Gold at Record to ‘Ruin’ Demand in Biggest Consumer

Oct. 7 (Bloomberg) -- Record gold prices will “ruin” festive-season demand in India, the world’s biggest consumer, the nation’s largest jewelry producer and exporter said.

“There’s going to be a big drop in jewelry demand if the current price sustains,” said Rajesh Mehta, chairman of Rajesh Exports Ltd. from Bangalore. “The entire festive season demand will be ruined.”

India’s bullion imports fell for a fifth month in September to 50 tons from 54 tons a year ago, as high prices cooled demand for jewelry, the Bombay Bullion Association Ltd. said last week. Global prices must drop at least 7 percent to lure households in the country, where women are the biggest users of gold, to buy rings, chains and necklaces, Mehta said.

“Unless prices drop back to $960-970 levels, Indian buyers are unlikely to make big purchases,” Mehta said.

Immediate-delivery gold reached a record $1,048.43 an ounce on speculation that currencies will weaken, sparking inflation and boosting the appeal of bullion as a store of value. It was at $1,047.95 at 2:28 p.m. local time.

India’s gold imports this year may decline to 300-350 tons from 450 tons last year, as prices and a drought in almost half the country following the weakest monsoon since 1972 combine to curb jewelry sales, Mehta said.

Sales typically reach their highest point during the Hindu festival of Diwali, which falls on Oct. 17 this year, and the wedding season that follows.

Scrap Sales

“Sales have certainly declined today,” Harmesh Arora, managing director of NIBR Bullion Pvt., which sells jewelry at Zaveri Bazar, Mumbai’s main gold market. “Rising prices have put off buyers and scrap sellers are waiting for prices to rise further,” said Arora, who is also the vice president of the Bombay Bullion Association.

December-delivery gold on the Multi Commodity Exchange of India in Mumbai gained as much as 0.8 percent to 15,893 rupees ($340) per 10 grams.

“The only consolation is the gain in the rupee, which has cushioned the impact somewhat for Indian buyers,” said Mehta.

Rupee advanced to a one-year high today on speculation the central bank will increase interest rates to temper inflation. The currency jumped to as high as 46.515, the strongest level since Sept. 26, 2008, according to data compiled by Bloomberg.

To be sure, housewives and other retail buyers may resume purchases on concern prices may gain further, C. Vinod Hayagriv, chairman of All India Gem & Jewellery Trade Federation, said.

“Days of gold at $900 an ounce may not be seen again at all,” Hayagriv said. “Gold has been undervalued and there are no two ways about its potential to move higher.”

Bullion may trade between $1,000 and $1,050 an ounce in the next two months, and reach $1,100 by Christmas, he said.