Consumer demand for gold in India was 8% lower in the third quarter of 2002 than a year earlier. However, the decrease was less severe than the 44% drop between the first half of 2002 and the first half of 2001.
The sharply reduced rate of decline is partly due to relatively weak demand in the second half of 2001, compared with a strong first half. However, the fact that the rupee price, which had risen sharply in the first half-year, eased from mid-June also permitted demand to recover somewhat.
Traders and consumers both adjusted to a price in excess of US$300 per oz. (in the range of 15,000-15,500 rupees per oz.); in August and September official imports were 15% and 33%, respectively, higher than they were a year earlier.
Nevertheless many consumers remained cautious. Purchases funded by exchange remained high, as did trading of gold for cash. Heavy promotion of diamonds and platinum restrained demand for higher-priced gold jewelry. Despite this, the year-over-year fall in jewelry demand was considerably less than the fall in retail investment, with net investment levels dampened by profit-taking due to the higher price.
An additional problem is that farmers will have less money to buy gold as a result of this year’s poor monsoon season. Overall rainfall was 19% below normal and agricultural output in 2002-03 is expected to fall by 1.5%. As a result, rural demand, which represents 60-70% of total Indian demand, will be adversely affected for the rest of the year and into next.
— The preceding is an excerpt from Gold Trends, published by the London-based World Gold Council.
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