India, the world's second-biggest gold consumer, has said it will impose a 3 percent goods and services tax (GST) on gold, up from 1.2 percent currently.
The GST will replace a slew of federal and state levies from Saturday, transforming Asia's third-largest economy into a single economic zone with common indirect taxes.
While gold demand is usually weak in June, jewellery showrooms in key Indian cities like Mumbai and Kolkata were crowded this week.
"People are advancing buying to avoid paying additional tax," said Kumar Jain, vice president at Mumbai Jewellers Association.
Dealers were charging a premium of up to $10 an ounce this week over official domestic prices, the highest since mid-November. Last week, the premium stood at only $1. The domestic price includes a 10 percent import tax.
"The supply is limited in the market. Sellers have raised prices anticipating the GST," said a Mumbai-based dealer with a private bank.
India's gold imports surged fourfold in May from a year ago to 103 tonnes as jewellers increased purchases to replenish inventory and stock up ahead of the new sales tax, provisional data from consultancy GFMS showed.
In top gold user China, demand was slow, said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
Premiums in China ranged between $9 and $11 an ounce, compared to $8-$10 last week, traders said. In Hong Kong, premiums were unchanged at 50 cents to $1.
Demand from consumers and the industrial sector was low, said a Tokyo-based trader, adding it may continue for the next few months with spot gold unlikely to fall below $1,200 an ounce anytime soon.
Cash gold was trading at around $1,246 an ounce on Thursday, down 4 percent from a seven-month high hit earlier this month.
Premiums in Tokyo were flat against the benchmark price, down from a premium of 50 cents last week.
Physical gold demand has dropped with prices back around the $1,250 level, said a dealer at a bank in Singapore where premium was unchanged at $1 an ounce.
"A customer told me that because Ramadan did not coincide with the harvest period, that weakened the buying power during the festive period," she said.
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