Gold buyers retreat, rupee eyed

A shopkeeper shows gold jewellery to a customer inside his shop in New Delhi June 12, 2008.

MUMBAI (Reuters) - Physical buyers of gold from India retreated as the rupee depreciated on Monday even as prices stayed in the vicinity of its lowest level in two weeks. Traders also eyed the progress of monsoon rains, which is vital to rural gold demand.

* At 0828 GMT, the most-active gold for August delivery on the Multi Commodity Exchange (MCX) was 0.13 percent higher at 29,710 rupees per 10 grams. The contract struck its lowest level in two weeks of 29,457 rupees on Friday.

* "Deals are very very slow now," said a dealer with a foreign bank supplying gold to India, adding that though there were deals on Friday "all went quiet as someone had switched off the light" after rupee slid.

* The rupee, which depreciated after a stronger opening on Monday morning, plays an important role in determining the landed cost of the dollar-quoted yellow metal.

* "We expect demand to remain decent near recent lows for now, but that would quickly disappear if INR weakness returns," UBS said in a note to clients, adding the rupee continues to be the "main driver" for physical demand from India.

* Rural areas, which contribute to 60 percent of the gold demand, depends on monsoon rains for better farm productivity, yields and profits.

* Silver traded a tad higher following the yellow metal.

* Silver for July delivery on the MCX was 0.41 percent higher at 52,199 rupees per kg.

(Reporting by Siddesh Mayenkar; Editing by Jijo Jacob)