Elsewhere, investors cashed in their holdings after gold hit a 2005 peak at $449.30 an ounce last week, cutting premiums for gold bars in key trading centres such as Hong Kong and Singapore, dealers said yesterday.

"The price is too high for buying," said Beh Hsia Wah, a dealer at United Overseas Bank in Singapore, where premiums fell to 30 US cents an ounce to the London spot price, from 50 cents last week.

Profit-taking and a firming US dollar have erased some of gold's gains but dealers in India said local buyers were hoping for more of a correction to around $432 an ounce.

"At current prices, gold demand is likely to be about 5 percent lower than a year earlier," said Bhargava N. Vaidya, a bullion analyst based in Mumbai, also known as Bombay. "The crop situation has improved, but the confidence level is low."

Weather officials say India's monsoon season has entered a weak phase after above-average rainfall in the past few months -- a break which could benefit winter crops such as paddy and oilseeds. Gold demand in India is very sensitive to the monsoon because 65 percent of the country's population depends on the agriculture sector.

India's gold consumption has been forecast to rise to 600 tonnes this year, up from around 590 tonnes in 2004, and rural India accounts for about 60 percent of Indian gold demand.

Indians see gold as an auspicious metal, which they give as a gift during religious festivals and weddings. Demand normally picks up from August with the beginning of the festival season and peaks in November during Diwali, the Hindu festival of lights.

Some dealers said gold was pausing for breath before rising again and breaking through a stubborn $450 an ounce resistance level.

But for the time being investors would cash in their holdings, leaving the physical market in the doldrums.

"I think people will start buying gold if it falls back to $433-$435. And, of course, there will be more buying if it goes down to $430," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.