Gold demand picks up as prices dip on strong rupee

Gold demand picks up as prices dip on strong rupee

New Delhi: Gold demand improved on Tuesday as prices softened slightly on the back of a stronger rupee, and dealers said more falls could trigger further buying as people were expecting the metal to soar ahead.

“Demand is pretty okay," said Ketan Shroff of Pushpak Bullions, a large wholesaler in Mumbai. “People feel it is going to rise more. They are epecting $1,410 an ounce in the near future."

Gold prices have remained firm in the greater part of this year with several new highs being struck, yet buying has been strong owing to pent-up demand from 2009 when a drought curtailed spending.

Better economic growth has also boosted spending capacity this year and provisional data from the Bombay Bullion Association shows India imported 310.3 tonnes of the precious metal January to November, up 3.4% on year.

On Tuesday, a stronger rupee against the dollar owing to positive share prices softened the yellow metal as most of it is imported and paid for in dollars.

Overseas gold rose on fears of rating downgrades in Europe and worries that some Euro zone countries and banks could face more borrowing strains, in what heightened the safe haven appeal of the precious metal.

An overseas supplier to India said some talks that the annual budget at the end of February could raise the duty on gold imports was also making people buy the precious metal.

“There are rumours of an import duty hike in the new budget. I guess it is because of higher gold prices," said Afshin Nabavi of MKS Finance in Geneva.

Higher gold prices and bigger gold imports are a worry for the government as it leads to an outflow of dollars. Gold is India’s second largest import after crude oil.

A trader in a bullion bank said both retail and wholesale segments of gold were seeing good sales and customers were eyeing bigger dips as investors wound down positions at the end of the year.