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Indian customers lured by gold's lower price

Section: Daily Dispatches

By Javier Blas and Shyamantha Asokan
Financial Times, London
Friday, September 5, 2008

LONDON -- Gold demand in India is booming as retail consumers in the yellow metal's biggest importer return to the market after a 20 per cent fall in the price of bullion.

The arrival of the festival season in India -- when it is traditional to buy the precious metal -- is helping demand rebound sharply after a lacklustre start to the year, but traders said a similar trend was emerging in Turkey and Abu Dhabi, supported by the fall in prices.

The surge, after global retail demand fell 18 per cent in the first six months of 2008, is helping to sustain gold prices at about $800 an ounce in spite of the strength of the dollar, which traditionally hurts precious metal prices.

Traders said that bullion imports in Abu Dhabi -- a key Middle East gold hub -- surged 300 per cent in August compared with the same month last year. Turkey saw the highest ever monthly imports last month, while the past five weeks have seen the busiest gold demand from India in 20 years.

Ashok Minawala, chairman of All-India Gems and Jewellery Trade Federation, a trade body in Mumbai, says he has witnessed a "tremendous" increase in consumption.

"The buying period usually starts in August and September, for the festival of Divali in October, but this has been unprecedented," Mr Minawala says.

UBS, one of the largest gold exporters to India, says it has seen a spike in sales. John Reade, UBS metals strategist, says that the near-absence of jewellery demand in India between August 2007 and July left the local market largely de-stocked, "hence the tremendous pickup in demand over the past five weeks."

As a result, prices in India have moved up to $5 above London quotes.

Keyur Shah, of the industry-backed World Gold Council in New Delhi, says: "There is a huge scarcity of gold in India, and prices have risen."

The gold market pays a lot of attention to Indian demand as the so-called Mumbai housewife's buying and selling could signal a top or a bottom.

Earlier this year, Indian citizens' selling of old jewellery as scrap was seen as a signal of a peak for the market.

Soon, gold prices reached a record high of $1,080.30 an ounce in March, before falling more than 20 per cent to a low of $773.90 an ounce last month.

Frederic Lasserre, head of commodities analysis at Societe Generale in Paris, says that jewellers were regarding $800 an ounce as a relatively stable "floor" price, but he warned that the strength of the dollar could still have more impact than India's buying spree.

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