they were offering a discount of up to $3.
"People do not have cash to buy gold in rural areas, while
urban consumers are in holiday mood. They are not interested in
buying gold," said Mukesh Kothari, director at bullion dealer
RiddiSiddhi Bullions in Mumbai.
Last month, Prime Minister Narendra Modi scrapped 500- and
1,000-rupee banknotes, or 86 percent of the value of cash in
circulation, as part of a crackdown on corruption, tax evasion
and militant financing.
The move hit wedding season demand, dealers said.
Indian jewellers rely on the wedding season for an uptick in
demand during winter after the end of key festivals such as
Diwali, but this year wedding demand has fallen sharply due to
the cash crunch, jewellers said.
Local gold prices fell to 26,862 rupees per 10 gram
on Thursday, the lowest since Feb. 2, 2016.
Spot gold, which hit a 10-1/2-month low of $1,122.35
last week under pressure from a stronger dollar after a hawkish
rate hike forecast from the Federal Reserve, was on track for a
seventh straight weekly decline.
"Many investors have lost interest in gold over the last few
years since it gave negative returns. They also fear the
government may bring new rules to limit gold holding," said a
Mumbai-based dealer with a private bank.
The government had clarified earlier this month that "there
is no limit on holding of gold jewellery or ornaments."
Gold premiums in top consumer China fell from their near
three-year highs hit last week.
Premiums in China against the international benchmark
came down to $28-$29, traders said.
They rose to over $40 an ounce in the week to Dec. 16, the
highest since January 2014, according to Thomson Reuters data.
Premiums rose on fears of limited supply of the metal, traders
"There is some buying, but not very strong. People in China
or Hong Kong do not buy for Christmas, but only for the Chinese
New Year and we have three more weeks to go for that," said
Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong
In Hong Kong and Singapore, sellers offered premiums of up
to $1.50 an ounce. Discounts in Tokyo remained at 50 cents.
(Additional reporting by Nallur Sethuraman in Bengaluru;
Editing by Subhranshu Sahu)