Gold demand to rise ahead of festive season

Demand for gold is expected to increase following a downward trend in prices during the forthcoming festive season, a top industry official said.

"Gold demand will go up during the forthcoming festive season. The downward trend in gold prices may also help increase demand," Bombay Bullion Association (BBA) President Suresh Hundia said. The demand for gold revived as prices fell sharply in the last one month from an all-time high of Rs 13,764 per 10 grams as on July 15 to Rs 11,415 on September 13.

The fall in prices brings relief to local consumers in the festival season. Demand has improved significantly ahead of festivals and is expected to continue. At the beginning of the month, traders and jewellers alike anticipated a sudden buying fever amongst the consumers, owing to the festive season ahead and also the fall in gold prices. But demand in the early stage of the month did not increase as expected.

Demand for gold in the Indian market picked up only after the second week, National Commodity Exchange of India (NCDEX) Economist Manasee S Gokhale said.

Gold price may hover between Rs 10,800 to Rs 11,800 by Diwali, Hundia said adding that in view of rising demand, import of gold has improved to 98 tonnes in August 2008 as against 69 tonnes in August 2007. Indian demand for gold this month is about 5 to 10 times the average demand in the same period last year.

The last week of August had seen a record high demand for gold on the back of a rising dollar and falling crude oil prices pushing gold prices further down, increasing the demand for the same, Gokhale said. The premiums paid in the bullion market have also risen in India owing to Turkey competing with supplies of gold that normally comes to India from the Western world and European traders.

Turkey is the third largest importer of the yellow metal and in August it imported a record high amounting to 45 tonnes, thereby raising the premiums that Indians had to pay because of supply constraints, Gokhale added. Gold prices in the international market sank to a new one-year low last Thursday, falling below $750 an ounce as a stronger greenback and easing oil prices encouraged investors to pull money out of commodities.

The dollar rose to an almost one-year high versus the Euro last Thursday despite a Commerce Department report showing a soaring US trade deficit for July. Gold hasn't recorded a single upward session this month and it has fallen more than $90 in the nine trading days since Aug 28. The precious metal is now more than $250 lower than its record high above $1,000 hit in March.

"Gold price is really bad. The decline in the international market was due to people not worrying so much about high inflation since the energy prices went down," bullion analyst Amit Zaveri said. A pull-back in US dollar, a recovery in oil prices and the onset of the gold-studded Indian wedding season, could see a medium-term bounce in gold prices, he added.