* 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 sitting inside U.S. exchange warehouses have risen to a seven-month high, a sign that physical demand has weakened after April's historic price drop unleashed a bout of pent-up buying.
The return of some of the gold to the warehouses after an earlier outflow suggested the wave of physical buying might have run its course, removing a key support to prices.
CME Group's Comex warehouse stocks are seen as a reflection of the supply-demand picture, since bullion owners tend to move their stockpile to gold markets where demand is the strongest and customers are willing to pay the highest premium above spot.
"Eligible" gold stocks are the exchange-approved 100-ounce gold bars held inside the five New York Comex warehouses and can be readily converted into "registered" stocks - the gold used to meet physical delivery requests from the buyers of CME gold futures.
While eligible gold stocks swelled to 6.6 million ounces after hitting a near 4-year low of 5.8 million in April, registered stocks have continued to shrink since April to less than 600,000 ounces, the smallest since April 1998, exchange data showed.
After a two-day $225 drop in mid-April, huge premiums in China and India for physical gold prompted participants to draw on their gold stocks to ship bullion into Asia for a much higher price compared to other parts of the world.
"We can certainly see that the trend has deteriorated in terms of the flow of metals going from the West to the East," said Suki Cooper, precious metals analyst at Barclays Capital in New York. "We have seen the sharp decrease in Comex stocks has stabilized, implying that the metal is not needed to be drawn."
In late October, Chinese gold prices fell to a discount to spot for the first time this year, as fears of a credit tightening prompted investors to sell bullion for cash.
In India, gold excise tax hikes and import restrictions sharply undermined the country's gold demand, even though premiums remained lofty there due to the supply crunch. India is set to lose its top-gold-consumer status to China this year.
Meanwhile, reduced trading interest among funds and institutional investors, combined with long liquidation since April, sent registered stocks to a 15-year low.
"Gold was in the middle of a bear market in the 1990s last time registered stocks were trading at these levels," said Jeffrey Christian, a veteran gold analyst and founder of commodities consultant CPM Group.
A spike in the ratio showing the total ounces of gold in Comex open interest divided by its registered stocks has unnerved some market participants.
The gauge has surged, to a record high 68 on Friday from just 14 in March, data showed, indicating in theory there is only one ounce of gold in the warehouse to cover 68 ounces claimed by the total sum of all outstanding gold contracts.
Christian said that dwindling registered stocks should not affect prices because most bullion traders want their futures cash settled. Historically, not even 5 percent of futures holders take physical deliveries, he said.
Year to date, gold was down 26 percent, on track to snap a streak of 12 consecutive yearly gains. A sharp rally in U.S. equities, an improved economic outlook and the absence of inflation have sapped gold's safe-haven appeal.