Weak rupee dampens gold demand

Mumbai: Gold jewellery demand in India, the world's biggest bullion importer, may decline for a third quarter after the rupee slumped to a record, boosting domestic precious metal prices, according to a traders' group.

Jewellery sales may fall 30 per cent to 40 per cent in the three months ending June from a year earlier, Bachhraj Bamalwa, chairman of the All India Gems and Jewellery Trade Federation, said in a phone interview yesterday. Demand for gold jewellery shrank 19 per cent in the first quarter, after a 44 per cent decline in the fourth quarter in 2011, according to the World Gold Council.

India's rupee has fallen 9.1 per cent this quarter, making it the worst performer among Asian currencies and driving up prices of imported commodities. It dropped to a record low of 55.95 per dollar yesterday. Bullion futures in rupees are trading within 1.7 per cent of an all-time high, while global spot gold prices retreated 19 per cent from a record.

"People aren't tempted to enter the market right now," Viral Shah, vice-president at Geojit Comtrade, said by phone from Mumbai. "People are very clued in as to what the rupee rate is."

Major festivals

Bullion for June delivery fell 0.4 per cent to Rs28,960 (Dh1,893) per ten grams on the Multi Commodity Exchange of India at around noon in Mumbai.

Futures reached an all-time high of Rs29,433 in December. Spot gold lost 0.6 per cent to $1,559.07 an ounce, down from a record $1,921.15 (Dh7,056) in September.

The rupee declined one per cent to 55.93 per dollar at noon in Mumbai yesterday as investors favoured the perceived safety of the dollar over emerging-market assets on concern Greece will leave Europe's currency union.

"The rupee has depreciated too much, so prices are ruling at the highest level and at that level people don't want to buy," said Bamalwa, whose federation represents about 300,000 jewellers. "Demand is very, very slow right now."

Full-year gold demand may shrink 30 per cent as the decline in the rupee and an increase in import duties boost prices, Bamalwa said. Demand was 933.4 tonnes in 2011, according to the World Gold Council.

Jewellery demand is unlikely to rebound before September or October in the absence of weddings and major festivals, which typically spur buying, Bamalwa said.

"Jewellers are worried," he said. "Some of the jewellers are offering discounts, but despite discounts buyers are not buying right now."

Titan Industries, India's biggest retailer of gold jewellery, fell as much as 3.9 per cent to Rs222.3 and last traded at Rs223.7 in Mumbai.