Early Indian Festival Season No Boost to Gold

August 8, 2012 – The Indian gold demand at the start of the festival season has been slow as rural buyers remain on sidelines and hold cash instead of gold as a lack of monsoon rains may damage their incomes.

The rural population in India makes up 60 percent of the Indian gold market. India is the world’s top consumer of precious metals in 2011. Consumer demand for physical gold in India has already been slow this year on a weak rupee and an import tax hike.

Haresh Acharya, head of the bullion desk at Parker Bullion in the western city of Ahmedabad said people prefer to stay in cash instead of gold due to the lack of monsoon rains.

Additionally, the most-actively traded Indian gold contract on the Multi Commodity Exchange traded near the heavily watched 30,000 rupees per 10 grams level, which has been a major deterrent to physical traders.

The festival season in India has already started, though it has brought little revivification to the gold market. Typically, demand picks up during the season, as gold is a traditional gift at festivals and weddings in India.

Ashok Jain, proprietor of Chenaji Narsinghji, a wholesaler in Mumbai, said the market is slow though there could be buying later in the month, adding that some customers have been selling scrap to fund new purchases of jewelry.

Many traders remain on the sidelines as they await a clear direction in gold prices, with slow seasonal demand in China and elsewhere doing little to perk up market sentiment.

Gold has been range-bound between $1,530 and $1,640 per troy ounce since May with investors awaiting more clear indication from policymakers as to the implementation of further stimulus measures.

The spot price of gold, at $1,607 per troy ounce, registered a gain from the close last week below $1,590 per troy ounce.

One Hong Kong-based dealer noted that prices are trading within a narrow band, as traders are more interested in watching the Olympics than trading.

Gold bar premiums in Hong Kong remained steady between $1 and $1.50 per troy ounce above London prices.

Traders are expected to keep a keen eye on the policy front for clues from central banks as to their plans for further stimulus measures.

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