European flight disruption hits Indian gold imports.

MUMBAI: Disruption of flights in Europe has hit gold shipments to India, the world's top buyer of the precious metal, potentially pushing up local prices ahead of a gold-buying festival next month, traders and dealers said.

"Shipments are getting delayed as sizeable gold is being imported from that part of the world," said Pinakin Vyas, assistant vice-president with Mumbai-based IndusInd Bank, a large gold importer.

India buys gold mostly from the UK and Europe, Zurich in particular, but air traffic in the region remain disrupted following last week's volcanic eruption in Iceland which has thrown up plume of ash.

Flights were set to resume on Tuesday under a deal to free up airspace but strengthened eruptions from the volcano threatened to unravel the plans.

The country's gold demand has soared since mid-April, an auspicious period for Hindu weddings, raising sales but depleting stocks.

"As of now, no one has kept big inventory," Vyas said.

This may lead to a scarcity as stocks are required to meet demand for the gold-buying local festival, Akshaya Tritiya, on May 16, dealers said.

"Shipments have been stopped and it will disrupt supplies at least for a week ahead of a good season," a senior executive with a large foreign bank, which supplies gold to India told Reuters.

"The shortfall could be of 6-10 tonnes because orders are already in process and have reached the airport," the executive said.

India imported 29.8 tonnes of gold in April last year.

"The scarcity will start and push up premiums if things persist. Meantime, we will be able to meet our needs from alternative channels," said Harmesh Arora, vice-president of Bombay Bullion Association.

Premiums were steady at $1 an ounce to the spot London prices in Singapore.

India accounts for 20 percent of the global demand for gold and jewellery is the most common gift during religious events. Local jewellers normally stock up weeks before key celebrations.

"Everyone is pricing in on the basis of shipments expected from overseas," said Vyas.

India's gold demand was at 480 tonnes in 2009, down 33 percent from a year ago, data from the World Gold Council showed.

Source : The Economic Times