By Sethuraman N R and Rajendra Jadhav
BENGALURU/MUMBAI (Reuters) - Gold premiums rose in China this week as traders said supply of the precious metal was limited due to tightening import restrictions to stem currency outflows.
Premiums climbed to over $20 an ounce against the international benchmark from $15-$17 last week.
"The imports are happening, but with some restrictions. The government has been doing this since November to control the capital outflows. Now, it is becoming a bit aggressive with stringent reviews," said a Hong Kong-based executive with a precious metals trading firm.
"The quotas are reviewed regularly and extended on a case by case basis. The demand has been more than supply."
China gold premiums surged to their highest in nearly three years late last year as traders saw Beijing's efforts to restrict import licences impacting supply.
China permits only 13 banks, including three foreign lenders, to import gold, Shanghai Gold Exchange said.
China's monthly net gold imports via main conduit Hong Kong plunged 38.3 percent in January.
Hong Kong prices were quoted at a premium of 70 cents to $1.10 an ounce.
"There is limited supply in the market. The banks are looking for higher premiums and would want to cash in on the demand," a trader with a leading bullion import bank in China said.
"Domestic investors have been buying to hedge currency risk. So, the demand is going up."
In India, the world's second-largest consumer of the metal, demand remained sluggish despite a correction in local prices due to the rupee strengthening against the dollar.
Dealers in India were charging a premium of up to $1.50 an ounce this week over official domestic prices. They were charging a premium of $2.00 last week. The domestic price includes a 10 percent import tax.
"Demand is weak as people are busy paying advance tax for the fiscal year," said Ashok Jain, proprietor of Mumbai-based wholesaler Chenaji Narsinghji. The Indian fiscal year runs from April to March.
In the local market, gold futures were trading around 28,470 rupees per 10 grams on Friday. They have fallen over 4 percent in three weeks.
Investment demand for gold could fall as the Indian share market has been rallying since Prime Minister Narendra Modi's ruling party won a key state election in northern Uttar Pradesh, said Prithviraj Kothari, managing director of RiddiSiddhi Bullions Ltd.
Meanwhile, premiums in Singapore rose to about $1.20, compared with the 90 cents to $1 range seen the week before.
Prices in Japan were at a discount of 50 cents to a dollar, against the 75 cents to $1 levels in the prior week.
(Additional reporting by Arpan Varghese in Bengaluru; Editing by Biju Dwarakanath)