For India all that glitters is gold as festival nears

NEW DELHI (Reuters) - Diamond, ruby and emerald-studded jewelry hangs in rows at a New Delhi shop, but one slim gold chain is all that N.B. Yadav settles for with the price of the metal at multi-year highs.

"My daughter's ring ceremony is just two days away," he says, lingering over the chain. "That is the only reason why I am buying even this piece. We are also getting some old jewelry polished."

It was only two weeks to the most auspicious Hindu festival of Diwali, but with gold prices at a 28-year-high above $775 an ounce only a handful of customers are attracted to the hundreds of jewelry shops packed in New Delhi's Karol Bagh market.

"Usually, I like to buy something during Diwali for my daughters, which is why I am here " said Harish Aggarwal, a New Delhi-based businessman. "But at these prices, I really should be selling some of my jewelry."

As India is the world's biggest importer of gold, analysts keep a close eye on the country's consumption for hints at the future price of bullion. Last year the country imported 715 metric tons of gold, including 207 metric tons during the festival buying period.

Indian imports to August were nearly double the same period the previous year, but a jump in prices since September has led market watchers to trim their import forecasts for the whole year to 800 metric tons, still a record, from about 1,000 metric tons.

"Whoever wants to buy, will buy anyhow. I would buy the same amount, even if prices were low," said Pawan Kumar, a New Delhi-based businessman. "Of course, I only wear this gold ring, and the rest all goes to my wife."

Indians consider it auspicious to buy gold for their households during Diwali when the goddess of wealth, Lakshmi, is worshipped. It is also bought for other festivals such as Durga Puja and Ganesh Chaturthi, celebrated ahead of Diwali.

The period from October to February also marks the marriage season when parents give their daughters gold jewelry, which has traditionally been a form of saving and meant for wearing on special occasions.

UNABLE TO RESIST

Many of the customers are not able to resist a quick look at the jewelry despite the prices, but a large number also walk away promising to return as soon as prices ease.

"I am definitely planning to buy something, but not today," said Sudesh Sinha, sitting on a velvet covered-chair, examining five to six jewelry boxes opened for her examination.

Prices in the local market have risen by 10 percent in the last two months, a rise that has unnerved customers, but the subdued sentiment is only seen as temporary.

"Whatever is traditionally brought will continue even this year," said Gnanasekhar Thiagarajan, director at Commtrendz Risk Management. "What is maybe missing is the additional offtake."

High prices were not daunting buyers with a long-term outlook as the bullish trend is expected to continue in the next three to four months.

World gold prices have risen sharply in October to their highest in nearly three decades.

"Usually, gold prices have not increased by more than 25 percent annually in the past few years. And this year, it has already increased by 25 percent since January," said N Prasad, a Chennai-based bullion analyst.

The strengthening of the rupee to the dollar from last year's level has helped to partially shield India's consumers, as India imports almost all its gold needs. While the price of spot gold has increased by more than a fifth since the start of the year, the domestic price is up by less than 7 percent.

Prasad said the rupee was expected to strengthen further in the coming few days, which could mean better bargains for local buyers.

Suresh Hundia, president of the Bombay Bullion Association, said he expected the gold price to fall to 9,400 to 9,500 rupees per 10 grammes during Diwali.

"People have stepped back because of the prices. Buyers may shrug off this phase as soon as prices start tapering," he said.