Jewellers sell scrap gold after bullion hits 1-mth high

LONDON May 22 (Reuters) - Jewellers sold more scrap gold to dealers and trade houses on Thursday after bullion rallied to its highest level in more than a month.

But industry buying, notably by the electronics sector, remained steady. Gold rallied to its highest level since April 18 at $935.30 an ounce as record high oil CLc1 raised fears of inflation and spurred buying from speculators. But sales from jewellers capped gains and investors also started to book profits.

Gold XAU= later dropped from late New York levels to around $923 an ounce by 1201 GMT but it was still well above a four-month low of $845 an ounce hit in early May.

While physical trading was muted in Europe, dealers in Asia and the Middle East noted sales from jewellers. Purchases also slowed in India, the world's main consumer, due to the absence of major religious festivals.

"It's pretty dead at the moment but we've seen good physical demand in the last few weeks," said Beh Hsia Wah, a dealer at United Overseas Bank in Singapore.

"Gold may try $940 before it comes down again," said Wah, adding that selling from Indonesia, which is Southeast Asia's largest consumer, began to pick up.

Gold bars were quoted at a premium of between 60 and 80 U.S. cents an ounce against the spot London price in Singapore, little changed from last week <GOLD/ASIA1>.

Premiums were also unchanged at 30 cents in Hong Kong.

"The physical markets in India and the Middle East are limping as consumers have yet to flock to the shops," said Pradeep Unni, analyst at Vision Commodities Services in Dubai.

"The sharp reversals from the major slide have forced consumers to defer their purchases further. In India, physical cold sales have been much lower compared with that of last year. Dubai is facing the same kind of lucklustre sales," he added.

Demand for gold picked up in India earlier in May ahead of the Akshaya Tritiya festival, when purchases of precious metals are believed to bring lasting prosperity.

But demand is seen weak in the next couple of months, with farmers focusing on their crop during the monsoon season. Purchases for jewellery and investment fell 50 percent in the first quarter of 2008 in India due to high prices, the World Gold Council has said. India's jewellery and investment demand stood at 71 tonnes and 31 tonnes, respectively.

In Japan, another key market in Asia, many retail investors cashed in gold's gains but the electronics sector remained a keen buyer.

"Actually we can still see some buying from the general public because of inflation fears. But I guess, there's more liqudation from the general public," said a dealer at a bullion trading house in Tokyo.

"It seems the industrial sector has no choice but to buy." (Editing by Peter Blackburn)