Farmers' gold sales may crimp imports

A farmer works on a sugarcane farm in Junnar, 165 km (104 miles) southeast of Mumbai, August 18, 2009.

MUMBAI (Reuters) - India's scrap gold and silver supplies may receive a boost over the next few weeks as farmers seek to sell trinkets to buy seeds and fertilisers for their kharif crops, potentially crimping demand for imported bars.

Farmers usually sell some gold and silver ornaments ahead of the kharif sowing season to pay for seeds and fertilisers, and the current surge in gold prices has provided an added incentive.

This could lead to a drop in imports of gold bars as the scrap would be melted and made into bars for domestic consumption, traders said. India imported 28.6 tonnes of the yellow metal last May.

"I plan to sell 2 tolas of gold and some 3 tolas of silver before I start sowing maize... I require them to buy fertilisers and other requirements," said Laxmibai Pandurang Karanure, a farmer from Chikkodi in Belgaum district in the southern Indian state of Karnataka.

"Where we have access to banks, gold and silver is all that we have," Karanure, who plans to cultivate corn, sorghum on her 2.5 hectares of land in northern Karnataka, said over the telephone, speaking in Marathi.

Precious metals form a large part of savings in rural India, where more than 60 percent of the population has limited access to banking facilities.

Indian households are said to house 20,000 tonnes of the yellow metal, mainly in the form of jewellery, which they prefer selling in bouts in case of a price rise or to tide over bad times.

A sharp rise in prices of agriculture commodities has prompted farmers to increase yields by using quality seeds and timely use of fertilisers. For this, they will be generating cash by selling precious metals, traders said.

"Now would be the time that farmers will start selling part of their gold as prices have also risen," said Prithviraj Kothari, director with Bombay Bullion Association, which has about 450 members.

Gold prices in India are within striking distance of their all-time high on increased safe-haven appeal of the yellow metal amid the debt crisis in the euro zone.

MCX gold for June delivery was trading at 18,325 rupees per 10 grams ($385.6) on Tuesday, after hitting a record high of 18,424 rupees on May 17. The yellow metal has gained about 10 percent on year-to-date basis.

However, the increased supply will not impact domestic prices, as local prices tend to follow international prices and also the rupee.

"There will be profit-booking from rural India including farmers after hopes of a good monsoon, which may partly meet the outstanding requirements (demand for gold bars)," said Pinakin Vyas, assistant vice-president with IndusInd Bank in Mumbai.

($1 = 47.5250 rupees)

(Editing by Sunil Nair)