Gold prices fall, long weekend spurs demand

A shopkeeper displays a gold necklace at a jewellery shop in Agartala, October 18, 2007.

MUMBAI (Reuters) - India's gold demand was up on Monday after a 9 percent drop from last week's all-time high encouraged people to buy moderate quantities of the metal, dealers and traders said.

A long weekend owing to religious holidays also led to quick purchases as buyers needed to replenish their supplies, traders said.

"Demand is specially good as the market was inactive ahead of Holi," said Pankaj Agarwal of Brijwasi Traders & Bullions Pvt Ltd in Lucknow.

Many banks and businesses were closed toward the end of last week for Good Friday, Id and Holi.

Overseas gold prices, that guide Indian markets, fell as the dollar strengthened and crude oil cooled off falling below $100 a barrel.

Gold generally has an inverse relation with the dollar as the two compete for investors' wealth but the metal usually follows crude oil as the latter stokes inflation, while gold busts it.

Traders were also buying to take advantage of an arbitrage opportunity between spot and futures, which is about 100 rupees currently, a dealer at a large private bank said.

Demand can intensify if prices stay stable, Agarwal said.

"If it stays like this, many more people who are waiting for further falls, will jump into the market," he said.

India's busy season for gold will continue till the end of May that would bring a steady flow of buyers to jewellery shops. Lower prices will encourage them to buy more, traders said.