Post-Diwali gold sales slow; premiums hardly moved

By Lewa Pardomuan

SINGAPORE (Reuters) - Bullion holders from Indonesia cashed in their gold on Monday as the precious metal held near a record, but physical trading slowed to a trickle in Asia as the festive season ended in India, stirring price correction hopes.

Festive demand in India, the world's largest gold consumer, peaked with the Diwali festival of lights last Saturday. Weddings take place during the festive season and jewellery forms an essential part of the dowry basket.

"The markets have been dull post-Diwali and demand is quite lacklustre, with prices scouting around all-time high levels," said Pradeep Unni, senior research analyst with Richcomm Global Services in Dubai.

"Technically, charts have reached the overbought zone and this, along with a demand dip in physical markets, is indication of a correction, although such a correction could be narrow."

Cash gold edged up to $1,053.10 an ounce, within sight of a lifetime high of $1,070.40 hit last week. Gold has gone up more than 20 percent this year, with a relative strength index of 65 indicating overbought territory.

A higher gold price attracted selling from Indonesia but premiums for gold bars were barely changed at 60 cents to spot London prices in Singapore, suggesting the volume was small.

"Maybe India is still in a holiday mood. They should be quiet this week. I would expect consumers to buy on dips but gold may have to go down to around $1,030," said a dealer in Singapore, referring to levels last seen in early October.

India's gold demand has shrunk this year because of volatile prices. It has imported 600 to 800 tonnes of gold each year over the past five years, but imports are set to fall to around 500 tonnes in 2009 as high prices have discouraged purchases.

Weakness in the U.S. dollar and fears of rising inflation have powered gold prices to a record this year but analysts said a correction was possible.

For a graphic on India's gold imports and prices since 1997, click on:

r.reuters.com/cap84d "If other investments start to look a bit more attractive, such as equity markets, and if over the course of 2010, we start to get increases in official international interest rates, then I think we might see the gold price come back (down)," said David Moore, commodities strategist at the CBA.

Moore expected gold to trade at $1,025 at the end of this year, nearly 3 percent below the current level. Premiums for gold bars slipped to 20 cents an ounce to spot London prices in Hong Kong from 30 to 40 cents last week as dealers saw a slight increase in selling from jewellers.

Selling from retail investors persisted in Tokyo but purchases from the industrial sector prevented the discount for gold bars from widening further. Gold bars were offered at a discount of $1 to the spot London price, unchanged from last week.

(Editing by Clarence Fernandez)

(For more news on Reuters Money visit www.reutersmoney.in)