Asian gold bugs eye price weakness, c.bank buying

A goldsmith displays gold bangles in his jewellery shop in Istanbul April 22, 2011.

JAKARTA (Reuters) - Weak bullion prices and prospects for bargain buying by central banks will take centre stage at a gold industry gathering in Indonesia this week, along with the country's plans for a raft of new mining regulations that could be worrying for investors.

Gold has lost some of its safe-haven appeal in recent weeks, as investors cash in despite market turmoil partly due to the euro zone debt crisis, but there are expectations that lower prices could attract buyers.

"The retracement in gold is one feature," said Nick Moore, head of commodity research at RBS, speaking ahead of the Asia Gold Summit in Jakarta this week. "From the consumer side, the fall-off in prices in dollar terms is welcome.

"The other thing people will be looking at will be the central banks ... they could well take advantage of these lower prices."

Although share prices in most gold producers had fallen this year, weaker domestic currencies could offer some support as costs would fall while a strong U.S. dollar would help revenues, he added.

Gold is now trading at around $1,572.58 an ounce, almost a fifth off the record seen last year at $1,920.30.

Central bank buying, led by emerging economies, has been a trend of the past several years. In 2011, central banks were net buyers for a second year in a row.

"There is a whole series of Asian countries which haven't historically had high gold holdings -- are they going to be attracted at these lower levels?" said Moore.

Gold hit a record last year when investors turned to the metal as a safe haven during the debt crisis in Europe.

This year, however, declines in other markets have caused investors to sell gold for cash, sending prices to $1,527 in mid-May, the lowest in more than four months.

The market is also discounting the possibility that the Fed could adopt more policy measures to stimulate growth, according to analysts.

"There is a degree of frustration that gold's performance is relatively unchanged for the year to date," said Ross Norman, chief executive of bullion broker Sharps Pixley. "Many gold bugs are frustrated and trying to puzzle whether gold has suddenly shifted and become a risk asset."

Indonesia, one of the world's top 10 gold producers, is also on the radar after it imposed a 20 percent duty on ore exports and asked miners to submit plans to build processing facilities to add value to the country's mining sector ahead of a 2014 ban on raw mineral exports.

PHYSICAL DEMAND

Despite the falling gold price, physical demand from India, the world's biggest buyer of the yellow metal, is likely to remain sluggish, due in part to a sliding rupee.

The wedding season came to an end in India last month, and gold demand is usually weak during monsoon months in the south Asian country and picks up in September.

"There will be talk about the weaker physical market, especially from India," said Lynette Tan, an analyst with Phillip Futures in Singapore. "There have been some disappointing imports due to the weak rupee, and taxes from the government."

On the geopolitical front, investors will eye the European Union's July 1 ban on insuring tankers carrying Iranian crude oil and the little progress made on the Islamic country's nuclear programme, which may boost safe-haven buying in gold.

Data from precious metals consultancy Thomson Reuters GFMS showed Indonesia was the seventh largest gold producing country last year, with output of 111 tonnes. The country's mining sector contributes around 12 percent of GDP.

Indonesia is also looking to limit foreign ownership in mines to no more than 49 percent after 10 years of production.

"Governments are keen to extract more and more value out of national resource projects -- across the world they are all doing it," added Norman.

(Reporting by Michael Taylor; Editing by Clarence Fernandez)