India gold sales weak over festival as prices bite

Enlarge Photo A worker displays gold jewellery at a shop in Mumbai in this June 15, 2006...

Fri, May 16 02:53 PM

By Ruchira Singh

MUMBAI (Reuters) - Sluggish gold sales during the Akshaya Tritiya festival, normally seen as an auspicious time to buy the metal, provide the latest evidence of high prices hurting demand from the world's top consumer.

The price level of 12,000 rupees per 10 grams was a significant psychological barrier for Indian buyers, analysts and traders say.

"Akshaya Tritiya sales has not been the same as the past year...Sellers feel buyers have been nervous," said Nayan Pansare, a gold analyst who works for jewellery exporters.

Spot gold may have fallen from its March 17 record of $1,030 an ounce to $884.40 on Friday, but is still up by a third on the year.

In India, wholesale gold, including local costs, was quoted at 12,300 rupees per 10 grams by ScotiaMocatta.

"If prices stay above 12,000 rupees, there could a drop in annual demand by 20 percent," Pansare said.

Daman Prakash Jain, director of MNC Bullion Pvt Ltd, a large wholesaler in Chennai, said sales for the festival may be down by about 40 percent on year, while the World Gold Council (WGC) said sales fell by 11 percent to 48.99 tonnes.

"With the festival getting more popular, we were expecting growth, but instead we are seeing a good drop," said Jain.

Inflation was another factor trimming demand, as it cut household budgets for gold, said Ajay Mitra, managing director, India, for the World Gold Council.

India's inflation has risen to 7.83 percent, the highest since November 2004, reducing people's purchasing power.

"Last year people were buying five to ten coins each; this year, just one or two," said T. K. Chandiran, managing director of KTM Jewellery Ltd in Coimbatore.

Weak demand during the May 7-8 festival could also point to poor demand in the festivals and wedding season, which starts in September.

"Indians will take at least one year to get used to gold above 12,000 rupees," Harmesh Arora, vice president of the Bombay Bullion Association, said.

Imports of gold have plummeted this year because of high prices, falling to 42 tonnes in January-March, down 76 percent from a year ago, Bombay Bullion Association says.

In 2007, India imported 773.6 tonnes of gold, up 7 percent from the previous year, data from World Gold Council showed.

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