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Weak Rural Economy Hits India’s Gold Appetite

FILE - A saleswoman shows a gold earring to customers at a showroom in Mumbai, India.

A weak rural economy has hit India’s appetite for gold with sinking demand for the yellow metal even though global prices are at a four-year low.

Bhumika Malik is browsing around the Gold's Gym in the business hub of Gurgaon near Delhi to buy a piece of jewelry her husband wants to give her for their anniversary. “It's been really long I have purchased anything, because the prices I am sure were not too good, but now they are falling down, so just trying my hand on that,” she said excitedly.

After sluggish sales in the first half of the year, customers like Malik helped gold sales perk up in some places during the main festival and wedding season, which starts around September.

Jewelry retailers in rural areas, however, were not so lucky. P.R. Somasundaram, who heads the World Gold Council in India said, “Diwali has been good in some pockets, particularly the urban areas, but it was perhaps not as great in rural areas as was expected because of the issues of unseasonal rains and also drought-like situation in many parts.”

Large parts of rural India in the west and the south have coped with drought for the second year in a row, hurting farmers’ incomes. Rural households account for more than half of the total gold sales in India. Many see it as a way of storing wealth because of poor access to a formal banking system.

As a result, Somasundaram expects only a small jump in overall demand for gold this year, with India likely to import 850 to 900 tonnes.

“Don’t forget last two years inflation has been biting people. Every commodity suffered, every investment suffered and gold also suffered equally," he said.

India is the world’s biggest gold importer, and along with China dominates the world market. The two Asian countries account for nearly half the global gold consumption and influence global prices.

However, in a country where chunky gold jewelry was the rage for decades, the big jump in prices over the last 10 years has prompted people to moderate their purchases. Vijay Kumar Gupta, who owns jewelry shops in Delhi and Gurgaon has noticed that “young people here are buying items in the lower [price] range, rings, earrings, pendants. They only buy big pieces for a wedding.”

In the Gold's Gym in Gurgaon, most shops have only a handful of customers. Among them is Anuradha Malhotra, who has come to check out the latest trends before buying a pair of gold earrings for her daughter and. Like most Indian women, she is fond of jewelry, but admits that high prices have taken a toll on India’s passion for gold. “It is (Rs) 25,000 ($378) for 10 grams, it is expensive no doubt,” she said.

While lower gold purchases may not be good news for jewelers, it is good news for the government, which has been trying to restrict gold imports because they are a heavy drain on the country’s foreign exchange reserves.

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