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MUMBAI/BANGALORE, Dec 30 (Reuters) - Gold discounts in India widened this week as a rebound in global prices prompted buyers to postpone purchases amid a severe cash crunch, while demand across Asia remained subdued.
Spot gold rose to its highest in over two weeks on Friday on a weaker dollar and was set to end 2016 more than 9 percent higher, marking its first annual gain in four years. For the week, gold is up about 2.5 percent and is poised to register its best weekly gain since early June.
In India, the world's No.2 consumer of the metal, dealers were offering a discount of up to $4 an ounce this week over official domestic prices that include a 10 percent import tax.
They offered discounts of up to $2.00 last week.
In the local market, gold prices were trading around 27,600 rupees ($406.48) per 10 grams on Friday, after falling to 26,862 rupees last week, the lowest level since Feb. 2.
"Demand is still weak. Rural consumers don't have enough cash in hand to make big purchases like gold," said Daman Prakash Rathod, a director at MNC Bullion, a wholesaler in Chennai.
Two-thirds of gold demand comes from rural areas where jewellery is a traditional store of wealth.
"Jewellers are not replenishing inventory due to poor retail demand," said a Mumbai-based dealer with a private bank.
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.
In top consumer China, gold premiums were at $20-$22 from the previous week's $28-$29 range, against the international benchmark.
Earlier this month, premiums climbed to 3-year highs, at over $40, on fears of limited supply of the metal which traders said was due to Beijing's efforts to restrict import licences.
China's net gold imports in November via its main conduit Hong Kong dropped 17.8 percent from October to the lowest in 10 months, data showed on Thursday.
Shanghai Gold Exchange, the world's biggest physical bullion exchange, said on Wednesday it will curb the amount of gold investors can trade at one time, a move analysts said would limit institutional investors' influence on prices.
"The physical side has been quiet this week as prices went up," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
In Hong Kong and Singapore, prices remained mostly unchanged from last week, at a premium of $1.00-$1.40 to the global benchmark. ($1 = 67.9000 Indian rupees) (Additional reporting by Swati Verma in Bengaluru; Editing by Biju Dwarakanath)