Tepid demand as price clings to $1,200, weak monsoon in India

By Manolo Serapio Jr and Meenakshi Sharma

SINGAPORE/MUMBAI (Reuters) - Gold buying in Asia was slow this week as firmer spot prices turned off potential buyers, especially in China, and a weak monsoon threatened demand in India.

Spot gold is trading just below $1,200 an ounce on Friday and not far below a seven-week high reached earlier in the week, frustrating Chinese buyers who were hoping for a steeper decline in prices.

"Nobody wants to buy gold when it's around $1,200," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong. "Right now, the stock market is a more profitable investment than the gold market."

Reflecting slack demand, physical gold flipped to a discount of as much as $16 an ounce over the global spot benchmark on the Shanghai Gold Exchange earlier in the week, before returning to a small premium.

Premiums in Hong Kong were also steady at between $1 and $1.30 an ounce, said Leung.

"Because of China's anti-corruption drive and economic reforms, I think physical gold demand in the mainland would only increase moderately this year," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

China's economy is forecast to grow this year at its slowest pace in 25 years.

In India, gold premiums were largely steady at $3 an ounce over international prices, but dealers expect demand to improve ahead of Akshay Tritiya this month, a key gold buying festival.

"Demand is slowly picking up ahead of Akshay Tritiya and weddings in May, but poor rainfall this season might hurt demand from the rural sector," said Karan Vasa, marketing head at Riddisiddhi Bullions.

Nearly 60 percent of India's gold demand comes from rural areas that depend on the monsoon, which was weak this year.

India's gold demand could drop to 700 tonnes this year, said Prithviraj Kothari, vice president of India Bullion & Jewellers' Association, as millions of Indian farmers hit by erratic weather trim gold purchases.

Indian consumer demand for gold jewellery and investment reached 842.7 tonnes last year, according to data from the World Gold Council.

(Reporting by Manolo Serapio Jr. in Singapore and Meenakshi Sharma in Mumbai; Editing by Michael Perry)