India To See Robust Gold Imports in Festive Quarter.

MUMBAI: Gold demand in India, the world's largest bullion buyer, will be strong in the October-December quarter, a traditional time for festivals and weddings, despite high inflation that eats into savings and multiple growth-choking central bank rates hikes.

"We think that demand from India will be resilient to higher gold prices for the remainder of the year on the back of seasonality and increased investment interest," said Edel Tully, strategist of UBS, the biggest supplier of the metal to India.

Global gold prices have risen more than 20 per cent so far in the year, and are expected to gain further, as dwindling appetite for risk prompts investors to rush to safe havens such as gold.

In India, gold prices have gained 29 per cent since the start of the year, compared with just 15 per cent gains in the stock market .

Indian gold imports rose 47 per cent to 265 tonnes in the last quarter of 2010, continuing a strong trend to end at a little over 950 tonnes last year.

Indian demand is expected to peak by the end of the month when the festivals of Dhanteras and Diwali are celebrated. The wedding season lasts a couple of months more.

Demand for gold bars, coins and other pure investments in India, Asia's third-largest economy, soared 83 per cent in 2010 from the year earlier to 349 tonnes, according to GFMS, a precious metals consultancy that is part of Thomson Reuters.

Gold used for jewellery rose 36 per cent to 685 tonnes in 2010. Investment demand accounted for 34 per cent of total buying, up from 28 per cent in 2009.

Such demand has not been dented by stubbornly high inflation, hovering around double digits for over a year, prompting the central bank to raise interest rates a dozen times in the past 18 months. Its key rate stands at 8.25 per cent.

"My sense is that demand will be 30-40 per cent higher than the fourth quarter of 2010. Investment demand is already on a peak," said Gnanasekar Thiagarajan, director with Mumbai-based research firm Commtrendz.

"So, I suspect unless some major geo-political crisis starts investment demand will peter out in the fourth quarter."

Continued appetite from India is also likely to provide underlying support to global gold prices, which entered into an eleventh year of gains.

Source : economictimes.indiatimes.com