Gold trades at discount in India as jewellers delay purchases

MUMBAI (Reuters) - Gold prices in India swung to a discount for the first time in a month on Monday as jewellers and dealers in the world’s second biggest consumer postponed purchases ahead of an expected hike in U.S. interest rates later this week.

A customer tries a gold necklace at a jewellery showroom on the occasion of Dhanteras, a Hindu festival associated with Lakshmi, the goddess of wealth, at a market in Mumbai, November 9, 2015. REUTERS/Shailesh Andrade

Jewellers and dealers are expecting a correction in prices and will start restocking after the Federal Reserve policy meeting on Dec. 15-16, industry officials said. The U.S. central bank is widely expected to raise interest rates for the first time in nearly a decade.

Higher rates could dent demand for non-interest-paying bullion, while boosting the dollar.

Gold has already slid nearly 10 percent for the year, its third straight annual decline, in anticipation of a rate hike.

Dealers were offering a discount of up to $1 an ounce to the global spot benchmark for the first time since Nov. 9. Last week, traders were quoting a premium of up to $1.

“People have funds in banks. They need gold, but they want to see how market reacts to the Fed’s meeting,” said Harshad Ajmera, proprietor of JJ Gold House, a wholesaler in the eastern Indian city of Kolkata.

“Right now even if I offer discount, buyers are not ready to make purchases,” Ajmera said.

Indian prices moved to a premium in the early part of November, after trading at a discount for over two months on weak demand and oversupply.

India’s gold demand in the key December quarter is likely to fall to the lowest level in eight years, industry officials have said.

“In Chennai, business was affected because of flood last week. Now jewellers, dealers are trying to bring down inventory by offering discounts,” said Daman Prakash Rathod, a director at Chennai-based wholesaler MNC Bullion.

Incessant rainfall in India’s fourth most-populous city had cut off more than three million people from basic services and disrupted power supplies earlier this month.

Jewellers usually start restocking after Diwali, the Hindu festival of lights, but this year many have delayed expecting a drop in prices, dealers said.

BofA Merrill Lynch said on Friday it expected gold prices to slide to $950 an ounce early in 2016 due to a possible U.S. rate hike, joining a chorus of other brokerages including Goldman Sachs that have predicted a drop to or below $1,000.

Gold futures in India were trading down 0.9 percent at 25,450 rupees ($379.51) per 10 grams, after hitting a four-year low of 24,451 rupees in late July.

“Even if prices rise after the Fed meeting, jewellers will start purchases. They have to run business,” said a Mumbai-based bullion dealer with a private bank who declined to be named.

($1 = 67.0600 rupees)

Reporting by Rajendra Jadhav; Editing by Biju Dwarakanath