March 5 (Reuters) - Demand for physical gold eased in India this week as volatile prices amid escalating Middle East conflict deterred buyers, while premiums in China held firm on a pickup in investment demand.
Airspace closures across the region have sharply reduced supplies, narrowing discounts in India.
"Retail buyers (in India) are struggling to digest the hefty price hike. At these levels, buying gold is becoming unaffordable," said Varghese Alukka, managing director of jeweller Jos Alukkas, based in Thrissur in the southern state of Kerala.
Domestic gold prices in India were trading around 160,000 rupees ($1,745.96) per 10 grams on Friday, after rising to 169,880 rupees earlier this week.
Bullion dealers in the region offered discounts of up to $28 per ounce to official domestic gold prices this week, inclusive of 6% import and 3% sales levies, compared with last week's discount of up to $65 - a 10-month high.
Gold imports to India from key supplier the United Arab Emirates have nearly halted due to widespread flight cancellations and airspace closures following the conflict in the Middle East, helping narrow discounts, said a Mumbai-based dealer with a private bank.
"Wedding season demand is still weak. Buyers are holding off on purchases because prices are so volatile," he added.
In India, weddings are a major driver of gold purchases, with jewellery forming a crucial part of a bride's attire and a common gift from family and guests.
Meanwhile, physical gold demand in Chinese markets remained robust despite higher spot prices.
Gold traded at premiums of $13-$15 an ounce over global benchmark prices this week, slightly above last week's $12-$13 premium.
A steady premium "means physical (gold) demand is still very steady (in China), even after the gold price was above $5,000... you can see people continue to buy some gold for long term investment," said Peter Fung, head of dealing at Wing Fung Precious Metals.
Spot gold jumped more than 8% in February, extending gains for a seventh straight month amid heightened global political and economic uncertainties.
Prices were largely volatile and has fallen about 3% so far this week on fading interest rate-cut prospects and inflation concerns due to higher energy prices. Prices were around $5,135 per ounce on Friday.
In Hong Kong, physical gold traded at par to premiums of $2, while in Japan , gold was sold at par to premiums of up to $1.
In Singapore , gold was traded at a premium of about $2.25, lower from premiums of $3.50-$4.80 last week.
($1 = 91.6400 Indian rupees)
Reporting by Noel John in Bengaluru and Rajendra Jadhav in Mumbai; Editing by Sumana Nandy
