India's gold demand dips as inflation hits rural buyers

Customers check ornaments at a jewellery showroom during Dhanteras, a Hindu festival associated with Lakshmi, the goddess of wealth, in Mumbai, India November 2, 2021. REUTERS/Niharika Kulkarni/File Photo

MUMBAI, Nov 1 (Reuters) - India's gold consumption in the months of October to December could fall by around a quarter from a year ago as inflation depresses rural demand, the World Gold Council (WGC) said on Tuesday.

The lower purchases in the world's second-biggest gold consumer could weigh on prices , which are trading near their lowest level in more than two-years.

Falling demand for gold imports could also help to narrow India's trade deficit and support the rupee .

Higher inflation is likely to curb rural demand, which was starting to recover from disruption caused by last year's COVID-19-led lockdowns, Somasundaram PR, regional chief executive officer of WGC's Indian operations, told Reuters.

India's annual inflation rate in September remained above 7% and beyond the central bank's tolerance band, raising the chances the central bank will raise rates at the next policy meeting.

Two-thirds of India's gold demand usually comes from rural areas, where jewellery is a traditional store of wealth.

In the December quarter, India's gold demand could fall to around 250 tonnes from 343.9 tonnes a year ago, Somasundaram said.

The drop could bring down India's total gold consumption in 2022 to around 750 tonnes, down 6% from last year's 797.3 tonnes, he said.

India's demand for gold rose 14% from a year ago to 191.7 tonnes in the quarter through September as festivals drove jewellery sales, the WGC said in a report published on Tuesday.

Gold smuggling, which declined in the last two years because of a lack of international flights, has gained momentum since New Delhi in July raised import duty on the precious metal.

"With the total tax of 18.5%, there is lot more propensity to smuggle," Somasundaram said.

Reporting by Rajendra Jadhav; editing by Barbara Lewis

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