Mumbai: India's overseas purchases of gold could halve this month after jumping to the highest level in 11 months in November because retail demand has faltered due to the government's move to scrap high-value currency notes, industry officials told Reuters.
Lower imports by the world's second-biggest consumer of gold could weigh on global prices that are already trading near their lowest level in 10 months, although it would likely help the South Asian country trim its trade deficit.
"In December gold imports could fall below 50 tonnes. Retail demand is very weak due to the cash crunch," Bachhraj Bamalwa, director of the All India Gems and Jewellery Trade Federation, told Reuters.
The November imports jumped to around 100 tonnes, highest since December 2015, Bamalwa said, as people with unaccounted wealth rushed to buy bullion following Prime Minister Narendra Modi's shock withdrawal of Rs 500 and Rs 1,000 banknotes to fight graft and "black money".
The government has also put strict limits on the amount of money people can withdraw from banks, although a larger sum, Rs 2,50,000 rupees, is allowed for weddings — a big driver of demand for gold — as long as participants can prove that the marriage is genuine.
Anticipating curbs on gold imports, banks and other nominated agencies ramped up overseas purchases in mid-November, but demand plunged by the third week of the month due to the shortfall of currency notes, dealers said.
"A significant chunk of November imports are still unsold. Import requirement for December is limited," said Sudheesh Nambiath, a senior analyst at metals consultancy GFMS, a division of Thomson Reuters.
Indian jewellers rely on the wedding season for an uptick in demand during winter months after the end of key festivals such as Diwali. Weddings accounts for more than half of the country's annual demand for gold, according to GFMS.
But the difficulties of getting enough cash have hit wedding demand hard and forced many consumers to exchange old jewellery for new, says Kumar Jain, vice president of the Mumbai Jewellers Association.
"The demand will remain low for the next few months. It will take time to recover."