Strong physical buying from China is expected to continue in the next few weeks, as jewellers and banks prepare for rising demand around the Lunar New Year festivities, with demand robust from the rest of Asia.

Retail demand for gold jewellery, as well as bars and coins, typically rises around the Lunar New Year, when people gift the gold items to family members and business associates.

In India, an import spree triggered by talk of further import curbs has slowed, as the government has not followed up with action.

"Many people have imported and they are still stocked up as there is no demand whatsoever, and even the Pongal festival has failed to generate any interest," said Daman Prakash Rathod, a director of wholesaler MNC Bullion in the south Indian city of Chennai, referring to a harvest festival that traditionally sees a spurt in gold purchases.

India's benchmark gold on the Multi Commodity Exchange stood at 30,842 rupees per 10 grams, up from this year's low of 30,625 rupees hit on January 4.

"There is no rush to import gold and even banks have ample stocks," said Bachhraj Bamalwa, chairman of trade body the All-India Gems and Jewellery Trade Federation.

Graphic: Gold in different currencies

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Physical buying from China is expected to stay strong in the run-up to the Lunar New Year, which falls early next month, but buying interest largely depends on price moves, traders said.

"Buying interest from China will depend on the spot price level," said Peter Tse, director of ScotiaMocatta.

"If gold rallies back to $1,700, that will inhibit any major demand from the physical market. The demand is elastic, which is quite different from the last couple of years."

Spot gold traded at $1,673.14 an ounce by 0756 GMT, having largely been confined to the range between $1,653 and $1,678 an ounce in the past few days.

China's consumer gold demand surged 41 percent in 2010, and another 21 percent in 2011, but the pace of growth fell off in 2012, coinciding with an economic slowdown. In the first three quarters of 2012, demand eased 0.6 percent from a year earlier to 576.9 tonnes, World Gold Council data show.

Gold bar premiums in Hong Kong, bullion's gateway to mainland China, stood at $1.30 to $1.70 an ounce above London spot prices.

In Singapore, premiums were steady at about $1.20 an ounce, dealers said.

In Tokyo, high gold prices in yen have prompted some selling from retail investors, as mounting pressure on the Bank of Japan to launch aggressive monetary stimulus sent the Japanese currency to a 2-1/2-low against the dollar.

If the yen keeps weakening, it may revive buying from Japanese investors who have been avid sellers into the gold rally in recent years, traders said.

The discount on gold in Tokyo was little changed from a week earlier, at about 50 cents.

WEEK AHEAD

Markets will closely watch a string of data from the United States and China to gauge the health of the global economy and speculate on what central banks will do next.

Ultra-loose monetary policy has been a key driver behind gold's twelfth year of gains in 2012.