Dealers offer gold discount for first time in five months

By Rajendra Jadhav and Meenakshi Sharma

MUMBAI (Reuters) - Gold importers are offering a discount of $2 an ounce versus London prices for the first time in almost five months due to market oversupply.

Importers generally charge a premium over London prices but demand in the world's second-biggest gold consumer is expected to fall sharply this month after shipments surged in the past three months.

"Supply is in excess but demand is very weak because there are no weddings and festivals until mid January. The overall sentiment is weak," said Prithviraj Kothari, executive director of India Bullion & Jewellers' Association.

The south Asian country imported 151.6 tonnes of gold in November, up nearly 38 percent from October, as traders bought aggressively expecting curbs on overseas purchases.

But instead of putting in place more restrictions, the government last month surprisingly scrapped the so-called 80:20 rule mandating traders to export a fifth of all imported gold. Traders now have few takers for the gold they bought in November.

"Trading agencies were expecting curbs on imports and subsequently higher premium in December," said Daman Prakash Rathod, director with Chennai-based wholesaler MNC Bullion.

"So they imported more than their requirement. They are now struggling to find buyers."

India last year levied a record import duty of 10 percent on gold and introduced the 80:20 rule after surging trade and current account deficits sparked the worst currency turmoil since the 1998 balance of payment crisis.

India's gold imports are typically strong in the second half of the year as banks and retailers stock up for weddings and major festivals such as Dhanteras and Diwali, celebrated in October.

"New imports are not happening because of a liquidity crunch and subdued demand," Kothari said.

Lower gold imports in December will help India bring down the trade deficit which widened to an 18-month high in November.

"In December imports would be around 30-40 tonnes. Trading activity is quite dull now and it will remain so in the next few days," said a Mumbai-based bank dealer.

(Editing by Krishna N. Das; editing by Jason Neely)