India’s Gold Imports May Fall as Price Damps Demand, Group Says.

July 1 (Bloomberg) -- Gold imports in India, the world’s biggest consumer, may fall as much as 36 percent this year as higher prices and volatility slows demand, the Indian Bullion Market Association said.

Purchases may be about 350 tons to 400 metric tons in the year ending March 31, 2011, compared with about 550 tons a year earlier, the association’s President Anjani Sinha said yesterday in a phone interview in Mumbai. Imports are down by about half in the last three to four months, he said.

Gold, which reached a record $1,265.30 an ounce on June 21, is headed for a 10th straight annual increase as investors seek to guard their wealth from the prolonged financial crisis in Europe. Higher prices have started to hurt jewelry consumption in India, Citigroup Inc. said in a report last month.

“For the next two-to-three months we feel that the demand will be on the lower side,” Sinha said. “One problem is higher price levels, and secondly is the volatility.”

Immediate-delivery bullion was little changed at $1,241.65 an ounce at 7:55 a.m. in Singapore. The metal had its biggest quarterly advance since the end of 2007.

India’s gold imports slumped to between 16 to 17 tons in May, from 34 tons in April, Citigroup economists Rohini Malkani and Anushka Shah said in a report June 21. Jewelry accounts for about 75 percent of the nation’s gold demand, the analysts said.

“When there is stability in gold prices, consumers start to buy,” Vinod Hayagriv, the chairman of the All India Gems & Jewellery Trade Federation, said by phone from Bangalore. “When it is fluctuating up and down very much, they hold back.”

Domestic Demand

Domestic demand may be met by recycling old jewelry should bullion prices continue to rise, Tribhovandas Bhimji Zaveri Pvt., the nation’s oldest-gold jewelry retailer, said this week.

“We also observed that a lot of resale gold comes into the market” because of higher prices, bullion association’s Sinha said. “That also meets a part of the demand.”

Gold futures on the Multi Commodity Exchange of India Ltd., the world’s second-biggest bourse for bullion, have advanced 30 percent in the past year and reached a record 19,198 rupees per 10 grams on June 8.

“Over a period of time because of the European crisis, problems in the international market, and also the problems linked to the dollar, prices will firm-up further,” Sinha said.

Source : Business Week