Gold imports by India, the world's biggest buyer, probably declined as much as 35 per cent this month as near-record domestic prices trimmed demand, an industry group said.
Purchases may drop to 40 tonnes to 50 tonnes in July, Prithviraj Kothari, president of the Bombay Bullion Association, said without giving figures for last year. "Inflation is high, the equity market is negative and the real estate market is on the downside, so it all impacts the purchasing power."
Buying in India may fall for a second year as consumers cut spending and switch to cash because of concern about the economy, Ajay Mitra, managing director, Middle East and India at the World Gold Council said July 16. The economy grew 5.3 per cent in the first quarter, the slowest pace in nine years, and inflation exceeded seven per cent for a fifth month in June. Poor monsoon rains will also cut demand in a country where according to UBS AG rural areas account for about 60 per cent of gold buying.
"Demand may see some improvement by the first week of September because of festivals, but not in a great way," said Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation. The festival season, which runs from August end to November, is the peak demand period as buying gold is considered auspicious.
Prices rallied after the rupee depreciated against the dollar and the government doubled the import duty on the metal, Kothari said. The rupee fell to a record 57.3275 per dollar on June 22, lifting the cost of commodities priced in the greenback.
The country's monsoon, which accounts for more than 70 per cent of annual rainfall, may be below normal for the first time in three years at 92 per cent of a 50-year average, D S Pai, head of long-range forecasting division at the India Meteorological Department, said July 24. Rains were 21 per cent below average since June 1, the forecaster said on its website.
“Demand from rural India is very poor right now,” Bamalwa said. A weak monsoon and high prices will weigh on purchases, and total imports will be much lower this year, he said.
India imported a record 969 tonnes of gold last year, while domestic demand was 933.4 tonnes, down from 963.1 tonnes in 2010, according to the World Gold Council.