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Gold premiums in India almost halved this week on hopes the new government would ease restrictions on imports of the precious metal, while demand in rest of Asia failed to pick up despite a drop in prices.
Indian premiums fell to $30-$40 an ounce over the global benchmark, from $80-$90 last week, dealers told Reuters.
India - the world's second biggest consumer of gold after China - imposed curbs on bullion imports last year, including a record 10 percent duty on overseas purchases in a bid to control its ballooning current account deficit.
The government also introduced the so-called 80-20 rule that required a fifth of all imports to be exported.
The restrictions are likely to be eased by the country's new government led by Narendra Modi, industry officials had said earlier this month. Modi has said any action on gold should take into account the interests of the public and traders, not just economics and policy.
The Indian central bank eased some restrictions on gold imports earlier this month allowing "star trading houses", private jewellery exporters which had been barred from importing gold since July 2013, to resume imports.
"Premiums have reduced drastically due to the relaxation and expectations that more of the curbs will be eased," said Bachhraj Bamalwa, director with All India Gems and Jewellery Trade Federation.
"I don't expect premiums to fall more until and unless the 80-20 rule is removed completely," Bamalwa said, adding that demand has been subdued.
Scarcity of the metal and the high premiums have discouraged some consumers from buying gold and prompted many to postpone purchases. Premiums hit a record $160 last December.
"Imports from the star trading houses haven't started as yet, it would take another 8-10 days for imports to happen," said an official with a private bank importing bullion.
Meanwhile, elsewhere in Asia gold demand failed to pick up despite prices heading for their worst week in two months, with premiums across major trading hubs little changed.
"We are seeing weakness across Asia, in China, Thailand and other parts of southeast Asia," said one dealer in Hong Kong.
"It's been very quiet because people bought a lot last year and they are holding back now. I don't think we will see any significant increase until the latter half of the year."
Gold prices fell 28 percent last year, the first annual decline in 13 years, releasing pent-up demand across the world. The