India's Gold Imports May Recover as Price Slump Lures Jewelers

By Thomas Kutty Abraham

Aug. 12 (Bloomberg) -- India, the world's biggest buyer of bullion, may increase imports of the precious metal as jewelers take advantage of the lowest prices in more than seven months to rebuild inventories before the festival season.

Gold today fell to the lowest since Dec. 21, tracking a global commodities sell-off, as gains in the dollar and lower crude oil prices eroded the metal's appeal as an inflation hedge. Bullion reached a record $1,032.7 an ounce on March 17.

``Demand has been so much in the last couple of days that banks and other importers have run out of supplies,'' said Suresh Hundia, president of the Bombay Bullion Association Ltd., which represents 230 trading companies. ``If the price keeps falling, there's no reason why people won't continue to buy.''

A recovery in Indian demand may help stem a drop in gold, which led other precious metals including platinum and silver into a bear market after falling 22 percent from its March high. Increased consumption may benefit retailers including Rajesh Exports Ltd., the nation's biggest jewelry producer, whose stock has plummeted 65 percent this year as record prices cooled sales.

Gold imports by the South Asian nation in the three months ended July likely fell by as much as 35 percent from a year ago after a 50 percent slump in the previous three months, said Ajay Mitra, managing director of the World Gold Council in India.

That trend may reverse as consumers advance their festival and marriage gold purchases to benefit from lower prices. Demand traditionally picks up in the second half of the year, spurred by the wedding season and Diwali, the Festival of Light.

Retail Buyers

``Buyers, who have been pushing back purchases for too long, will relish current prices,'' Mitra said. ``Retail buyers, with festivals around the corner, will lap up gold at these prices.''

India imported 722 tons of bullion in 2007, less than the 1,000 tons forecast by the Council at the beginning of the year.

Gold for immediate delivery declined as much as 2.6 percent to $802.34 an ounce and traded at $815.15 at 4:32 p.m. in Mumbai. Platinum lost as much as 3.7 percent and silver 4.5 percent. The dollar traded near a 5 1/2-month high against the euro today and close to a seven-month high against the yen.

Commodities, as measured by the Standard & Poor's GSCI index, have fallen 21 percent from a July 3 record, slipping into a bear market on signs a U.S. economic slump will extend into 2009. Gold has tumbled 22 percent from its record, while platinum and silver are down 36 percent and 33 percent from their peaks.

A bigger harvest, which leaves more money in the hands of India's 235 million farmers, may also boost demand for bullion, said Daman Prakash, director of MNC Bullion, which sells to jewelers in the southern states of Karnataka and Tamil Nadu.

``One cannot forget that agriculture is the backbone of the economy, so if there's good harvest we're going to see a rise in purchases,'' he said.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net;