By Lewa Pardomuan
SINGAPORE, Aug 20 (Reuters) - Premiums for gold bars shot to their their highest level this year on Wednesday, as consumers returned to the physical market in droves, encouraged by a sharp drop in bullion prices ahead of key religious festivals in Asia. Dealers in Singapore and Hong Kong reported tight supplies of gold bars as demand picked up in India, China, Indonesia, Vietnam and Thailand, pushing premiums to their best level in 2008 above $1 an ounce.
Gold plunged to nine-month lows around $773 an ounce last week after a surge in U.S. dollar triggered selling by investors and speculators. Prices have bounced to around $816 an ounce, partly driven by physical buying from jewellers.
"Supply is tight everywhere. We don't have enough supply. People think I don't want to sell to them," said Beh Hsia Wah, a dealer at United Overseas Bank in Singapore.
Premiums for gold bars jumped to $1.20 an ounce the spot London prices in Singapore, from 75 cents last week and 20 cents at the start of 2008
Dealers said consumers were buying gold on dips, with India, the world's largest consumer of gold, stepping up purchases ahead of a series of religious festivals which culminate in October with Diwali, the Hindu festival of lights.
Indonesia, which is Southeast Asia's largest buyer of gold jewellery, started to purchase again before the Eid al Fitr celebration in October. Indonesia is also the world's most populous Muslim nation.
"I guess with this good demand, the market will be well supported above $800," said a dealer in Singapore.
Gold prices rose as much as 23 percent this year to hit a lifetime high of $1,030.80 in March before sliding on profit taking, oil's falls from record highs and a rising dollar, which in theory makes dollar-priced gold more expensive to buy.
Gold bars were quoted at a premium of $1.50 an ounce to spot London prices in Hong Kong, driven by active physical buying. The bars were on par with London prices last week.
In Japan, premiums for gold bars trebled to 75 U.S. cents an ounce after the correction in bullion prices spurred buying by retail investors.
Volatility in gold prices may persist in coming weeks, with movements in the dollar and oil likely to set its direction.
"Encouragingly, a lower, less volatile gold price should attract more physical gold buying from jewellers who have been sidelined recently by the strong movement in prices," ANZ said in a report.
"Having said that, physical demand only mildly influences prices." (Editing by Ben Tan)