India gold demand to hit three-year low as prices surge to record: World Gold Council

India'sgolddemandis expected to fall to itslowest level inthreeyears in 2019, theWorldGoldCouncil(WGC) said on Tuesday, as domesticpricesclimb to arecordagainst a backdrop of falling earnings in rural areas, a key source of custom for the precious metal.

Golddemandin 2019 could drop 8 per centfrom ayearago to around 700 tonnes, thelowest since 2016, said Somasundaram PR, the managing director of WGC'sIndian operations. In a report, the WGC saidIndia'sgoldconsumption in the quarter ended September slumped nearly a third from ayearago to 123.9 tonnes.

The fall in consumption in theworld's second-biggest market of the metal could brake globalprices, up 17 per centso far in 2019, but a drop in imports could also help ease the country's trade deficit, supporting the rupee.

"Along with higherprices,golddemandis getting affected by weak rural sentiment," said WGC official Somasundaram. "Excess monsoon rains have damaged crops," the official noted.

Two-thirds ofIndia'sgolddemandcomes from rural areas, where jewellery is a traditional store of wealth.

Indiareceived its highest monsoon rainfall in 25years during the June-September season, with rains continuing even in October, damaging summer-sown crops such as cotton, soybeans and pulses ready for harvesting.

In September, localgoldfutureshitan all-time high of 39,885 rupeesper 10 grams. They have risen about 22 per centso far in 2019, tracking a rally in globalpricesas well as reflecting a depreciation in the rupee.

A spike in domesticgoldpricesand a hike in the import duty slasheddemandduring the July-September, the WGC said. In the first week of July,Indiaraised the import duty ongoldto 12.5 per centfrom 10 per cent.

In the key quarter ending December31,demandis likely to belower than lastyear's 236.5 tonnes, Somasundaram said, but the drop is unlikely to be as steep as in the July-September quarter.

Demandusually rises in the October-December quarter due to the wedding season and festivals such as Diwali, when buying bullion is considered auspicious.

ManyIndians are using the rally inpricesto liquidate theirgoldornaments, the WGC official said, forecasting scrapgoldsupplies inIndiacould jump 38 per centin 2019 to around 120 tonnes.