>INDIA GOLD IMPORTS SEEN DN 50% IN MAY; HIGH PRICES

Mumbai - India's gold imports in May will fall by nearly 50% on year to around 15 metric tons, as high prices limit local demand, a top industry official said.

The rally in equity markets have also hit investment demand in gold, said Suresh Hundia, president of the Bombay Bullion Association.

Rising stock prices since early March have spooked investment interest in gold in the world's largest market for the yellow metal, he said in an interview.

Gold imports between January and March were only about 10 tons, but shot up in April to 29 tons because of a dip in prices and strong demand during the Akshaya Trithya festival, which Hindu's consider an auspicious time to buy gold.

But "import demand in May has not improved," Hundia said. Part of the reason was the recent strength in gold prices.

"Demand will pick up only if prices fall to around INR14,000/10 grams," Hundia said, adding that level is likely to be reached by May-end.

Currently, gold is trading around INR14,600/10 grams in the local market.

Stronger Rupee To Lower Local Prices

A stronger rupee, which has risen by over 5% against the dollar since April 1, is likely to bring down the local price of gold, Hundia said.

So far, the impact of a stronger local currency has been marginal as gold has risen in the global market in recent weeks.

"Spot gold prices have risen to $960/oz from about $860/oz, so a correction is likely," he said.

"I expect prices to drop to $912/oz to $932/oz by the end of this month. Once that happens, Indian prices will automatically fall to INR14,000/10 grams and local demand will start picking up," Hundia said.

He said he expects the rupee to strengthen further to about 46.00 to a dollar, in the coming weeks. At 0815 GMT, the rupee was trading around 47.65 to a dollar.

India imports more than 90% of the 700 tons to 800 tons of gold sold in the country annually.

Hundia said gold imports in 2009 are likely to be in line with last year's imports of 396 tons.

The chance of an increase in demand looks remote as investment buying in gold has disappeared with few willing to bet on the yellow metal at prices above INR12,000/10 grams.

However, banks in India, which had imported gold in April just ahead of the Akshaya Trithya festival, have been able to sell most of their stocks, Hundia said.

Scrap gold sales are also thin at the moment and volumes are likely to pickup only when prices rise to INR15,000/10 grams, Hundia said.

Source: COMMODITIESCONTROL