A rally in gold prices since the start of 2016 will reduce purchases in India, the world's second-biggest consumer, trimming import prospects amid high inventories, according to the World Gold Council.
At current price levels, consumers are estimated to buy about 750 metric tons to 850 tons this year, lower than a May forecast of 850 tons-950 tons and the 864.3 tons bought in 2015, P.R. Somasundaram, the managing director of the council for India, said in an interview in Mumbai. While a continued uptrend in prices will weigh on volumes in this half, a good monsoon may see some of the increase being absorbed because of better incomes, he said.
Bullion has surged 27 percent this year amid global economic growth concerns and low interest. The rise in prices, a strike by Indian jewelers in March-April to protest an excise tax and depressed rural incomes after two years of weak monsoon rains saw demand fall by about 100 tons in the first half and this shortfall will not be made up in the remaining six months, Somasundaram said.
India's usage fell 30 percent to 247.4 tons in the January to June period from a year earlier with jewelry purchases dropping to the lowest since the same period in 2009, according to the WGC. The council expects demand to return to normal during the festival and weddings seasons beginning this month and supported by a boost in rural incomes because of a good monsoon. Rural areas make up for 60 percent of total annual consumption.
“Inventory levels throughout the supply chain remain elevated after such a subdued start to the year,” the council said. So any uptick in demand “is not likely to be fully reflected in a rise in import levels until stock levels are at least partly run down,” it said.
Imports into the country in the April-June quarter slumped 41 percent to 120.3 tons, the council data showed. A surge in the flow of unofficial gold significantly impacted the industry and smuggled supplies are estimated to rise as much as 33 percent to 160 tons this year, it said.
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