Asian gold buyers retreat as prices trapped in tight range

By A. Ananthalakshmi

SINGAPORE (Reuters) - Expectations of a further drop in gold prices and better returns from surging equities in China have tamed demand for the precious metal in Asia despite recent price declines.

Gold slid to its lowest since March on Friday but failed to draw strong buying interest in the world's two top buyers - equities-obsessed China and India, where concerns over a poor monsoon and lack of wedding demand are keeping purchases tight.

Gold has struggled to break out of a $1,170-$1,230 an ounce range since mid-March. The price fell to an 11-week low of $1,162.35 on Friday, but has since traded back above $1,170.

Lack of robust buying in Asia could add more pressure on global prices, already hurt by uncertainty over a U.S. rate hike.

Recent demand indicators have not been encouraging. Premiums in other major trading centres across Asia have barely moved in the past few weeks. The Perth Mint's sales of gold and silver products tumbled to three-year lows in May.

"Since the first quarter, for us demand has gone extremely quiet," said Ron Currie, sales and marketing director at the Perth Mint. "When (the price) is set in a very narrow range, there is no attraction for people to invest."

The recent price drop "hasn't made any difference at this stage," he said.

Premiums in China, the top consumer of gold in the first quarter, ticked up to $2.50 an ounce after Friday's drop, from $1.50-$2 last week, but buying has not increased significantly, dealers said.

Other higher-yielding options have attracted investors in China.

The weak demand in China is largely because of the stronger performance in stock market, said a Shanghai-based fund manager, adding the lack of volatility in gold has also kept buyers away.

China's CSI300, the index of the largest listed companies in Shanghai and Shenzhen, has jumped about 50 percent so far this year versus a 0.5 percent drop in gold prices.

In India, concerns over a deficient monsoon have raised worries of lower demand from rural areas, which account for nearly two-thirds of total demand. Seasonally low period for weddings, typically a big source of jewellery demand, is also not helping.

Unless prices drop drastically, traders don't expect demand to take off in a big way.

Demand may resurface if gold drops below $1,150 and pick up further closer to $1,100, said HSBC analyst James Steel.

(Additional reporting by Manolo Serapio Jr; Editing by Gopakumar Warrier)