By Arpan Mukherjee Of DOW JONES NEWSWIRES WELLINGTON (Dow Jones)--Gold slipped lower in the Asian session Friday as investors booked profit following the strong rally since the start of the month, but traders said the downside is limited with strong physical demand in the region providing a floor. At 0510 GMT, spot gold was at $1,640.80 a troy ounce, down $7.80 from its previous close. Traders said gold looked well-supported between $1,630/oz and $1,640/oz and the way it has held up this week amid index re-weighting, pointed to the potential for further gains in the coming days. The Dow Jones-UBS Commodity Index and the Standard & Poor's GSCI were conducting their annual re-weighting this week. Such exercises usually prompt investors and funds who track the indices to sell last year's outperformers and buy underperformers to bring the composition of their portfolio back into line. "[Price] dips will be bought and with the Chinese New Year coming up, demand will only push higher from here," a Hong Kong-based trader said. Typically, gold purchases increase ahead of the Lunar New Year which falls on January 23 this year. However, in India, historically the biggest market for gold, demand has been capped by a weaker rupee that makes dollar-priced commodities more expensive. "If prices fall to around INR26,000 ($506.23) per 10 grams, we could see a spike in demand," said Chintan Karnani, Delhi-based director of Insignia Consultants. The February gold futures contract on the Multi Commodity Exchange of India was down 0.7% at INR27,480/10 grams Friday. ANZ analysts said in a note that gold appeared to be closing in on the 50-day moving average after prices "convincingly punched" above the 200-DMA. Spot gold's 50-DMA currently is around $1,670.44/oz. Some market participants said investors are becoming increasingly optimistic that the gold market has stabilized after its late-2011 correction. In the case of silver, Barclays Capital said in a note that a move above $30.80/oz, will set the metal up for the house's next target near $32/oz. At 0510 GMT, spot silver was at $29.89/oz, down 36 cents while platinum was at $1,481/oz, down $13 and palladium at $629/oz, down $7. "There is certainly an element of correction about the move. The discount of more than $200 to gold seen recently was not likely to be sustained for too long," Mitsui Global Precious Metals said in a note. It said platinum's performance this week has been driven by many factors apart from the much-discussed concerns over South African power shortages, which according to the house "have been overstated". Platinum has risen about 6% this week. -By Arpan Mukherjee, Dow Jones Newswires; 64-4-471-5990; arpan.mukherjee@dowjones.com

Source