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Strong rupee triggers gold buying in India

Source : REUTERS
Last Updated: Mon, Sep 24, 2012 10:34 hrs
Gold biscuits are displayed inside a jewellery showroom in Hyderabad

A drop in local gold prices to a three-week low prompted a wave of buying in India on Monday, while an upcoming weeklong holiday in China has generated some physical gold buying interest.

Gold demand traditionally rises in the last quarter of the year in India and China, the world's top two gold consumers, as consumers buy gold for festival celebrations and weddings that typically take place during this season.

India's benchmark gold price dropped to a two-week low of Rs 31,281 per 10 grams, as the Indian currency continued to rally and climbed to a 4-1/2-month high.



"The buying interest is much higher than last week, mostly because the rupee has appreciated substantially," said a dealer at a private-sector bank in Mumbai, adding that physical demand might be sustained if prices held below Rs 32,000.

India is gearing up towards the festival and wedding season, which will peak with Diwali in November. Gold is an essential component of dowry and gifts presented during the festival celebrations.

The weeklong National Day holiday at the beginning of October in China, usually marked by busy jewellery retail business, helped generate some buying in Hong Kong, while in Singapore there was a mix of light buying and selling, dealers said.

Spot gold lost half a percent to $1,762.7 an ounce by 0749 GMT, easing from $1,787.20 hit in the previous session and marking the highest level in nearly seven months.

"The amount of buying is higher than a month ago, but still not much," said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers in China.

Political uncertainty ahead of a leadership change in China next month added to the reluctance of consumers to spend lavishly on jewellery. They have already become less inclined to buy luxury goods as economic growth appeared to be slowing, he added.

"There is a lot of uncertainty on the policy side, and we will probably see a clear picture in October," said Leung.

China's gold jewellery demand in the first half of the year increased slightly from a year earlier to 250.4 tonnes, though second-quarter demand dropped 9 percent on the year, according to the World Gold Council.

Gold bar premiums in Hong Kong were steady, quoted in a range of 40 cents to $1 above London prices. In Singapore, premiums were little changed at 20 to 40 cents, dealers said.

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