Traders: Indian Demand for Gold during Festival Season Expected to Improve

20 August 2010, 1:59 p.m. EST
By Allen Sykora
Of Kitco News

(Kitco News)-- Indian gold-jewelry demand for the upcoming festival season is likely to be stronger than a year ago although not back to historical highs, according to analysts and traders.            

A long-running rally in gold prices curtailed some of this traditional buying a year ago. Poor monsoon rains, which hurt rural incomes, also contributed some to reduced demand in 2009.            

India’s gold-jewelry demand for 2009 was 405.8 metric tons, according to demand-trends data from the World Gold Council. This was a 19% decline from 501.6 tons in 2008.            

However, traders and analysts look for this buying to pick up again during this year’s festival season in the nation that historically has been the world’s largest consumer of gold. The metal is often given as a gift during holidays and weddings.

“With the Indian economy doing fairly well and now the population getting used to high prices in gold, I suspect it should be a fairly decent season all in all,” said Bart Melek, global commodity strategist with BMO Capital Markets.            

Others said improved monsoon rains this year also should be helpful because they have boosted farm incomes.            

Market watchers say it’s too early to compile any hard data on gold buying since the festival season is just beginning. The country celebrates the Raksha Bandham holiday Tuesday, followed by others through Diwali (festival of lights) in November.            

Still, early anecdotal reports suggest that “fairly decent demand” has emerged in India in the run-up to the festival season, said the head of the precious metals department with one North American bank.            

“We’re not going to go back to the days of 600-plus tons for India,” he said. “But we do see it as quite good…Gold (demand) this year will certainly outdo last year.”            

Afshin Nabavi, head of trading at MKS Finance, described Indian demand during July as “very, very good,” before it abated some in August as prices rose.            

Still, “demand continues to be there, even with higher prices,” he continued. “I think this trend will continue.”            

Nabavi blamed much of last year’s lower Indian purchases on historically high prices.  This might have resulted in many Indians selling their old gold, which met much of the demand within the country and thus meant less imports than normal.            

“But for this season, a lot of gold is being bought,” he said.

By Allen Sykora of Kitco News;

Editor’s Note: Meet the Kitco News Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration