Good monsoon rains to spur Indian gold demand - WGC

By Rajendra Jadhav

MUMBAI (Reuters) - India's gold demand could rise as much as 10 percent in 2016, even after falling 39 percent in the first quarter, as good monsoon rainfall and a sustained rally in gold prices boost buying, the World Gold Council (WGC) said on Thursday.

Stronger demand from the world's second-biggest gold consumer could further support the global bullion price, which has risen nearly a fifth so far in 2016.

A jewellers strike, a sharp rise in prices and expectations of a cut in duty hit demand in the first quarter, but demand drivers were turning positive, Somasundaram PR, managing director of the WGC's Indian operations, told Reuters.

"The monsoon is forecast to be extraordinarily good. If it is well distributed, then demand will come at top end of the range. If the monsoon is not spread out as it should be, then demand will be somewhere near the lower end of the range," said Somasundaram.

He forecast demand in 2016 at 850 tonnes to 950 tonnes, compared with 864.3 tonnes last year.

Two-thirds of India's gold demand comes from villages, where jewellery is traditionally used for investment.

Rural demand has fallen in the past few months after the first back-to-back drought in nearly three decades squeezed farmers' earnings.

In 2016, however, India is likely to benefit from surplus rainfall during June-September monsoon season.

Indian jewellery sales have fallen since the start of the year, hit by higher gold prices and delayed purchase decisions by consumers who had hoped for a cut in India's 10 percent import duty on gold in the national budget.

Finance Minister Arun Jaitley instead surprised the market by keeping the duty intact and imposing an excise duty on gold jewellery sales from March 1, leading to a one-and-a-half month strike by jewellers.

That curbed jewellery demand for gold in the first quarter, which fell to its lowest level in seven years at 88.4 tonnes, while total demand slumped 39 percent from a year ago to 116.5 tonnes, according to WGC data.

However, falling interest rates and a better return from bullion so far in 2016 could lure more consumers, Somasundaram said.

Indian gold prices have risen 18 percent so far in 2016, while Indian equity markets have fallen one percent as measured by the Nifty index.

In neighbouring China, the world's biggest consumer of the gold, demand dropped 12 percent in the first quarter to 241.3 tonnes, the WGC said.

Jewellery demand in China fell 17 percent due to a slowing economy, but investment demand climbed 5 percent as a weakening currency triggered demand for gold bars and coins.

(Reporting by Rajendra Jadhav; Editing by Richard Pullin)