India's gold demand picks up as Diwali coincides with price dip

By Rajendra Jadhav

MUMBAI, Nov 6 (Reuters) - Gold demand in India picked up at the start of a key festival on Friday as prices slid to a seven-month low, drawing back bargain hunters who had stayed on the sidelines for months waiting for a correction.

Robust demand in the world's second-biggest gold consumer could further support global prices , which are trading near their lowest level in one year.

Rising demand for imports of gold could also widen India's trade deficit and put pressure on the rupee.

"Buyers who had been waiting for a price correction finally thronged jewellery showrooms. They seized the opportunity to shop as lower prices coincided with Dhanteras," Surendra Mehta, secretary at the India Bullion and Jewellers Association, said.

"Dhanteras sales this year are expected to rise by around 10% from last year."

Dhanteras, which marks the start of the five-day Diwali festival of lights in much of India, is considered auspicious for buying gold and is one of the busiest gold-buying days in the world's second-biggest consumer of the metal.

Local gold prices were trading around 141,800 rupees per 10 grams on Friday after falling to 137,863 rupees earlier this week, the lowest level since March 24. Prices earlier this year jumped to a record high of 180,779 rupees.

Gold demand in rural areas remained weaker than usual as drought conditions severely affected farmers' purchasing power, said Amit Modak, chief executive of PN Gadgil and Sons, a Pune-based jeweller.

A severe El Niño this year reduced India's monsoon rainfall to nearly 13% below normal levels, marking the lowest rainfall in more than a decade and denting summer-sown crop production and farmers' incomes.

Like last year, many retail buyers preferred gold coins and bars for investment, attracted by the precious metal's strong returns since the previous Dhanteras, said Harshad Ajmera of wholesaler JJ Gold House in Kolkata.