LONDON, Oct 23: Gold drifted lower in European trade on Wednesday, failing to post gains despite further falls in global stock markets.

Spot gold was quoted at $312.60/313.10 a troy ounce at 1527 GMT, down from $312.95/313.45 at the New York close on Tuesday.

Further liquidation of long positions returned to weigh on the precious metal but short-term gains for bullion were not ruled out given current thin trading conditions.

Daily studies have turned bullish from oversold, arguing that the market is at risk of a further squeeze into next week, said J.P. Morgan analysts in a report.

Good physical demand for the metal at $310 was also supportive, analysts said.

Physical demand remains strong in Asia, the Middle East and India, with some dealers reporting remarkable strength in Indian enquiry, outstripping that of recent years, on the run-up to Diwali, said the industry-backed World Gold Council (WGC).

Diwali, or Festival of Lights, falls on November 4.

Gold imports from India, the world’s largest consumer of the precious metal, were expected to rise this week as global prices have fallen and festive buying has increased.

Gold imports, which accounted for nearly 70 per cent of the country’s consumption in 2001, could rise to 15,000 bars a day by end of the week from about 11,000 bars now, Indian-based traders estimated this week.

Gold demand in India generally rises during the annual festival season, which begins in mid-August and peaks in early November with Diwali. WGC also noted decent gold demand from Japan.—Reuters