Gold demand in India, the biggest user, may surge 25 percent during the festival season this year as buyers expect prices to extend a record rally on haven demand, according to Rajesh Exports Ltd.
Purchases of gold jewelry, coins, bars and medallions may climb to 250 metric tons in the three months ending Nov. 30, compared with an estimated 200 tons in the same period a year earlier, said Rajesh Mehta, chairman of Rajesh Exports, India’s biggest jewelry maker.
Rising Indian demand may help extend a 26 percent rally in prices this year that’s made the precious metal the second-best performer on the Thomson Reuters/Jefferies CRB Index of 19 raw materials. Imports may reach a record 1,000 tons this year as investors seek a haven against inflation and volatility in stock markets, Prithviraj Kothari, president of the Bombay Bullion Association, said Aug. 20.
“In spite of the high prices, we have seen quite good demand,” Mehta said in a phone interview yesterday. “When people are buying jewelry, their motive is investment.”
Buying gold is considered auspicious during the religious festivals in India. The festival season this year starts with Eid this month and ends in October with Diwali, which is followed by the traditional wedding season.
Gold for immediate delivery climbed $6.05 or 0.3 percent, to $1,794.48 an ounce at 11:10 a.m. in Mumbai. It rose to a record $1,913.50 on Aug. 23. Bullion is heading for its 11th annual gain as Europe’s sovereign-debt crisis and concern that the U.S. economy may be slowing spur demand for a haven.
The October-delivery contract on the Multi Commodity Exchange of India Ltd. gained as much as 0.4 percent to 26,845 rupees ($583) per 10 grams today and traded at 26,796 rupees at 11:09 a.m. in Mumbai.
Indian consumption rose to a record 963.1 tons last year, driving imports to the highest level ever at 958 tons, according to the World Gold Council. Purchases surged 60 percent to 267 tons in the three months ended June 30, from a year earlier, the producer-funded council said on Aug. 18. Investment demand jumped 78 percent to 108.5 tons, the second-highest quarter on record, it said.
“Demand will go up because of the festival season and also people feel that prices may go higher,” Mehta said.
UBS AG’s physical gold sales to India on Aug. 22 were the most since May 10 and more than double the daily average volumes this year, the bank said in a report on Aug. 23.
“The monsoon season so far has been good, and strong gold demand is expected for the upcoming festival season,” UBS analyst Edel Tully said in the report.
The rain-dependent agriculture sector makes up about 15 percent of the Indian economy and a bumper harvest boosts rural incomes, lifting sales from cars to televisions and gold. The nation’s 235 million farmers rely on the annual June-to-September monsoon to plant crops from wheat to rice. Rains were “normal” between June 1 and Aug. 28, according to the country’s weather forecaster.
“A lot of people are waiting for stability in prices before buying,” said Kunal Shah, head of commodity research at Nirmal Bang Commodities Pvt. “We have seen an excellent monsoon and I don’t see any reason for a drop in demand.”
Gold may reach $2,000 by the end of the year, according to the median forecast in a Bloomberg survey of 13 traders and analysts at a conference in Kovalam in South India on Aug. 20.
“Scrap sales surprisingly are not much even at these prices as investors hope prices will rise to much higher levels,” said Mehta.