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Mumbai , July 22

WITH agricultural crop prospects brightening, a robust recovery in farm output and higher rural incomes - after a disastrous year of drought - is expected to drive the country's demand for gold up in the coming months.

Although world gold prices are high, the effect of strong prices is somewhat moderated by the gains the rupee has made vis-a-vis the US dollar in recent months.

World gold prices are currently ruling at $340-350 an ounce, up from the average of $310/oz in 2002 and $270/oz in 2001.

However, in the last 16 months, the rupee has appreciated by 4.5 per cent, with more than half the appreciation happening in the last two months.

Under Indian conditions, demand for gold is highly income-elastic and price-elastic.

In particular, the market is sensitive to high prices. Current high prices will no doubt cap the demand growth prospects.

But there are expectations that world prices will ease off by around 10 per cent hopefully by the end of the year.

Together with relatively softer prices, higher farm incomes will generate robust demand for the yellow metal.

India is likely to once again become the centre of attraction for gold producers and suppliers.

A favourable demand growth outlook may provide some support to world prices.

In 2002, gold imports into the country were down some 30 per cent to a little over 400 tonnes because of the combination of high prices and drought-induced reduction in rural incomes.

According to official statistics, the value of gold imports in the 2002-03 fiscal was $3,801 million, representing a fall of 9.2 per cent from $4,185 million in 2001-02.

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