Domestic gold demand improves as prices dip 1%

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Gold demand in India improved on Friday, as jewellers were placing orders after prices fell about one per cent to the lowest in nearly seven weeks on a stronger rupee.

The partially convertible rupee hit a seven-week high on Friday, helped by corporate selling and stop-losses getting triggered. A strong rupee trims the landed cost of imported gold.

At 3:35 pm, the benchmark December gold contract on the Multi Commodity Exchange (MCX) was one per cent lower at Rs 29,178 per 10g. It hit a low of Rs 28,915 on Tuesday, a level last seen on August 14.

"Demand is better than last week. Jewellers are comfortable with the current prices. They have started buying for the peak festive season," said a Mumbai-based dealer with a private bank. "Ahead of the peak festive season, jewellers usually make large purchases. So far, they are making small purchases."

India, the world's biggest consumer of the precious metal, will celebrate the festivals of Dussehra in the third week of October and Diwali in the first week of November, a period when buying gold is considered auspicious.

Gold demand from the countryside is likely to rise in coming weeks as farmers are set to harvest bumper crops, aided by a good monsoon, dealers said. Abroad, gold prices were steady on Friday, as a partial US government shutdown threatened to hurt economic growth, increasing bullion's safe-haven appeal.