Good crop to boost buying

MARKET REVIEW/DOMESTIC: GOLD

Indian farmers, flush with cash after a good harvest, are likely to shop for more gold over the next two months despite volatility in prices.

Gold demand in India, the world's largest consumer where people buy the yellow metal both as an investment and adornment, had fallen over the past few months as prices hit a 15-year peak of $430.50 an ounce on January 6.

"We have already seen a pick up in demand at a price level of around $400 per ounce," said Girish Kumar Choksi, a bullion dealer in Ahmedabad.

Nayan Pansare of Inter Gold Ltd, a Bombay-based importer, said Indian buying should be good as prices had eased a bit from $417 an ounce to around $390 in the last 10 days.

Choksi said rural demand for jewellery was likely to be strong with farmers harvesting good oilseed, cotton and grains crops, after excellent weather.

Farmers in western India have nearly finished their cotton and groundnut harvests while wheat and mustard crops in northern India will be ready by the end of March. Nearly two-thirds of India's billion plus population depend on agriculture for a livelihood.

Jewellers and investors, who had held back purchases over the past few weeks because of a sudden rise in prices, have stepped up buying after gold prices fell below $400 an ounce.

Domestic prices follow global trends due to dependence on imports, with India buying an average 1.6 tonnes of gold a day to meet more than two-thirds of its annual needs of about 800 tonnes.

"Imports into Ahmedabad have risen to 600-700 kg per day from 250-300 kg when prices ruled above $400 per ounce," Choksi said.

Pansare said apart from harvests, demand for gold will also grow ahead of federal elections in April and May.

"We have seen lots of gold buying during previous elections," said Pansare. "Gold can be exchanged easily because it can be bought with cash and sold for cash."

Traders estimated that India will import about 60 to 70 tonnes of gold a month until May, compared with around 55 tonnes a month a year ago.

"People who sold their holdings at level of more than $400 are turning buyers now," said R.K. Das, general manager (forex), at Adani Exports Ltd.

Das said the Indian market was still very price-sensitive and demand should grow if the market stabilised at this level. "Retail jewellery demand is poised for a strong growth."