* Comex eligible gold stocks rise after sharp drawdown
* Physical demand from China, India peters out
* Ratio of Comex gold covered by registered stocks surges
By Frank Tang
NEW YORK, Nov 22 (Reuters) - Eligible gold stocks sittinginside U.S. exchange warehouses have risen to a seven-monthhigh, a sign that physical demand has weakened after April'shistoric price drop unleashed a bout of pent-up buying.
The return of some of the gold to the warehouses after anearlier outflow suggested the wave of physical buying might haverun its course, removing a key support to prices.
CME Group's Comex warehouse stocks are seen as areflection of the supply-demand picture, since bullion ownerstend to move their stockpile to gold markets where demand is thestrongest and customers are willing to pay the highest premiumabove spot.
"Eligible" gold stocks are the exchange-approved 100-ouncegold bars held inside the five New York Comex warehouses and canbe readily converted into "registered" stocks - the gold used tomeet physical delivery requests from the buyers of CME goldfutures.
While eligible gold stocks swelled to 6.6 million ouncesafter hitting a near 4-year low of 5.8 million in April,registered stocks have continued to shrink since April to lessthan 600,000 ounces, the smallest since April 1998, exchangedata showed.
After a two-day $225 drop in mid-April, huge premiums inChina and India for physical gold prompted participants to drawon their gold stocks to ship bullion into Asia for a much higherprice compared to other parts of the world.
"We can certainly see that the trend has deteriorated interms of the flow of metals going from the West to the East,"said Suki Cooper, precious metals analyst at Barclays Capital inNew York. "We have seen the sharp decrease in Comex stocks hasstabilized, implying that the metal is not needed to be drawn."
In late October, Chinese gold prices fell toa discount to spot for the first time this year, as fears of acredit tightening prompted investors to sell bullion for cash.
In India, gold excise tax hikes and import restrictionssharply undermined the country's gold demand, even thoughpremiums remained lofty there due to the supply crunch. India isset to lose its top-gold-consumer status to China this year.
Meanwhile, reduced trading interest among funds andinstitutional investors, combined with long liquidation sinceApril, sent registered stocks to a 15-year low.
"Gold was in the middle of a bear market in the 1990s lasttime registered stocks were trading at these levels," saidJeffrey Christian, a veteran gold analyst and founder ofcommodities consultant CPM Group.
A spike in the ratio showing the total ounces of gold inComex open interest divided by its registered stocks hasunnerved some market participants.
The gauge has surged, to a record high 68 on Friday fromjust 14 in March, data showed, indicating in theory there isonly one ounce of gold in the warehouse to cover 68 ouncesclaimed by the total sum of all outstanding gold contracts.
Christian said that dwindling registered stocks should notaffect prices because most bullion traders want their futurescash settled. Historically, not even 5 percent of futuresholders take physical deliveries, he said.
Year to date, gold was down 26 percent, on track to snap astreak of 12 consecutive yearly gains. A sharp rally in U.S.equities, an improved economic outlook and the absence ofinflation have sapped gold's safe-haven appeal.
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