Trading in Asia's physical gold market was muted at the start of 2012 as most market participants remained on the sidelines awaiting a clear direction in prices, but the upcoming Lunar New Year is expected to push up bullion demand.
Tightness in bullion supply in the region will likely ease next week, as refineries just restarted operation after the holidays at the end of the year, dealers said.
Despite tight supply, gold bar premiums in Asia were steady from a week earlier. In Hong Kong, dealers quoted premiums in a range of $1.80 to $2.50 an ounce above spot prices, compared to $2 to $2.50 before the holidays.
"Funds are buying some after the year-end liquidation," said a Hong Kong-based dealer, adding that buying interest from jewellers was lukewarm after prices jumped 3 percent so far this week.
Spot gold traded near $1,620 an ounce on Thursday, nearly $50 higher than the end of 2011. Prices have been trapped in a range between $1,520 and $1,620 over the past three weeks.
Spot gold traded on the Shanghai Gold Exchange stood at 330.80 yuan a gram, or nearly $1,633 an ounce.
"The high premium in Shanghai is caused by the seasonal demand ahead of the Lunar New Year," said a Shanghai-based bank official.
DEMAND TO IMPROVE ON LUNAR NEW YEAR; SURGE UNLIKELY
Bullion demand is likely to improve as the Lunar New Year, which falls on January 23 this year, approaches, but a buying spree as seen last year is not expected, said dealers and analysts.
Last January premiums in Hong Kong shot up to $3 as Chinese jewellers rushed to stock up ahead of the Lunar New Year holiday.
"The Lunar New Year demand this year may not be as good as last year," said Hou Xinqiang, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.
"Liquidity is the main problem -- this time last year liquidity was abundant and now it has been tightened quite a bit, for both businesses and households."
Tokyo's bullion market resumed business on Thursday after the new year holiday. A new tax law had triggered a selling rush among Japanese bullion investors at the end of last year.
Gold bar prices were on par with spot prices in Tokyo, compared to $1 premium at the beginning of last week, said an official at a large bullion house.
In Singapore, dealers reported a slow start to the year.
"We have seen some light selling, and expect to see more if prices rise to $1,630," said a Singapore-based dealer.
Premiums in Singapore were quoted in the range of $1.30 to $2 an ounce, dealers said.
Market participants will be watching for signs of improving demand ahead of the Lunar New Year, while also keeping an eye on Iran and the euro zone debt crisis.
European governments have agreed in principle to ban imports of Iranian oil, dealing a blow to Tehran that crowns new Western sanctions months before an Iranian election.