Demand in India -- the world's largest consumer of the yellow metal -- is expected to rise from the middle of September after a good monsoon season, reaching a peak in mid-October during Diwali, the main Hindu festival of lights.

India accounts for some 80 per cent of demand for gold imported into Dubai, one of the seven emirates that make up the United Arab Emirates. Indian bullion demand and imports have so far this year posted strong growth in line with weaker world prices and heavy monsoon rains have led many analysts to predict continued robust demand for the remainder of 1998.

Imports into India reached 356.6 tonnes in thefirst-half of the year, versus a total of 526.4 tonnes for the whole of 1997, according to estimates by the World Gold Council (WGC).

Second quarter demand hit a record 206.1 tonnes, a rise of 15 per cent from the same period in 1997, WGC estimates show.

Rising Indian demand has traditionally led to Dubai importing more gold from Europe and South Africa but changes in Indian import regulations in October has already cut into the emirate's re-export business.

Bullion imports into the emirate during the first seven months of the year were 27.6 percent down year-on-year to 268.3 tonnes, according to figures compiled by Dubai customs.

"Since Indian banks were allowed to import directly they have come to us less and less," said one Dubai-based trading house with experience in the Dubai to India trade route. Gold prices in Dubai tracked firmer world levels. Dubai's benchmark ten tola (TT) bar -- 3.746 ounces of 24-carat gold -- rose to 3,965 dirhams ($1,080) from 3,800 dirhams a week earlier.

The Dubaipremium, which is applied to cover transport costs, insurance and profit was unchanged at $1.00, compared to a traditional $1.25, traders said. Spot international gold was last quoted on Saturday at $286.60/287.10 an ounce, up from $273.75/274.25 a week ago when commodities sank close to their lowest level in two decades on jitters in global stock markets.

Heavy shortcovering by funds has been a Prime motor behind the recovery though the outlook for the yellow metal remains uncertain given the shaky outlook for emerging markets.