Despite a sharp decline in gold prices, the demand for the metal is expected to touch an eight-year low in the December quarter, as consecutive droughts have hit the income of farmers in rural India.
The yellow metal's demand in the country could drop to 150-175 tonnes in the October-December period, said Bachhraj Bamalwa, a director with the All India Gems & Jewellery Trade Federation.
The demand stood at 201.6 tonnes in the same quarter last year, and the five-year average demand in the quarter is 231 tonnes, according to data from the World Gold Council (WGC).
A third of gold purchases in the country happen in the December quarter due to seasonal demand. With two-thirds of such demand coming from rural areas, a weak monsoon for the second consecutive year due to occurrence of El Nino has weighed on the earnings of farmers, leading to a dip in purchase of gold.
After starting on a promising note in June this year, monsoon rainfall weakened from late July due to the El Nino effect and ended in deficit for the second straight year.
"I incurred huge losses this year as my corn and cotton crops wilted due to drought," Reuters quoted Madhukar Patil, a farmer in the western state of Maharashtra who was planning to buy gold during Diwali, as saying.
The slowdown in demand is likely to halve the country's gold imports in US dollar terms in the quarter, pressuring the metal prices in the overseas markets, as India is the world's second-largest consumer of gold.
"In the first half of November, demand was good due to Diwali, but since then demand has significantly moderated," said Harshad Ajmera, proprietor of JJ Gold House, a wholesale in Kolkata.