India 2010 Gold Imports Likely Up 46% on Rural Demand.

MUMBAI : India's gold imports this year are likely to reach 700 metric tons, about 46% more than in 2009, as higher farm output and prices encouraged farmers to invest in the yellow metal and boosted local consumption, the president of the Bombay Bullion Association said Friday.

India, the world's largest gold consumer, imported 480 tons in 2009, compared with the usual 700 to 800 tons, as a drought hurt farm production and the purchasing power of farmers, who account for 60% of gold jewelry sales. Rains this year were normal in most parts of the country, boosting agriculture production."Most agricultural commodity prices are trading higher this year," Prithviraj Kothari said. "So the income and in turn, the purchasing power, has gone up. This has boosted the demand for gold, despite record high prices."

Gold prices have surged to record levels in recent months due to worries about the financial health of some European countries.

Pure spot gold rose to all-time highs of nearly 21,000 rupees [$465.6] per 10 grams in the main bullion market of Mumbai earlier this week, tracking firm overseas gold markets. Domestic spot prices are now 28% higher from a year ago level.

Mr. Kothari said prices will continue to move higher and "by year-end, we can see spot prices in the 21,000 rupees-22,000 rupees range," due to continuing concerns over inflation and Euro-zone troubles.

Local demand is likely to remain strong in the first few months of 2011 as well due to the marriage season, but a lot will depend on crop prospects as well as gains from equity markets, he said.

Traditionally, most Indians buy more of the precious metal during marriages and key religious festivals such as Diwali, when it is considered auspicious to buy the gold and other assets. Diwali was celebrated on Nov. 5 this year.

Purchases during Diwali this year were higher than in 2009, Mr. Kothari said.

But, demand is likely to ease in December as most of the marriage-season purchases have already been completed, he added.

The marriage season started last week, and will end by mid-January, before commencing again in April, depending upon the auspicious dates in the Hindu calendar.

Indian consumers, who have invested mostly in jewelry, are beginning to invest in gold coins and exchange-traded funds to diversify their savings. This has increased imports by financial institutions like banks, which sell gold bars and coins to customers.

Mr. Kothari said the bullion association, which represents gold jewelers and traders in the country's largest bullion trading hub of Mumbai, has revised its import estimates for this year to around 650 tons until mid-October.

The trade body last week said the country's imports up to November were around 200 tons. That estimate didn't include the imports by some banks and other non-traditional bodies.

He said imports this month may be muted due to high imports in October and November. "Most jewelers have a lot of inventories, which they had bought in October-November. So for December, we could import only around 10-15 tons."

Last December, the country imported 39.8 tons of gold.

Source : online.wsj.com