India 2010 Gold Imports Likely Down 40% .

MUMBAI -- India's gold imports will likely fall 40% in 2010 from 343 metric tons last year as prices climb to new highs, Bombay Bullion Association President Suresh Hundia said.

Spot gold prices in Mumbai, the country's main bullion market, have surged to record levels of around 19,000 per 10 grams from an average of 14,800 rupees ($321.04) last July, eroding demand in the world's largest consumer.

"There are only sellers in the market at these prices and most jewelers are buying back only old jewelry as they are quoting at a 1%-2% discount to imported gold," Mr. Hundia told Dow Jones Newswires Monday.

"Prices are expected to remain firm during the rest of the year and likely to rise to 20,000 rupees," he said.

Imports in June likely fell 75% from 29.9 tons a year earlier and may halve next month from 28.4 tons last July, Mr. Hundia said.

But the bull run in gold may lose steam anytime because of a cyclical correction and prices could topple to 16,500 rupees levels before recovering, Mr. Hundia said.

"Gold ETF (exchange-traded fund) demand is the only major trigger for prices to move higher at present. How long this demand will last is not yet known," Mr. Hundia said.

Physical holdings in SPDR Gold Shares, the world's largest gold ETF, rose to an all-time high of 1,316.18 tons on Friday because of safe-haven buying as a fallout of the European debt crisis.

In overseas spot markets, he expects gold prices to trade in a range of $1,152-$1,300 per ounce in 2010.

At 0612 GMT, overseas spot gold was quoting at $1,239/oz.

Mr. Hundia said high prices are tempting Indian consumers to sell their old gold jewelry, and that supply is reducing the need for imports.

"In Mumbai itself, daily scrap sales have risen to 90-100 kilograms from around 10 kg sold normally," he said. "Manufacturing has also come down sharply to 100-200 kg daily from an average of around one ton three years ago."

Poor jewelry demand has caused half the jewelry manufacturers to shut shop in Mumbai, while the remaining have slashed their work shifts, Mr. Hundia said.

High prices have also dented the country's silver imports, but demand for the white metal is likely to recover later this year because likely normal monsoon rains will lift rural demand, Mr. Hundia said.

India's rural sector accounts for about 60% of silver demand and farmers' incomes rise whenever there are normal monsoon rains as most of the country's farmland is rain-fed.

"Silver imports are likely to pick up during the rest of the year and could be around 1,500 tons this year, from around 1,200 tons last year," he said.

But silver imports would still be sharply lower than the 3,000-4,000 tons purchased couple of years ago, as prices have jumped to current record levels of 30,000 rupees per kilogram.

"So far in the year, India has imported around 300-500 tons of silver," said Mr. Hundia, adding that brisk buying could start if prices decline to 24,000 rupees-25,000 rupees levels.

Source : Online Wsj