India Gold Imports to Slump in May .

NEW DELHI – India's gold imports in May could fall by more than 50% from a year earlier as demand remains lackluster because of high domestic prices, a leading industry official said Monday.

Based on trends so far, May imports are seen at around 40-50 metric tons, against 102 tons last May, said Prithviraj Kothari, president of the Bombay Bullion Association. India imports nearly all of the gold it sells in the domestic market.

"Liquidity is very tight," he said, adding that demand for gold has also been hurt by the general increase in the price of basic necessities.

Earlier this month, India rolled back a tax on the sale of gold jewelry, imposed in March, but that came too late to revive demand as the weaker rupee had kept the price of gold near record levels in the domestic market.

The government also refused to lower the import tax on gold, which was doubled to 4% in the 2012 budget, presented in March.

With Indian demand hit by high prices and a strike in protest against higher taxes, China emerged as the world's top gold buyer in the first quarter of 2012. Indian demand fell 29% to 207.6 metric tons in the quarter. India has traditionally been the world's biggest buyer of gold.

The slowdown in Indian demand is likely to weigh on international prices despite concerns about the health of euro-zone economies and other macro-economic factors increasing the appeal of gold as a safe haven investment, said Gnanasekhar Thiagarajan, director at Commtrendz Research.

Spot gold was trading around $1,578.50 per troy ounce Monday, up about 0.2% from its previous settlement, but still considerably lower than the $1,662.90/oz at the start of the month.

In comparison, domestic prices have hardly fallen as the weak rupee made imports more expensive. Spot gold was quoting around 29,200 rupees/10 grams Monday, only slightly below 29,350 rupees/10 grams at the start of the month and still close to the record level of 29,800 rupees/10 grams seen in December 2011.

"The business has become very slow," said Vasu Acharya, director of Parker Bullion which sells around 200 tons of silver and 35 tons of gold annually. "Our volumes may fall by half this year."

Source : online.wsj.com