Huge demand for India gold as prices stay soft

A model poses with gold jewellery during a jewellery show in Kolkata November 1, 2007.

MUMBAI (Reuters) - India's gold prices eased further on Thursday as weak crude oil eroded the value of the metal as an inflation hedge, and local buyers reacted with heavy purchases, dealers said.

"There is a huge demand... in the last couple of days alone 10 tonnes may have been sold all over India," said Prithviraj Kothari, director of Riddisiddhi Bullions Ltd.

Foreign gold, that guides the local market, rebounded from a two-week low on bargain hunting as crude oil stabilized after steep drops from its all-time highs this month.

Gold generally tracks crude oil as the latter signals inflation, while the metal negates it.

In the local market a stronger rupee made gold softer, keeping it well under the 13,000 rupees per 10 grams mark, perceived as too expensive.

Investors, women and jewellers were thronging Zaveri Bazaar to buy gold, said Jitendra Kantilal of Jugraj Kantilal & Co, a prominent trader in Mumbai's Zaveri Bazaar.

"They are buying coins and bars... mostly 100 gram bars for investment," said Kantilal.

But consumers haven't given up hopes of more dips, said D.P. Naresh, a wholesaler in Bangalore.

"There is a lot of appetite for prices at lower levels," said Naresh. "At $915 an ounce, there would be huge interest."

India's lean season for gold purchases is set to end in another month after which festivals and weddings are expected to spur demand for the yellow metal.

Kothari said the correction had stirred up a little demand for silver also, that up until now had met its demand mostly through cheap recycled supplies.

Following was the price of .995 gold in the spot market in rupees per 10 grams at 1:30 p.m. :

Bank Thursday Wednesday

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HDFC 12,740 12,845

Following are gold prices in rupees per 10 grams on the Multi Commodity Exchange of India Ltd. at 2:25 p.m. :

Contract Current price Net change

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August 12,620 -24

October 12,723 -23